EdTX Judge Says: Litigate Future Royalties as Part of Trial

by Lee Gesmer on September 4, 2008

We’ve been following the lower courts’ interpretation and application of eBay v. MercExchange since the case was decided by the Supreme Court in May 2006. In eBay the Court held that post-judgment injunctions were not “automatic” for successful patent plaintiffs, but rather that the trial court had to apply the traditional equitable test to determine whether an injunction or ongoing royalties were the appropriate remedy.

In June I gave a presentation at Massachusetts Continuing Legal Education on developments in this area in the two years since the decision. (Warning – the Powerpoint won’t make a lot of sense without the voice-over, but it gives some idea of the landscape).

As I discussed then, a constellation of issues was forming around the question of how to assess future royalties if it is determined that this was the appropriate remedy after final judgment. By then, of course, the jury has gone home. Was it up to the judge to determine the royalty? Would there be a new trial (jury or otherwise) on this issue alone? Would the pre-judgment royalty be used for future royalties (as some courts have done)?

Not surprisingly, a U.S. District Judge in the Eastern District of Texas has taken the first real “shot” at this issue. In early August Federal District Court Judge Clark issued an order in several cases, advising the parties that he expected the issue of future royalties to be tried with liability and past damages. He stated:

Should an injunction issue, a jury finding on a future royalty could be used to set a reasonable amount to be paid into escrow during the period of any stay which might be granted. If an injunction is not warranted, the jury verdict might be used by the parties as one factor in agreeing on a license, or by the court in arriving at an ongoing royalty rate for a compulsory license. In either case, time and expense can be saved by having the damages experts testify once, rather than hold a separate mini-trial on the issue of future damages post-verdict. This procedure would encourage the experts to keep their testimony about past and future damages logically consistent, and to give reasons for any differences.

Judge Clark explained that this procedure would not automatically result in an award of future damages in the amount advised by the jury (as described by the judge, the jury’s findings are not binding on the court), or be determinative in any way of the decision whether to issue an injunction or award future royalties.

Although this procedure would add another dimension of cost and complexity to a patent trial, it may make sense where there is a reasonable likelihood that future royalties (rather than a permanent injunction) will be the final remedy.

However, one would hope that a trial judge would not impose this procedure in cases where a preliminary determination concludes that the likelihood of future royalties is weak (for example, as in the case of direct competition between the patent holder and the defendant). It’s worth watching to see whether this approach catches on with other judges in the EdTX and in other districts, and if so how it evolves.

Damages experts must be sharpening their pencils and working overtime this summer ….

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