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Court Doubles On-Going Royalty Rate Based on Finding of Willful Infringement

LES Insights
January 17, 2012

Paul, John C., Kacedon, D. Brian , Ra Jr., Andrew J.

Article

Authored by D. Brian Kacedon, John C. Paul, and Andrew J. Ra Jr.

In a successful infringement lawsuit, patent owners may recover damages from an infringer in the form of lost profits or a reasonable royalty. In order to calculate a reasonable royalty, courts postulate a hypothetical negotiation between a willing licensor and licensee at the time the infringement commenced. While engaging in this hypothetical negotiation, courts consider a number of different factors (known as the Georgia-Pacific factors) to determine the appropriate reasonable royalty.

Since the Supreme Court's decision eBay Inc. v. MercExchange, L.L.C. made obtaining an injunction after a finding of infringement more difficult, courts are now faced with the possibility of having to make another royalty determination as well. Specifically, many courts have awarded an ongoing royalty in lieu of a permanent injunction for post-judgment infringement. Given the recent change in the law, however, the factors in determining the on-going royalty are not as well-developed as those for determining a reasonable royalty pre-judgment.

The U.S. District Court for the Eastern District of Texas recently addressed this issue in Mondis Tech. Ltd. v. Chimei Innolux Corp., No. 2:11-cv-378-TJW-CE (E.D. Tex. Sept. 30, 2011).1 After a jury found that the defendant infringed and awarded damages to plaintiff, the court found that defendant's continued infringement was willful and that enhancement of the royalty rate was warranted.

The Mondis Decision

In this case, Mondis Technology Ltd.'s ("Mondis") sued Chimei-InnoLux Corp. and InnoLux Corp. (collectively "InnoLux") for infringement of its patents relating to monitors and televisions. After trial, the jury concluded that InnoLux infringed Mondis' patents and awarded Mondis $15 million in damages by applying a royalty rate of 0.5% for monitors and 0.75% for televisions sold by InnoLux during the infringement period. Mondis then moved for supplemental damages for: (1) sales that occurred in the first two quarters of 2011 and (2) for an ongoing royalty for monitors sold in the future.

On the first issue, the court concluded that Mondis was entitled to damages for those sales of monitors and televisions that occurred in 2011 at the same royalty rate of 0.5% and 0.75%, respectively. Because the sales figures for 2011 were not before the jury, the court awarded Mondis additional damages for those sales.

On the second issue, the court first noted that there was no particular standard for calculating an ongoing royalty rate. Based on Federal Circuit precedent, the court determined that it should first determine the post-judgment reasonable royalty rate by using the Georgia-Pacific factors with the jury's verdict as a starting point. Because the hypothetical negotiation date used to determine the jury's royalty rate occurred in 2005, the court examined the factors to determine if any changes had occurred for a hypothetical negotiation in 2011 at the time of the jury verdict. It found that increased commercial success in 2011 as compared to 2005 warranted a slight increase in the royalty rate for monitors from 0.5% to 0.75%.

The court then examined whether InnoLux's ongoing infringement was willful. The court rejected InnoLux's arguments that its continued infringement should not be considered willful and objectively reckless because it had not exhausted its appellate rights. First, the court found that it was not in the proper position to evaluate InnoLux's appellate position. And, even if it could, it believed that InnoLux's position was without merit. The court also agreed with the holding of another district court that found that continuing to infringe in light of an infringement verdict was willful even before appeal. Thus, the court concluded that InnoLux's continued infringement was willful and objectively reckless.

The court then considered how much enhancement was warranted by the finding of willful infringement. It found that two factors—the infringer's investigation and good-faith belief of invalidity or non-infringement and closeness of the case—favored enhancement. In addition to the multi-factor test, the court also considered InnoLux's corporate attitude which was reflected by a statement made by its CEO's after trial that said in part: "[t]he issue of patent infringement is taken too seriously sometimes." The court found that the statement was "an affront to the United States patent system" and showed "InnoLux's lack of respect for this Court and the jury's verdict." As a result, the court found that strong enhancement was warranted and doubled the royalty rate for monitors from 0.75% to 1.5%.

Strategy and Conclusion

The Mondis decision highlights the fact that courts will consider other, non-quantitative factors when determining the amount to enhance the royalty due to willfulness. Due to the corporate attitude reflected by the CEO's statement, the court determined that InnoLux's conduct was particularly egregious and it doubled the royalty rate. Litigants should be aware that corporate attitudes and statements by senior executives may have a bearing on the determination of the royalty rate.

Endnotes

1 The Mondis decision: http://docs.justia.com/cases/federal/district-courts/texas/txedce/2:2011cv00378/132030/11/.

Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.