Willful Infringer Is Not Entitled to a Reasonable Profit from Future Infringing Sales—Ongoing Royalty Rate May Substantially Exceed Past Infringement Royalty Rate

Authored by D. Brian Kacedon, John C. Paul, and David C. Seastrunk

Abstract

A Florida court awarded an ongoing royalty rate for future infringement that was twice the royalty rate awarded by the jury for past infringement and noted that an ongoing infringer should not expect an ongoing royalty rate to be set low simply to allow the infringer to make a reasonable profit.

A court will only enjoin infringers from continuing to sell infringing projects if the patent owners can show, among other things, they have been irreparably harmed by the infringement. Therefore, in many cases, after a final verdict finding a patent valid and infringed, infringers can continue selling infringing products if they pay an ongoing royalty for the infringing products. Recently, in Arctic Cat Inc. v. Bombardier Recreational Products, Inc., after a final judgment of infringement, the court determined the amount of the ongoing royalty rate was twice the royalty rate awarded by the jury for past infringement.

Background

Arctic Cat brought a patent suit against Bombardier in the Southern District of Florida alleging infringement of patents related to steering technology for jet propulsion personal watercraft. After prevailing at trial, Arctic Cat filed post-trial motions for supplemental damages, post-judgment ongoing royalty, and periodic accounting through the expiration the patents. The court issued an order awarding nearly $1.5 million in supplemental damages. The court also determined that because Bombardier planned to continue to manufacturing and selling infringing personal watercrafts incorporating Arctic Cat’s patented steering technology, Artic Cat was entitled to an ongoing royalty. The court ordered the parties to negotiate an appropriate ongoing royalty rate, setting the floor for negotiations at $102.54 per unit (equal to the reasonable royalty rate determined by the jury for past damages). Because the parties could not agree to an ongoing royalty rate in mediation, the court was required to determine the appropriate ongoing royalty. Arctic Cat argued that the ongoing royalty rate should be equal to the profit that Bombardier derives from each of the infringing product sales, which it calculated to be $205.08 per infringing unit. Bombardier argued that the original royalty rate determined by the jury was appropriate, and that a willful infringer should be entitled to derive a profit from its post-judgment infringing sales, and that Arctic Cat’s proposed rate would foreclose Bombardier from making any profit.

The Arctic Cat Decision

In determining an appropriate ongoing royalty for future sales, courts often use the jury’s damages award for past damages as a starting point and then account for any changes in the parties’ bargaining positions and resulting changes in economic circumstances after the verdict. In the Arctic Cat case, the court considered the Georgia Pacific factors—a well-known set of 16 factors used by courts to determine reasonable royalty damages, and ultimately determined that Arctic Cat’s requested ongoing royalty of twice the amount determined by the jury ($205.08 per unit) was appropriate. Many Georgia Pacific factors favored Arctic Cat, such as its better bargaining position after the verdict (Georgia Pacific factor 5), royalty award received (Georgia Pacific factor 11), commercial success of its steering device (Georgia Pacific factor 8), and Bombardier’s failure to utilize its non-infringing alternative (Georgia Pacific factor 9). The court rejected Bombardier’s argument that it should be entitled to make a reasonable profit. It noted the purpose of an ongoing royalty is to reduce a party’s incentive to infringe, and in any event, Bombardier was in a position to set prices for its products and free to pass any increased costs to the consumer.

Strategy and Conclusion

This case shows that an ongoing infringer should not expect an ongoing royalty rate to be set low simply to allow the infringer to make a reasonable profit, and that the ongoing royalty rate for future infringement may substantially exceed the royalty rate for past infringement determined by the jury.

Further Information

The Arctic Cat opinion can be found here.