What Hath the SCOTUS Wrought? Willful Infringement In a Post-Ebay World

In the case of Paice LLC v. Toyota Motor Corporation, the E.D. Texas found that Toyota infringed Paice's patent. Since Ebay, permanent injunctions are no longer granted as a matter of course, and the district courts must use the four-factor test to determine a proper equitable remedy.

In Paice, the district court decided that, since Paice did not produce products that competed with Toyota, an injunction was not an appropriate remedy. Instead, the court ordered that each future sale of a subject vehicle by Toyota would require a $25 per vehicle royalty to Paice. This number was based off of a reasonable royalty that the jury determined would have been agreed upon by the parties in a hypothetical negotiation at a time just prior to first infringement.

The problem here is that the Ebay court provided no guidance on what types of remedies are appropriate for the court to consider, and how the remedies are applied.

According to Paice, the reasonable royalty may have been acceptable for "regular" infringement, but it is not appropriate for ongoing, post-verdict, infringement. Since the district court's royalty is tantamount to a compulsory license, Paice argues that such a remedy is contrary to judicial precedence and 35 U.S.C. § 283. Also, Paice argues that since a compulsory license relates to damages, Paice is entitled to a jury trial under the 7th Amendment to determine the appropriate number for future damages:

Toyota erroneously asserts that once Paice made a request for equitable relief, the district court was free to fashion any remedy it chooses, including entry of a compulsory license for future infringement . . . If this position were correct, there would be no limitation on the remedies available because virtually all patent cases include a request for some equitable remedy. The right to a damages trial before a jury would not exist, and yet the law is clear that the Seventh Amendment requires that a district court submit damages to a jury.

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Toyota's argument assumes that Paice is only entitled to the same reasonable royalty rate the jury calculated for past damages. That amount is what the jury found a willing licensor and willing licensee would have agreed upon in a hypothetical negotiation from the time infringement began to trial . . . It cannot, and should not, be used for calculating a future royalty rate in a prospective compulsory license. This standard fails to take into account the potential for future lost profits, loss of potential value in granting an exclusive license, and the ongoing willful infringement that would occur by Toyota. Though an injunction has not been entered, Toyota's decision to commit ongoing willful infringement of a valid United States patent, because it is so essential to the success of its product, should be considered in setting a royalty rate. A district court may find that it should not permanently enjoin an adjudged infringer from selling infringing goods. However, the infringer should still have to account for its choice to continue willfully infringing if it chooses to do so.

In response, Toyota argues that the license was appropriate under section 283, which authorizes courts to award patentees prospective injunctive relief "in accordance with the principles of equity . . ., on such terms as the court deems reasonable." Since the equitable jurisdiction of the court was properly invoked for injunctive purposes, "[t]he court has the power to decide all relevant matters in dispute and to award complete relief even though the decree includes that which might be conferred by a court of law [i.e., monetary damages]."

Because the prospective damages were awarded as part of the equitable jurisdiction of the court, Toyota argues that Paice is not entitled to a jury trial.

Oral Arguments are scheduled for May 7, 2007 (2006-1610)

See Paice's Brief here.

See Toyota's Brief here.