Parker-Hannifin Corp. v. Champion Labs., 2008 U.S. Dist. LEXIS 61108 (N.D. Ohio 2008)
Champion admitted that its oil filter infringed Parker’s Patent No. 6,983,851 and also admitted that it owed a “reasonable royalty” to the patentee for pre-issuance sales based on the provisional rights of 35 U.S.C. 154(d).
35 U.S.C. §154(d)
(1) In addition to other rights provided by this section, a patent shall include the right to obtain a reasonable royalty from any person who, during the period beginning on the date of publication of the application …
(2) RIGHT BASED ON SUBSTANTIALLY IDENTICAL INVENTIONS.- The right under paragraph (1) to obtain a reasonable royalty shall not be available under this subsection unless the invention as claimed in the patent is substantially identical to the invention as claimed in the published patent application.
Because of the admission, the Parker-Hannifin court was left only to consider the amount of damages to assess. Traditionally, under 35 U.S.C. §284, a ‘reasonable royalty’ is set as a floor in the calculation of compensatory damages. When lost profits are calculated, damage figures often rise well above what would have been a reasonable royalty figure. However, damages for violation of provisional rights are limited to the reasonable royalty as a maximum without any requirement that the rate be sufficient to compensate the patent holder. Here, the court found the reasonable royalty to be $2.00 per unit by applying the Georgia Pacific and creating a ‘hypothetical negotiation.” In deciding to the royalty amount, the court noted that under Mars, it is “wrong as a matter of law” to cap reasonable royalties “at the cost of implementing the cheapest available acceptable, noninfringing alternative.”
Missing from the court’s analysis is any consideration of how the hypothetical negotiation is altered based on the fact that the right infringed was only ‘provisional.’
Notes: This case is interesting as one of the first discussing liability for infringement of a patentee’s provisional rights.