Wednesday, March 1, 2017

Federal Circuits Modifies Award of Postjudgment Interest in Multimillion Dollar Arbitration

The court's opinion this morning in Bayer CropScience AG v. Dow Agrosciences LLC is available here.  It's a complex commercial dispute involving an alleged breach of a patent licensing agreement and patent infringement, and the underlying facts raise a host of issues relating to (among other things) jurisdiction, written description and enablement, double patenting, postexpiration royalties, and damages for loss of opportunity under French law.  Since the parties had agreed to arbitrate disputes arising out of the licensing agreement, however, the scope of federal court review of the $455 million judgment—including just under $375 million for loss of opportunity, and just under $68 million for patent infringement--is very limited, and the court finds no reason to disturb the arbitration award on grounds of public policy.  The only matter that the court does disturb is the district court's decision to award postjugdment interest at the same rate (8%) that the arbitrators had awarded for prejudgment interest.  On the issue of interest, the Federal Circuit explains:
. . . the tribunal did not manifestly disregard Indiana law governing pre-judgment interest. Based on the evidence submitted by the parties, the tribunal found it highly likely that Dow and MS Tech would have pursued Option B if they had not breached the 1992 Hoechst-Lubrizol Agreement. . . .  The tribunal calculated contract damages based on the amount that Bayer would have received under the 2007 Bayer-MS Tech agreement and awarded pre-award interest based on that amount. The parties agree that Indiana law governs the pre-judgment interest award. . . .
Although we affirm the district court’s decision to confirm the arbitral award, we conclude that the court abused its discretion in denying Dow’s motion to amend the judgment to use the federal statutory rate for postjudgment interest for the period beginning with the entry of the district court’s judgment. 28 U.S.C. § 1961(a) provides that “interest shall be calculated from the date of the entry of the judgment, at a rate equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the date of the judgment.” Dow argues that the court was obligated to replace the tribunal’s “post-award” interest rate with the statutory post-judgment rate for time after the district court’s judgment. We agree on the facts of this case.
Under the doctrine of merger, when “a valid and final judgment for the payment of money is rendered in favor of the plaintiff, the original claim of the plaintiff is extinguished and a new cause of action on the judgment is substituted for it.” Restatement (Second) of Judgments § 47. Reflecting that notion, numerous circuits have concluded that once a federal court confirms an arbitral award, the award merges into the judgment and the federal rate for post-judgment interest presumptively applies. . . . To overcome this presumption, courts have required the parties or arbitrators to unambiguously express their intent to replace the federal rate for the post-judgment period. . . .  
In this case, there is insufficiently clear evidence to displace the federal statutory rate. Here, the tribunal granted “post-award interest” “at the rate of 8% from the date of this Award until full payment.” J.A. 560, 563. And it is undisputed that the tribunal’s attention was not called to the distinction between the time from award to confirmation judgment and the time after confirmation judgment. We see no basis on which to distinguish these circumstances from other grants found to be insufficiently clear to displace the statutory post-judgment rate (pp. 23-26). . . .
If this had been a straight-up patent infringement action, of course, the prevailing patent owner would have been presumptively entitled to prejudgment interest under General Motors Corp. v. Devex Corp., 461 U.S. 648 (1983).  Devex holds that, in enacting § 284 of the Patent Act, “Congress sought to ensure that the patent owner would in fact receive full compensation for ‘any damages’ he suffered as a result of the infringement,” and that courts therefore should award prejudgment interest on the compensatory portion of an award “absent some justification for withholding” it (such as when the patent owner has delayed prosecution of the suit).  Postjudgment interest, by contrast, is governed as the Federal Circuit notes above by a separate federal statute, the applicability of which is not limited to patent cases. See 28 U.S.C. § 1961(a) (“Interest shall be allowed on any money judgment in a civil case recovered in a district court. . . . Such interest shall be calculated from the date of the entry of the judgment, at a rate equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the date of the judgment.”); see also id. § 1961(b) (stating that postjudgment “[i]nterest shall be computed daily to the date of payment except as provided in section 2516(b) of this title and section 1304(b) of title 31, and shall be compounded annually”); Fed. R. App. P. 37(a) (“Unless the law provides otherwise, if a money judgment in a civil case is affirmed, whatever interest is allowed by law is payable from the date when the district court's judgment was entered.”).

The standards for awarding interest in patent cases appears to me to be one of the least-frequently discussed, and most undertheorized, topics in the literature on patent remedies.  Within the United States, courts have considerable discretion whether to award simple or compound prejudgment interest (despite the fact that compound interest is necessary to ensure adequate compensation for the time value of money), as well as which rate in particular to apply.  Practice in other countries can take several different paths, with some awarding prejudgment interest infrequently or never, others awarding (sometimes or always) only simple interest, and yet others awarding interest at a fixed statutory rate.  See Thomas F. Cotter Comparative Patent Remedies: A Legal and Economic Analysis 209, 276-77, 328 (Oxford Univ. Press 2013) (discussing practice in the U.K., France, Germany, and Japan); Global Patent Litigation: How and Where to Win 9-12 to-13, App. C. at C-48 tbl. A (Michael C. Elmer & C. Gregory Gramenopoulos eds., Bloomberg BNA 2016).  The best economic analysis of these issues that I've seen to date is Roy Epstein, Prejudgment Interest Rates in Patent Cases: Don’t Compound an Error, 24(2) IPL Newsletter, Winter 2006, available at,  which recommends as a general rule that courts should choose a rate that reflects the defendant’s cost of short-term borrowing as reflected in statistics published by the Federal Reserve.

Update:  Dennis Crouch also has a write-up on this case on Patently-O, along with a link to the (redacted) arbitration award.  And I should have noted above that the Federal Circuit's opinion is designated as nonprecedential.

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