Tuesday, March 2, 2021

Federal Circuit Affirms Reasonable Royalty, Finding of No Willfulness

Yesterday's major patent law news was the Supreme Court oral argument in United States v. Arthrex, Inc., regarding the constitutionality of the appointment of the PTAB judges who hear inter partes reviews.  This could be a very important case, but it isn't directly relevant to patent remedies; there is plenty of discussion of it elsewhere in the blogsphere; and the constitutional and administrative law questions presented are not really my forte.  I also don't have a strong feeling for how the Court is going to rule.  (The oral argument transcript is available here, and my one previous blog post about the matter here).  So I will instead proceed with a brief discussion of a Federal Circuit opinion from yesterday, Bayer Healthcare LLC v. Baxalta Inc. (opinion by Judge Stoll), concerning damages and related matters.

The substantive questions at issue include claim construction, infringement, and whether the claim in suit, which recites a recombinant form of a protein known as human Factor VIII, was sufficiently enabled.  Having affirmed the district court on all of these issues, the court also affirms on damages, despite the defendant's best efforts to find fault with the plaintiff's expert's testimony and the verdict.  Specifically:

Prior to trial, Baxalta moved to exclude the testimony of Bayer’s damages expert, Dr. Addanki, regarding his pro-posed reasonable-royalty rate. In his expert report, Dr. Addanki opined that Bayer was entitled to a royalty rate of 23.75%—the midpoint of the bargaining range of 5.1% to 42.4%—based on the Nash Bargaining Solution. The district court concluded that the expert failed to tie his 50/50 split to the facts of the case, and thus excluded his “opinion that a reasonable royalty rate is ‘the mid-point of the bargaining range’ . . . , including any subsequent opinions that rely on that mid-point rate.” Bayer HealthCare LLC v. Baxalta Inc., No. 16-cv-1122, 2019 WL 330149, at *8 (D. Del. Jan. 25, 2019) (Daubert Order). The district court denied, however, Baxalta’s request to prohibit Dr. Addanki from testifying as to his proposed bargaining range of 5.1% to 42.4% (pp. 6-7).  

The jury later returned a verdict in the amount of "$155,190,264 in reasonable-royalty damages for the time period from June 14, 2016 through November 30, 2018 based on a 17.78% royalty rate applied to a $872,836,128 royalty base" (p.7).  On appeal,the defendants argued, inter alia, that, while the district court was correct in holding that Dr. Addanki’s proposed "50-50 split royalty rate was not properly tied to the facts of the case" (p.27), the court shouldn't have allowed "the jury to pick a rate between the range of feasible rates presented by Dr. Addanki as the reasonable rate" (id.).  The court finds no error, however, in the jury's choice of a 17.78% rate, which was "within the range of possible hypothetical negotiation royalty rates" (id.).  In addition, the court holds that there was no Seventh Amendment violation in the judge's decision to award supplemental damages for the period from December 1, 2019 to the date of judgment, based on the same 17.78% rate multiplied by the defendant's sales during that time (pp. 30-34).  Finally, the court affirms the district court's decision to grant judgment as a matter of law that the infringement was not willful, even though the defendants were aware of the patent and were ultimately found to have infringed it, stating:

Even when accepting Bayer’s evidence as true and weighing all inferences in Bayer’s favor, we conclude that the record is insufficient to establish that Baxalta’s “conduct rose to the level of wanton, malicious, and bad-faith behavior required for willful infringement.” SRI Int’l, Inc. v. Cisco Sys., Inc., 930 F.3d 1295, 1309 (Fed. Cir. 2019). The evidence adduced at trial merely demonstrates Baxalta’s knowledge of the ’520 patent and Baxalta’s direct infringement of the asserted claims. Knowledge of the asserted patent and evidence of infringement is necessary, but not sufficient, for a finding of willfulness. Rather, willfulness requires deliberate or intentional infringement. Eko Brands, LLC v. Adrian Rivera Maynez Enters., Inc., 946 F.3d 1367, 1378 (Fed. Cir. 2020) (p.36).

For coverage of this case on Patently-O ("Court Affirms Damages on Very Wide Royalty Range Testimony"), see here.  Dennis Crouch wonders "if next-time Dr. Addanki will push his luck and go for a 0-100% predicted range"!

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