No Requirement That a Reasonable Royalty Leave Room for Profit on Sales During Infringement

Aqua Shield v. Inter Pool Cover Team, ___F.3d ___  (Fed. Cir. Dec. 22, 2014) (Wallach, TARANTO, Chen) (D. Utah: Stewart) (2 of 5 stars)

Federal Circuit vacates royalty computation, finding of no willful infringement, and denial of enhanced damages and fees. Federal Circuit also affirms decision not to include in damages computation a product not specifically found to infringe, and remands.

Royalty: In computing reasonable royalty, the district court erred by presuming that the value of the royalty must not match or exceed the infringer's profits during the period of infringement. While "actual profits earned during the period of infringement can be relevant," the district court could consider such profits only in an "indirect and limited way." Slip op. at 6-7. The hypothetical-negotiation analysis is forward-looking from a date just before the start of infringement, and is not backward-looking after the infringement has already occurred. Evidence of the infringer's actual profits may be probative of profits it expected to make at the time of the hypothetical negotiation, but the actual profits are not a cap to liability. In other words, the reasonable royalty does not have to "leave some room for profit" for the infringer. The district court further failed to consider that the infringer's actual profits were based on prices reflecting no royalty obligation. Had the parties negotiated a royalty prior to infringement, the infringer might have charged higher prices, thus changing its profit structure.

Willfulness & Fee-Shifting: The district court also erred in not conforming its willfulness analysis to Seagate's two-part test. For pre-summary judgment infringement, the fact that a separate court had denied a preliminary injunction did not resolve the willfulness issue because the injunction was denied for lack of personal jurisdiction and for insufficiencies in fact development. For post-summary judgment infringement, the district court never determined whether the infringer's design-around actually avoided infringement or whether it was implemented.

Damages Base: The Federal Circuit affirmed the district court's decision not to include sales of a certain accused product model in the damages base, because the patentee failed to prove that the model actually infringed.