Douglas Dynamics, LLC v. Buyers Products Co., Nos. 2011-1291; 2012-1046, 1057, 1087, 1088, 2013 WL 2158423 (Fed. Cir. May 21, 2013).
Confirming a long-standing rule, Federal Circuit Chief Judge Rader decided the district court clearly erred when it left room for the infringer to make a profit at its current prices. Id. at *7. This is no surprise, but worth keeping in mind as limitations on damages continue to mount.
Chief Judge Rader also concluded “the district court abused its discretion by applying the infamous 25% rule of thumb, which this court held in Uniloc was fundamentally flawed.” Id. Chief Judge Rader seems to be altering course a bit from Energy Transportation Group Inc. v. William Demant Holding A/A, WDH Inc., 697 F.3d 1342, 1356 (Fed. Cir. 2012), where he authored the opinion. Rejecting a challenge to use of the 25% rule of thumb, he concluded, “In this case, however, [the damages expert’s] references to the 25 percent ‘rule’ (which is no longer a ‘rule’) did not irretrievably damage the reasonableness of his method and result in arriving at recommended royalty rates.” (emphasis added).
Plaintiff sued alleging infringement of three patents. The district court construed the patent claims and granted summary judgment of non-infringement as to one patent. A jury found the other patents to be valid and infringed. The district court denied Plaintiff’s application for a permanent injunction and assigned an ongoing royalty. Douglas Dynamics, LLC v. Buyers Products Co., 2013 WL 2158423 at *1.
The Federal Circuit reversed the summary judgment of non-infringement and the denial of a permanent injunction, ordering the entry of a permanent injunction. Id. As to the reasonable royalty award, the Federal Circuit vacated and remanded, saying:
- The district court abused its discretion when it applied the “infamous” 25% rule of thumb. Id. at *7.
- The district court clearly erred by limiting the royalty rate based on Defendant’s profit margins. An infringer’s net profit margin is not the ceiling by which a reasonable royalty is capped. The district should not have ensured that the royalty rate it awarded would “leave some room for profit” by the Defendant. Id.