Thursday, May 14, 2009

District Court Lets 24% Royalty Stand In Damage Calculations

Wyers v. Master Lock Co., 1-06-cv-00619 (COD May 12, 2009, Order)

Plaintiff successfully asserted that Master Lock infringed four patents relating to barbell-shaped locks with removable sleeves, and the jury awarded $5.35M in damages as a reasonable royalty. Master Lock motioned the court for Remittitur, arguing that the jury misapplied the Georgia-Pacific factors.

One issue was that the damage amount appeared to have been reached by awarding Wyers approximately half of the profits they would have received had Master Lock sold the offending locks under the private label agreement they formerly had with Wyers. Despite this, the court viewed that plaintiff's substantial evidence (e.g., reliance on the patented features, non-infringing alternatives, commercial success, etc.) was sufficient to support the jury’s verdict.

Master Lock also argued that $5.35 million—which represented 24% of Master Lock’s
proceeds from the sales of the infringing locks—exceeded its profit margin of 15%. Here, the court responded that,

At trial, [] Wyers presented evidence showing Master Lock’s profits were closer to 60%—a number similar to Wyers’s own profits. As shown by the $5.35 million amount, the jury implicitly found the actual profit margin to be higher than the 15% claimed by Master Lock. The jury was not obligated to believe Master Lock’s expert any more that it was obligated to believe Mr. Wyers. It would be inappropriate, therefore, to override the jury’s verdict based on such a credibility question. The jury could reasonably conclude hypothetical parties in the position of Wyers and Master Lock would negotiate a royalty of 24% in light of an anticipated 60% profit margin. See Rite-Hite Corp. v. Kelley Co., 56 F.3d 1539, 1555 (Fed. Cir. 1995) (holding it was “not unreasonable for the district court to find that an unwilling patentee would
only license for one-half of its expected lost profits and that such an amount was a reasonable royalty”).

Also, Master Lock argued a "damage apportionment" theory that the jury failed to discount the value of the non-patented features of the accused locks. Again, the court sided with the plaintiff:
As noted by Wyers, however, Federal Circuit authority holds that—for purposes of calculating a reasonable royalty—a patentee may recover a royalty based on the value of the entire infringing apparatus so long as the patented feature provides the basis for consumer demand. See Rite-Hite, 56 F.3d at 1549. Evidence presented at trial—including Master Lock’s marketing materials, product packaging, and sales figures, as well as Mr. Wyers’s testimony—showed the sleeve and external seal drove the market demand for the hitch pin locks Master Lock sold. Although Master Lock presented testimony suggesting that customer service, quality, and brand recognition were more important to driving sales than the claimed inventions, the jury was not obligated to find this testimony persuasive over the documentary evidence or Mr. Wyers’s testimony.

Motion for Remittitur denied.

Download the opinion here (link)

(Source: Docket Navigator)

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