Section 283 of the Patent Act provides that courts “may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable.” There are several types of relief for ongoing infringement that a court can consider: “(1) it can grant an injunction; (2) it can order the parties to attempt to negotiate terms for future use of the invention; (3) it can grant an ongoing royalty; or (4) it can exercise its discretion to conclude that no forward-looking relief is appropriate in the circumstances.” Whitserve v. Computer Packages. The Federal Circuit has interpreted 35 U.S.C. §283 “to permit a court to award an ongoing royalty for patent infringement in lieu of an injunction barring the infringing conduct.” Prism v. Sprint.
“If the district court determines that a permanent injunction is not warranted, the district court may, and is encouraged, to allow the parties to negotiate a license.” Telcordia v. Cisco. The district court may step in to assess a reasonable royalty should the parties fail to come to an agreement. Id. An ongoing royalty may cover “products that were actually found to infringe and products that are not colorably different.” SRI v. Cisco. There is no Seventh Amendment right to a jury trial to determine the ongoing royalty rate. Paice v. Toyota. And district court’s grant or denial of an ongoing royalty is reviewed for abuse of discretion. SRI.
The ongoing royalty rate. “[T]he district court must explain the reasoning in establishing the appropriate royalty rate.” Bard v. W.L. Gore (affirming ongoing royalty “as described in thorough and well-reasoned orders”). The ongoing royalty rate is based on the economic circumstances of the parties. The rate may be higher than the adjudicated jury rate. See, e.g., Artic Cat v. Bombadier (affirming ongoing royalty where “[t]he district court weighed the relevant Georgia–Pacific factors and determined that Arctic Cat is entitled to an ongoing royalty amount higher than the jury rate”). A district court may also “award a lower ongoing royalty rate if economic factors have changed in the infringer’s favor post-verdict—for example, if a newly-developed non-infringing alternative takes market share from the patented products.” XY v. Transova. It is an abuse of discretion for the district court to provide an insufficient explanation for its ongoing royalty determination. See, e.g., Paice (vacating district court’s order that “provide[d] no reasoning to support the selection” of the ongoing royalty rate); Whitserve (“While a trial court is not required to grant a compulsory license even when an injunction is denied, the court must adequately explain why it chooses to deny this alternative relief when it does so.”).
Post-verdict hypothetical negotiation. “Ongoing royalties may be based on a post-judgment hypothetical negotiation using the Georgia–Pacific factors.” Arctic Cat. There is, however, “a fundamental difference between a reasonable royalty for pre-verdict infringement and damages for post-verdict infringement.” Transova. “When patent claims are held to be not invalid and infringed, this amounts to a substantial shift in the bargaining position of the parties.” Id. Therefore, post-verdict economic factors, not pre-verdict factors, should drive the ongoing royalty rate calculation in determining whether such a rate should be different from the jury’s rate. Id. (vacating ongoing royalty that was lower than the jury’s royalty rate where the district court “focused on pre-verdict factors that were either irrelevant or less relevant than post-verdict factors”).
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The infringer’s profit margin. An infringer’s net profit margin is not the ceiling by which a reasonable royalty is capped. Douglas Dynamics v. Buyers (“[T]he district court clearly erred by ensuring the ongoing royalty rate it awarded would leave some room for profit by Buyers at its current prices.”); see also, Aqua Shield v. Inter Pool Cover Team. “The infringer’s selling price can be raised if necessary to accommodate a higher royalty rate, and indeed, requiring the infringer to do so may be the only way to adequately compensate the patentee for the use of its technology.” Douglas Dynamics.
Limitations. There are some notable limitations to an ongoing royalty rate. The awarded rate may not include a lost profits component. Warsaw v. NuVasive (vacating ongoing royalty award because it “impermissibly includes a lost profits component”). Moreover, an ongoing royalty is not available where “the jury award compensated [the plaintiff] for both past and future infringement through the life of the patent.” Summit 6 v. Samsung (affirming denial of an ongoing royalty in light of the jury’s lump-sum award); see also, Prism (affirming denial of ongoing royalties because “the evidence …is consistent with the district court’s finding that the jury awarded damages for past, present, and future infringement.”).
Laches and Estoppel. “[W]hile the principles of equity apply, equity normally dictates that courts award ongoing royalties, despite laches.” SCA Hygiene v. First Quality (vacated on other grounds). “[D]elay in exercising a patent right, without more, does not mean that the patentee has abandoned its right to its invention. Rather, the patentee has abandoned its right to collect damages during the delay.” Id. Thus, “absent egregious circumstances, when injunctive relief is inappropriate, the patentee remains entitled to an ongoing royalty.” Id. Estoppel, however, precludes an ongoing royalty. Id.