Patentee’s profit in the face of infringement does not prevent permanent injunction; “25% rule of thumb” and profit-margin ceilings for royalties again rejected.

Douglas Dynamics, LLC v. Buyers Product Company, 2011-1291, 2012-1046, -1057, -1087, -1088 (Fed. Cir. May 21, 2013).

A jury found patents for component parts valid and infringed, but the district court denied permanent injunction. It reasoned that the patentee suffered no irreparable harm because its market share had increased 1 percent, and because the infringer’s less expensive product was not confused with the patentee’s product and was unlikely to be a substitute. In awarding royalties, the court applied the “25% rule of thumb” and also capped the rate based on the infringer’s net profit margins. 

The Federal Circuit reversed on both issues, ordering the district court to enter a permanent injunction, and remanding the royalty reward for recalculation. It held that a patentee’s profit in the face of infringing competition does not automatically rebut a case for irreparable injury. A maker of a high-end product that tends not to directly compete with a low-end version is still harmed by loss of distinctiveness and market lure when low-end manufacturers can advertise “similar features,” which infringe on the high-end manufacturer’s proprietary technology. Because the patentee had a reputation as an innovator and had maintained exclusivity of its innovations, it would suffer irreparable harm if forced to compete against products that incorporate its own patented inventions.

Regarding the calculation of royalty rates, the Federal Circuit reaffirmed its decisions in Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011), rejecting the “25% rule of thumb,” and in Golight, Inc. v. Wal-Mart Stores, Inc., 355 F.3d 1327, 1338 (Fed. Cir. 2004), rejecting the limitation of royalty rates based on infringers’ profit margins. The court held that the infringer’s selling price can be raised if necessary to accommodate a higher royalty rate, and that requiring the infringer to do so may be the only way to adequately compensate the patentee for the use of its technology.

A copy of the opinion can be found here