XY v. Trans Ova Genetics was decided on May 23, 2018 on appeal from the District of Colorado. Plaintiff XY sued defendant Trans Ova for patent infringement and breach of contract. The jury found that Trans Ova breached the contract and willfully infringed XY’s patent, and awarded XY $4,585,000 for the infringement. After trial, the district court denied all of Trans Ova’s requested relief on the antitrust, breach of contract, and invalidity. The district court also declined to enhance damages despite the jury finding of willfulness, and granted XY’s request for an ongoing royalty. Both parties appealed.
The Federal Circuit affirmed the antitrust judgment, affirmed the breach of contract judgment, affirmed the invalidity judgment, affirmed the willfulness judgment, vacated the district court’s ongoing royalty rate, and remanded.
Trans Ova’s appeal of the district court willfulness finding was moot because the district court did not enhance damages, and XY did not appeal the denial of enhanced damages.
The district court erred in selecting the rate for an ongoing royalty. “[W]hen calculating an ongoing royalty rate, the district court should consider the change in the parties’ bargaining positions, and the resulting change in economic circumstances, resulting from the determination of liability.” This is because “an ongoing royalty effectively serves as a replacement for whatever reasonable royalty a later jury would have calculated in a suit to compensate the patentee for future infringement.” “The later jury would necessarily be focused on what a hypothetical negotiation would look like after the prior infringement verdict. Therefore, post-verdict factors should drive the ongoing royalty rate calculation in determining whether such a rate should be different from the jury’s rate.”
The district court erred by focusing on “pre-verdict factors that were either irrelevant or less relevant than post-verdict factors.” “[T]he district court awarded an ongoing royalty [of 12.5%] based on an average between the jury’s reasonable royalty for past infringement (15%) and the rate established in the parties’ pre-suit license Agreement (10%).” (parenthesis in original). It was error to consider the pre-suit licensing rate in determining the ongoing royalty rate. First, the pre-suit licensing rate “had already been considered by the jury when it found that a higher rate of 15% was warranted for assessing damages.… To incorporate the license rate a second time in the context of the ongoing rate essentially amounts to undoing a jury finding.” Second, the pre-suit licensing rate “was arrived at in the context of the parties’ pre-suit bargaining positions.” The rate is thus not relevant to evaluating the ongoing royalty rate, which is based on a hypothetical negotiation postdating the infringement verdict.
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As such, the district court “provided no reasoned basis for lowering the royalty XY could recover for future infringement from the rate the jury provided for past infringement.” The focus of the inquiry “should have been on XY’s improved bargaining position and any other changed economic factors … rather than XY’s past acts.” The Federal Circuit thus vacated the ongoing royalty rate and remanded.
Judge Newman dissented as to the invalidity of certain claims.
XY, LLC v. Trans Ova Genetics, L.C., 890 F.3d 1282 (Fed. Cir. 2018)