Warsaw Orthopedic, Inc. v. NuVasive, Inc., No. 08-cv-1512 CAB (MDD), slip op. (S.D. Cal. June 10, 2013).
Warsaw Orthopedic teaches us not to plan on a willful infringement windfall from ongoing royalties. The court first held Warsaw to its trial reasonable royalty evidence, then it used the jury’s verdict to cut the amount requested in ongoing royalties. It may not have helped that Warsaw sought substantially more in ongoing royalties than it did at trial based on a mathematical calculation the court described as an “unjustifiable windfall.”
Warsaw sued NuVasive for infringement of patents relating to medical devices and methods, and the jury returned a combined verdict of lost profits and royalties. Id., slip op. at 4. The district court declined to enter a permanent injunction, “giving substantial weight to the public interest factor.” Id., slip op. at 7.
When the parties could not agree on ongoing royalties, the district court considered cross motions of the parties requesting the Court set ongoing royalties for NuVasive’s continued practice of three of Warsaw’s patents. Id., slip op. at 3, 1.
Ultimately, the court decided royalty rates set at 55% of the rates Warsaw sought at trial would reasonably compensate Warsaw for ongoing use of its patents and would provide compensation for NuVasive’s competitive sales. Id., slip op. at 8.
The court considered the following factors in reaching its conclusion:
- At trial, Warsaw sought royalty rates of 15% or 25% (‘973), 15% (‘933), and 15% or 25% (‘586) for the three patents-in-suit. Id., slip op. at 3-4.
- The jury determined reasonable royalty rates on the same patents of 10% (‘973), 3% (‘933), and 2% (‘586). Id., slip op. at 4.
- NuVasive argued the court should adopt the jury’s royalty rates. Id., slip op. at 1.
- Warsaw argued the jury’s rate for ‘973 and ‘933 were inadequate to compensate for continued infringement. Warsaw started with the jury’s award of lost profits and royalties and calculated a royalty rate under each patent if all damages were in the form of royalties. Id., slip op. at 5. Based on that calculation, Warsaw sought royalties of 36% (‘973) and 11% (‘933). Id.
- Note: it is unclear from the opinion why the ‘586 patent dropped out of the picture.
In arriving at an ongoing royalty, the court:
- Agreed with Warsaw that the jury’s royalty rate would not adequately compensate it for future lost profits from NuVasive’s competition. Id.
- Rejected Warsaw’s calculation as an “unjustifiable windfall” based on Warsaw’s own trial testimony. Id., slip op. at 5. At trial, Warsaw’s expert testified Warsaw would have been unwilling to license NuVasive, a competitor, for less than the profits it would be giving up which he calculated at 25% for the ‘973 patent and 15% for the ‘933 patent. Id., slip op. at 6. The court saw this as “significant.” Id., slip op. at 7.
- Concluded that, since Warsaw’s proposed rates at trial assumed the patents were valid and infringed, the jury’s verdict confirming that fact did not materially change the post-verdict hypothetical negotiation over the ongoing royalty. Id., slip op. at 6.
- Saw there was nothing in the post-verdict negotiation not already accounted for in the pre-verdict negotiation. Id., slip op. at 7.
- Found that, although Warsaw argued the infringement post-verdict was willful, denial of a permanent injunction based on the public interest meant NuVasive’s practice of the patents was “with permission.” Id. The denial of the permanent injunction eliminated a “big stick” from the pre-verdict negotiation and, thus, merited a downward adjustment of the post-verdict ongoing royalty. Id., slip op. at 7-8.
- Determined Warsaw’s post-verdict lost profits were substantially less than the amounts it proposed at trial because the jury only returned about 55% of the lost profits Warsaw sought at trial. Id., slip op. at 8.
Based on the foregoing, the court determined Warsaw was entitled to 55% of the royalty rates it sought at trial 13.75% (‘973) and 8.25% (‘933).