A District of Minnesota court ruled late last week that “post-hypothetical negotiation information regarding the amount of money spent to investigate and defend the ability to continue to market the accused product without obtaining a license is relevant to the calculation of a reasonable royalty and may be presented to the jury.” Ecolab USA Inc. and Kleancheck Systems, LLC v. Diversey, Inc., Case No. 12-CV-1984 (SRN/FLN), Doc. No. 368, slip op. at 20-22 (D. Minn. May 15, 2015) (Nelson, J.). The court considered, but rejected, Diversey’s arguments that comparisons of the expert’s reasonable royalty calculation to the amounts Diversey paid to opinion counsel, its experts, and litigation counsel are irrelevant and confusing to the issue of a reasonable royalty.
The court reasoned that if other post-hypothetical negotiation information “such as the profitability of the accused device and the extent of the alleged infringer’s sales of the accused product are relevant to the calculation of a reasonable royalty” so too is the amount the accused infringer is willing to spend to investigate claims of infringement and protect its ability to continue marketing the accused product. Id. The court found support for this proposition in Georgia-Pacific factor 15:
The amount that a licensor (such as the patentee) and a licensee (such as the infringer) would have agreed upon (at the time the infringement began) if both had been reasonably and voluntarily trying to reach an agreement; that is, the amount which a prudent licensee—who desired, as a business proposition, to obtain a license to manufacture and sell a particular article embodying the patented invention—would have been willing to pay as a royalty and yet be able to make a reasonable profit and which amount would have been acceptable by a prudent patentee who was willing to grant a license. Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1120, 1120 (S.D.N.Y. 1970).
Courts typically apply factor 15 to establish the framework for the hypothetical negotiation used to determine a reasonable royalty. Under this framework, the hypothetical negotiation occurs at the time infringement began and the patentee and the accused infringer would have been reasonably and voluntarily trying to reach an agreement at that time. As a result, the court’s application of factor 15 in Ecolab USA Inc. and Kleancheck Systems, LLC v. Diversey, Inc. is noteworthy.