“[G]iven the contentious history between [the] two parties,” the U.S. Court of Appeals for the Federal Circuit found that a 29.2 percent royalty rate for infringement was reasonable and was not an abuse of discretion by the district court or based on clear error. Mitutoyo Corp. v. Central Purchasing LLC, Case Nos. 06-1312, -1343 (Fed. Cir., Sept. 5, 2007) (Mayer, J.).

Mitutoyo owns a patent directed to an electronic caliper. A 1994 settlement agreement between Mitutoyo and Central Purchasing resolved a 1992 patent infringement dispute involving the patent and provided that Central would refrain from any future importation or sale of infringing products. In 1995, Central unsuccessfully sought a declaratory judgment that the subject patent was invalid and unenforceable. Notwithstanding the settlement agreement and the failed declaratory judgment action, Central later began selling digital calipers. In 2003, Mitutoyo sued for infringement. The district court issued a summary judgment of infringement, which was based on a stipulated claim construction, and granted Mitutoyo damages based on a 29.2 percent royalty rate. Central appealed.

The Federal Circuit upheld the infringement finding but reviewed the court’s damages findings. The Federal Circuit agreed with the district court that Mitutoyo failed to establish a market overlap between Central’s calipers and Mitutoyo’s calipers and, consequently, Mitutoyo was not entitled to lost profits. The district court also found that Central’s profit margin was 70 percent and that Mitutoyo’s profit margin was 29.2 percent, and imposed a 29.2 percent royalty rate. The Federal Circuit found this to be a reasonable royalty rate and disregarded Central’s arguments that the district court should have placed more emphasis on facts favoring a lower royalty rate, including figures other than profit margins. In support of its conclusion, the Court stated that the profit margins and the history of the two parties suggest that “it is unlikely that [patent owner] Mitutoyo would have been interested in less than a 29.2% rate.” However, the Court reversed the portion of district court’s damages award, finding clear error in the lower court’s inclusion of such sales in the royalty base.

Finally, the Federal Circuit disagreed with the district court’s dismissal of Mitutoyo’s willful infringement claim, finding that Central had knowledge of the patent at least as early as the 1995 declaratory judgment action. The Federal Circuit thus reinstated the willful infringement claim and remanded the matter to the district court try the claim.