Detailed opinion on ongoing royalties from Arizona court


Cases concerning ongoing royalties have been issuing with increasing frequency. We have discussed othercases in prior posts, including our discussion of Presidio Components in a post dated October 29, 2010. The District of Arizona, in Bard Peripheral Vascular, Inc. v. W.L. Gore & Assoc., Inc., No. CV-03-597-PHX-MHM (D. Ariz. Sept. 8, 2010), issued a lengthy, detailed ongoing royalty opinion. The case is worth reading for its interesting analysis and because it includes at the end a license agreement that the court fashioned, presumably with the assistance of the attorneys from both sides.

Judge Mary Murgula issued the opinion in what proved to be "the most complicated case this Court has presided over." The jury had fixed a 10% reasonable royalty rate, and the court was faced with the two sides' competing proposals for a post-judgment royalty. Of course, the plaintiff was seeking a higher rate (35% on some products and 25% on others), while the defendant proposed something lower (5%).

First, the court observed that the parties had agreed on the date for the hypothetical negotiation, namely, the day after the court denied the request for permanent injunction. The court then reasoned that "a modified Georgia-Pacific framework" should be employed, "since the methodology would take into account (1) the parties' 'changed legal status' and (2) the 'different economic factors [that] are involved." See pages 11-12 (citing the Federal Circuit's Amado decision, 517 F.3d at 1362). The court also quoted a decision from New Jersey: "As the District of New Jersey noted, 'because the parties' bargaining positions change upon a judgment for the patentee, an on-going royalty rate ordered as a remedy . . . should not automatically be the same reasonable royalty rate applied by the jury in determining the damages for past infringement.' Joyal Prods. v. Johnson Elec. North Am., Inc., 2009 U.S. Dist. LEXIS 15531, *38 (D.N.J. Feb. 27, 2009)."

The Arizona court agreed that the ongoing royalty rate should be higher than the 10% set by the jury, but refused to set the rate as high as the plaintiff would have liked. Instead, the court arrived at 20% and 15% for the two types of products, instead of the plaintiff's 35% and 25% rates. The court stated its rationale:

After weighing the equities and considering the relevant factors under a modified Georgia-Pacific framework, the Court finds that an ongoing royalty rate on both Gore's surgical graft and stent-graft products should be higher than the 10% reasonable royalty rate that was set by the jury for Gore's non-counterpart products. As Bard has noted, there has been a post-verdict change in the Parties' legal relationship in that Gore is now an adjudged willful infringer, this Court determined this was an exceptional case and then enhanced damages and awarded Bard its reasonable attorneys' fees, and Gore has voluntarily chosen to continue its post-verdict infringement unabated. [Footnote omitted.] At the same time, economic factors, such as Bard and Gore's direct competition, the high profitability of Gore's infringing products, the fact that Gore faces stiffer losses which might include a permanent injunction in the event of a second lawsuit, and that Bard seeks adequate compensation and lacks incentive to accept a below market deal, all point towards an upward departure from the 10% reasonable royalty rate set by the jury.

However, a modified Georgia-Pacific framework does not support the Court in providing Bard with a compulsory license rate at 35% for Gore's surgical graft products and 20% for Gore's stent-graft products. Instead, the Court finds that setting the compulsory license rate for Gore's surgical graft products at 20%, and 15% for Gore's stent-graft products will both adequately compensate Bard and permit Gore to receive a reasonable return on the continued production of its infringing products. The Court additionally finds that equity favors the Court setting a compulsory license rate on Gore's heparin bound stentgraft VIABAHN® at 12.5% and on Gore's heparin bound surgical graft PROPATEN® at 15%. The lower royalty rate on these two products enables Gore to remain slightly more profitable on its two most popular products, which, by way of bonding with heparin, Gore has added significant value. In light of the undisputed evidence presented at trial on the issue of Gore's overall profitability, the Court finds that a compulsory license rate set at 20% on surgical grafts, 15% on stent-grafts, 12.5% on the VIABAHN® stent-graft, and 15% on the PROPATEN® surgical graft, should likely allow Gore to continue to make a reasonable, albeit reduced, profit on the products it sells utilizing Dr. Goldfarb's invention, and that such an outcome would be a fair result of a renewed hypothetical negotiation. See Paice, 609 F. Supp. 2d at 63.

The court's decision to crank up the royalty beyond the 10% jury verdict may have been shaded, in part, by the court's opinion of the plaintiff's behavior:

Since 1974, Dr. Goldfarb has pursued the exclusive right to his discovery and Gore has exhausted every mechanism to frustrate Dr. Goldfarb's ability to use and enjoy that right. Gore ignored the PTO's and Federal Circuit's repeated decisions that "found Dr. Goldfarb to be the rightful inventor and patent holder." (Dkt.# 941 at 6). Gore took Dr. Goldfarb's invention as its own and for 35 years manufactured and sold billions of dollars of infringing goods, thereby establishing itself as a leader in the very markets in which Dr. Goldfarb and Bard were entitled to exclusivity. Gore has done Dr. Goldfarb and Bard great harm by co-opting market share, boxing Bard out of new markets, and following Bard into other markets all based on wilful patent infringement.