Utah court allows evidence of minimum royalty payments by third parties

The District of Utah, in Waterton Polymer Products USA, LLC v. Edizone, LLC, Case No. 2:12-CV-17 TX (Judge Ted Stewart) (Nov. 6, 2014), denied the accused infringer's motion in limine to preclude patentee's introduction of evidence regarding minimum royalty payments by third party licensees of the patentee.

Each of the disputed license agreements were directed to the patent-in-suit and included a percentage-based running royalty and a minimum royalty amount. The accused infringer argued that the minimum royalties were not relevant because the license agreements specifically envisioned active sales and marketing by the licensees, whereas the accused infringer alleged it endeavored not to make sales in the U.S. and made only one such sale.

The court rejected this argument. It reasoned that the licenses to the patent-in-suit "are highly probative and carry considerable weight," and are relevant to the amount and the structure. Slip op. at 5 (citing LaserDynamics, 694 F.3d at 79-80 for the latter proposition). The court found the circumstances similar to the Federal Circuit's decision in Transocean Offshore Deepwater Drillings, Inc. v. Maersk Drillings USA, Inc., 699 F.3d 1340 (Fed. Cir. 2012). There, the patentee's model license agreement included an upfront fee of $15M and a 5% running royalty. Even though the accused infringer had modified the accused drill in a way to avoid the infringement and never actually used an infringing drill, the jury awarded $15M in damages. The Federal Circuit affirmed, noting the existence of the $15M payment in the model license. The patentee also had submitted evidence that it had entered into several deals with such terms. The Utah court quoted a section from the Transocean opinion in which the Federal Circuit observed that even though the defendant had not actually used an infringing drill, the hypothetical negotiation would have taken place at the time infringement began, and in that situation a reasonable jury could conclude that Maersk first infringed by offering an infringing drill, and the parties would have negotiated a license granting the right to offer and to deliver the infringing drill.

The Utah court found Transocean to involve similar facts:

Here, as in Transocean, Plaintiffs rely on the actions (or lack thereof) taken after the infringement began. However, as stated, "the hypothetical negotiation used to calculate a reasonable royalty seeks to determine the terms of the agreement the parties would have reached at the time the infringement began."The license agreements entered into by Defendant in this field of use are highly probative as to that determination, despite the fact that Plaintiffs only engaged in one sale. A reasonable juror could infer that, at the time of the hypothetical negotiation, Plaintiffs would be just as motivated as the other licensees to maximize their sales. Moreover, Plaintiff's argument ignores the fact that the license agreements contain not only minimum royalty provisions, but also royalty provisions tied to actual sales. So, while the licensees undoubtedly anticipated sales, they also agreed to minimum royalty payments even if no sales were made.

Further, as Defendant points out and is emphasized in Transocean, the hypothetical license the parties would have negotiated would not have been limited to sales, but would have also allowed Plaintiff to engage in all other activities that would otherwise infringe Defendant's patents.

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In this case, as discussed, Defendant seeks to rely on license agreements concerning the patents-in-suit, which have been entered into by licensees engaged in the relevant field of use. Those agreements contain minimum royalty provisions and can be considered by the jury in determining a reasonable royalty. Such evidence satisfies the Federal Circuit's requirement that the evidence "be tied to the relevant facts and circumstances of the particular case at issue and the hypothetical negotiations that would have taken place in light of those facts and circumstances at the relevant time."

Slip op. at 7-9 (footnotes and citations omitted).