A recent Federal Circuit decision confirms that there are different ways to apportion damages to the value of an invention. Apportionment does not have to be done through the royalty base, the court said, ruling against the defendant on this issue. However, the court found another reason to strike down a sizable jury award.
Hollow Georgia-Pacific analysis. The plaintiff and the defendant built and sold high-end, commercial-grade lawnmowers and turf-care products. The plaintiff had a patent that covered a lawnmower featuring improved flow control baffles—the structures under the mower deck that direct airflow and grass clippings during operation. It claimed the defendant’s lawnmowers violated its patent. A jury awarded the plaintiff nearly $24.3 million in damages. The trial court doubled the amount to compensate for the defendant’s willful infringement.
The plaintiff’s damages expert used the Georgia-Pacific framework to calculate a reasonable royalty. As the royalty base, she used the sales price of the accused mowers, rather than the sales price of the flow control baffles. She identified the benefits of the patented technology and cited to these advantages in discussing each of the Georgia-Pacific factors. In a hypothetical negotiation before the infringement, the parties would have agreed on a 5% reasonable royalty rate, the expert concluded.
In its appeal with the Federal Circuit, the defendant contended the plaintiff expert’s royalty determination was based on the wrong royalty base—the sales price of the entire lawnmowers, instead of the flow control baffles. The expert failed to meet the apportion requirement. The Federal Circuit agreed that, even though the patent covered the entire lawnmower, the patented improvement related to the flow control baffle. Consequently, the plaintiff was entitled to compensation for the value of the patented improvement (the baffle), not the entire mower. However, the court said, apportionment can be achieved in various ways, including “by careful selection of the royalty base to reflect the value added by the patented feature [or] … by adjustment of the royalty rate so as to discount the value of a product’s non-patented features; or by a combination thereof.” Assuming the plaintiff properly apportioned between the protected and non-protected features of the contested lawnmower, it was acceptable to apportion “through” the royalty rate. In fact, in the real world, parties often develop license agreements that base the value of the invention on a percentage of the product’s sales price, the Federal Circuit noted.
But the appeal court agreed with the defendant that the plaintiff’s expert opinion should not have been admitted into evidence. The expert undertook a mechanical discussion of the Georgia-Pacific factors that never explained why and how the factors led to the proposed 5% reasonable royalty rate. The expert did not tie the facts to the proposed royalty rate, the Federal Circuit said. It vacated the award and remanded for a new trial on damages.
A digest of Exmark Mfg. Co. v. Briggs & Stratton Power Prods. Grp. LLC, 2018 U.S. App. LEXIS 783 (Jan. 12, 2018), and the court’s opinion, are available at BVLaw.