Douglas Dynamics v. Buyers Products Co., 3-09-cv-00261 (W.D. Wis.)(Sept. 22, 2011)
A jury found the defendant liable for infringing two of the plaintiff’s patented snowplow assemblies and awarded approximately $1.1 million in damages for past infringement. After the verdict, the federal district court denied the plaintiff’s request for a permanent injunction and instead invited the parties to negotiate a reasonable royalty for any prospective infringement.
Parties were ‘miles apart.’ The parties agreed that an ongoing royalty rate should exceed the effective 3.3% awarded by the jury for past infringement, but they were “miles apart” as to what that rate should be, the court observed. The defendant suggested a 5% ongoing royalty based on applying wholesale prices to the snowplow assemblers. In contrast, the plaintiffs wanted a 44% royalty rate to apply to the assemblies that the defendant sold between the jury’s entry of an award and the court’s denial of an injunction, and a 16% royalty rate for any sales thereafter.
These factors also affected the parties’ suggested royalty rates, as when, during trial, the plaintiff could not offer any instances of actual lost sales due to the defendant’s infringing plows. Instead, the evidence suggested that the defendant’s sales were driven not by the patented technology, but by its lower price point.
“On the other hand,” the court noted, during a hypothetical negotiation, the plaintiff would not have known the impact of defendant’s entry into the market with a plow that offered even minor advances compared to its own. Further, a reasonable royalty should “leave some room for profit,” the court explained. “Otherwise it makes little sense to enter into an ongoing royalty at all.” In light of all these considerations, the plaintiff’s suggested range of 16% to 44% was “simply too high,” the court held. These rates would not only cut all of the defendant’s profits, but would mean selling infringing plows at a loss.
Begin with the 25% benchmark. Instead, the court was persuaded to start with the approach used by the district court in Paice LLC v. Toyota Motor Corp., 609 F. Supp. 2d 609 F. Supp. 2d 620 (E.D. Tex. 2009), on remand from Paice LLC v. Toyota Motor Corp.,504 F.3d 1293 (Fed. Cir. 2007). In that case, the federal district court applied the “25% rule of thumb” as a starting point for setting the plaintiff’s post-verdict royalties, ultimately taking 25% of the defendant’s profit margin to reach an ongoing royalty of 2.25%.
In this case, 25% of the defendant’s 12.9% profit margin was 3.225%. The court found an additional 2% was reasonable, particularly since the defendant “offered” a reasonable royalty rate of 5% and its continued use of infringing plows would only provide a slight increase in sales.
Based on this assessment, the court believed that the plaintiff would have leveraged its position to nearly double the pre-verdict rate of 3.3%, and awarded an ongoing rate of 6.225% for “every infringing snowplow assembly” that the defendant has sold or will sell from the time of the jury verdict to the patents’ expiration.
