Federal Circuit Reverses Denial of Prejudgment Interest

The case is Kaufman v. MicrosoftCorp., precedential decision by Judge Taranto, joined by Judges Dyk and Reyna.  Most of the opinion is devoted to other issues, most importantly claim construction, as discussed by Dennis Crouch on Patently-O.  The Federal Circuit affirms on liability, but on the plaintiff’s cross-appeal it reverses the district court’s denial of the plaintiff’s motion for an award of prejudgment interest.   From the opinion:

  

           Damages awarded in patent-infringement cases must be “adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.” 35 U.S.C. § 284 (emphases added). The Supreme Court has explained that Congress intended that “prejudgment interest should ordinarily be awarded where necessary to afford the plaintiff full compensation for the infringement.” General Motors Corp. v. Devex Corp., 461 U.S. 648, 654 (1983). “In the typical case an award of prejudgment interest is necessary to ensure that the patent owner is placed in as good a position as he would have been had the infringer entered into a reasonable royalty agreement.” Id. at 655. The Court added, however, that because interest is “fixed by the court,” a district court has some discretion to decide whether to award prejudgment interest, and “it may be appropriate to limit prejudgment interest, or perhaps even to deny it altogether, where the patent owner has been responsible for undue delay in prosecuting the lawsuit,” among other potential, unnamed circumstances. Id. at 656–57. In any case, “some justification” is required to withhold prejudgment interest. Id. at 657.

 

            The district court provided two rationales for denying prejudgment interest to Mr. Kaufman: first, that the jury verdict “subsumed interest,” and second, that Mr. Kaufman was responsible for “undue delay” in bringing the lawsuit, causing prejudice to Microsoft. Prejudgment Interest Order, 2021 WL 260485, at *1. Neither rationale is supportable on the record here.

 

            The jury verdict cannot reasonably be understood to include interest. . . .

 

            [The jury instructions] stated that “the parties have agreed that a reasonable royalty in this case should take the form of a single lump-sum payment for the life of the patent, discounted to present value.” Id. That mention of “present value” did not suggest to the jury that its calculation should add interest accruing from the 2011 hypothetical negotiation date to the present; rather, it was a reminder that—consistent with the expert testimony, J.A. 3920–22—the lump-sum royalty payment should incorporate the hypothetical future royalty payments by using a discount rate to calculate the 2011 value of the stream of such payments, hence decreasing their numeral amounts. . . .

 

            The district court also erred in concluding that Mr. Kaufman was responsible for undue delay justifying denial of prejudgment interest. For one, the fact that Mr. Kaufman did not sue for five years after he became aware of Microsoft’s potential infringement does not alone justify a finding of undue delay. . .  (pp. 19-22, emphases in original).

The court goes on to note that Microsoft did not show that it was prejudiced by the five-year delay.  Among other things, the jury didn’t credit Microsoft’s evidence that it would have designed around the patent, or that its proposed noninfringing alternative was acceptable.

Overall, this is not a surprising outcome.  Prejudgment interest is necessary to restore the patentee to the position it would have occupied, but for the infringement.  Preferably it should be compounded to properly take into account the time value of money, but to my knowledge there is no fixed practice on this issue in the U.S., nor on the appropriate interest rate.  For discussion of pre- and postjudgment interest in patent litigation in the U.S. and elsewhere, see Colleen V. Chien, Jorge L. Contreras, Thomas F. Cotter, Brian J. Love, Christopher B. Seaman & Norman V. Siebrasse, Enhanced Damages, Litigation Cost Recovery, and Interest, in Patent Remedies and Complex Products: Toward a Global Consensus 204, 254 (C. Bradford Biddle, Jorge L. Contreras, Brian J. Love & Norman V. Siebrasse eds. 2019), available here.

Also on Friday, the court vacated decision of the Eastern District of Texas dismissing a claim for a declaratory judgment of noninfringement and invalidity, and remanded for further proceedings.  See Mitek v. United Services Automobile Ass’n.