The district court awarded $10,800 in damages for infringement, which was calculated as an 8% royalty applied to the infringer’s net profits.  The court held that such use of the infringer’s net profits to calculate the reasonable royalty was erroneous.  In a hypothetical negotiation, the core economic question is “what the infringer, in a hypothetical pre-infringement negotiation under hypothetical conditions, would have anticipated the profit-making potential of use of the patented technology to be, compared to using non-infringing alternatives.”  The hypothetical negotiation does not consider the particular infringer’s degree of efficiency; therefore an inefficient infringer is not entitled to a lower royalty rate than an efficient infringer.  The consideration of the hypothetical negotiation concerns many variables, including costs and availability of non-infringing alternatives, the patented technology’s role in the firm’s (expected) overall business, and the (expected) actions of competing firms in the market.  Further, it was incorrect for the district court to have assumed that any royalty paid would have reduced the infringer’s profits, dollar for dollar, because it may have been true that then infringer could have raised its prices to account for a royalty payment. 

The district court further erred in holding that there was no willful infringement based solely on the fact that the request for a preliminary injunction had been rejected.  Here, the basis for rejecting the preliminary injunction was based on personal jurisdiction and the patentee’s lack of knowledge of the accused devices, neither of which were relevant to the merits of infringement and validity.  The court remanded for further findings based on whether the accused infringer’s defenses, “as ultimately presented to the court,” were reasonable, and suggesting to the court that they were not.  

Aqua Shield v. Inter Pool Cover Team, Case No. 2014-1263 (December 22, 2014); Opinion by: Taranto, joined by Wallach and Chen; Appealed From: District of Utah, Stewart, J.  To read the full opinion, please click here.

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