Two recent district court cases have interpreted certain sections of 35 U.S.C. § 154(d) governing a patentee’s right to a reasonable royalty after publication of a patent application (also known as “provisional rights”). Prior to these cases, few courts had interpreted the liability and damages provisions of 35 U.S.C. § 154(d). According to Section 154(d), a party applying for a patent may obtain a reasonable royalty from any person who, during the period beginning on the date of publication of the application for such patent until the issuance of the patent, makes, uses, offers for sale, or sells in the United States the invention as claimed in the published patent application providing the alleged infringing party had actual notice of the published application, and the invention as claimed in the patent is substantially identical to the invention as claimed in the published patent application. See 35 U.S.C. § 154(d).
On August 8, 2008, the United States District Court for the District of Maryland granted summary judgment denying the patentee any provisional rights in the patent at issue. See Pandora Jewelry, LLC v. Chamilia, LLC, U.S. Dist. LEXIS 61064 (D. Md. August 8, 2008). In Pandora, the court found that even though the defendant was provided with actual notice of the published patent claims, the patentee was not entitled to any provisional rights because the patentee had narrowed the published patent claims for the purpose of overcoming a rejection by the U.S. Patent and Trademark Office (“USPTO”) based on prior art, and at least one of the amended claims, which ultimately issued, was directed to a critical feature of the patentee’s invention. Pandora at *8. The Pandora court cited Federal Circuit precedent that amendments to substantively narrow the scope of a claim violates the “substantially identical” standard for asserting interim rights and that amendments to distinguish a product from the prior art are substantive changes to claim scope. Pandora at *9 (citing Laitram Corp v. NEC Corp., 163 F.3d 1342, 1349 (Fed. Cir. 1998) and Bloom Eng’g Co, Inc. v. North American Mfg. Co., Inc., 129 F.3d 1247, 1251 (Fed. Cir. 1997)).
The Pandora court further noted that even if the narrowing amendments to the claims were found not to be substantive, a separate broadening amendment to the claim that changed the claim in question from its published version of a “necklace device” to a “strand jewelry device” calls into question whether the defendant was provided with actual notice based on the published application since the defendant’s jewelry consisted of only bracelets. Pandora at *9.
On August 4, 2008, the United States District Court for the Northern District of Ohio reconsidered a provisional rights damages award amount based on a reasonable royalty awarded under 35 U.S.C. § 154(d). See Parker-Hannifin Corp. v. Champion Labs, Inc., 2008 U.S. Dist. LEXIS 61108 (N.D. Ohio August 4, 2008). The Parker court noted that the Federal Circuit had previously held that it is wrong as a matter of law to cap reasonable royalty damages at the cost to implement the cheapest available, acceptable, non-infringing alternative. See Mars v. Coin Acceptors, Inc., 527 F.3d 1359, 1373 (Fed. Cir. 2008). In view of the Mars decision, the Parker court reconsidered a previously awarded reasonable royalty rate, and applied the 15-factor reasonable royalty analysis established by Georgia Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D. N.Y. 1970) to determine what royalty rate two hypothetical negotiators would have entered into as of the beginning of the provisional rights period. Parker at *5-6.
Based on its analysis of the Georgia Pacific factors, the Parker court increased the reasonable royalty awarded to the patentee as more factors favored a higher royalty than those that favored a lower royalty rate. Id. at *12. However, while the Parker court stated that the hypothetical negotiation for the reasonable royalty would have been negotiated on the date the patentee’s provisional rights vested under 35 U.S.C. § 154(d), there is virtually no discussion in the factor analysis of the potential impact on the reasonable royalty based on the fact that no patent would have yet been awarded by the USPTO, nor any indication of allowance would have yet been provided by the USPTO at the time of the hypothetical negotiation. See id. at *6-7.
Patent applicants and patent portfolio managers contemplating the scope of potential provisional rights liability and damages should consider the guidance provided by these decisions.