Prejudgment interest is a form of compensatory damages; therefore, a settlement agreement limiting the amount of “actual damages” precludes an additional award of interest where not explicitly provided for.

The patentee sued for infringement of its pharmaceutical patent under the Hatch-Waxman Act, and the accused infringer counterclaimed seeking declarations of invalidity and unenforceability. While litigation was pending, the parties reached a settlement agreement setting actual damages at 50 percent of net sales of the infringing product. The district court ruled that the patent was both valid and enforceable, and awarded the patentee the agreed upon actual damages plus an additional award of prejudgment interest. The accused infringer appealed this award of interest, as well as the district court’s denial of its motion for leave to file a supplemental answer, affirmative defenses, and counterclaims. The Federal Circuit reversed the district court’s grant of prejudgment interest, but affirmed its denial of leave to file supplemental claims, defenses, or pleadings.

Although the general rule is that prejudgment interest should be awarded in patent cases, the terms of an agreement between the parties take precedence. Because contract interpretation is not an issue unique to patent cases, the court applied the law of the regional Second Circuit and reviewed the district court’s construction de novo, as a matter of law. The disputed point of law was whether or not prejudgment interest is a distinct form of recovery.

The Federal Circuit held that prejudgment interest is an element of compensatory damages, and therefore the district court erred by treating interest as a separate category of recovery and awarding it in addition to the agreed upon “actual damages.” Judge Newman, dissenting in part, agreed with the district court that prejudgment interest should be distinguished from both compensatory and punitive damages, and therefore the background rule was not altered by an agreement limiting compensatory damages and prohibiting punitive damages but not explicitly addressing interest.

In addition, the Federal Circuit affirmed the district court’s rejection of the accused infringer’s proposed patent misuse defense as futile. It held that the patentee’s failure to comply with a statutory disclosure obligation relating to the settlement agreement, while reprehensible, was not grounds for a claim of patent misuse because it in no way broadened the scope of the patent grant.

A copy of the opinion can be found here.