Stacking Royalties: One Royalty for Three Patents

Stryker Corp v. Zimmer, Inc. (W.D. Michigan 2013) ( Download StrykerVerdict )

I was just looking at the jury verdict in this patent infringement case. Stryker sued on about twenty claims patents coming from three different patents. The jury found the patents infringed and not invalid.

The damages section of the verdict has three interesting elements.

Backup Award: The court asked the jury to decide both lost-profits and, as a backup, a reasonable royalty. That approach stems from the patent statute that sets reasonable royalty as a floor for compensatory damages. The jury found that Stryker had proven lost profits of $70 million and alternatively should be awarded 25% royalty on Zimmer's the $254 million in revenue from infringing sales. Assuming the verdict holds up, Stryker should receive $70 million lost profit award since it is greater than the $63 million reasonable royalty calculation. This is area where a more detailed verdict form actually helps the plaintiff.

Creating Its Own Form: Part of the power of jury verdicts is that they operate as a black-box decision making tool. Since the jury does not explain its decision, it is difficult to point out errors in that decision making process on appeal. The losing party often has to resort to the difficult task of proving that no reasonable jury could have reached the ultimate conclusion based upon the evidence. In this case, the jury may have given the defense a bit of a boost. In addition to setting the reasonable royalty at 25%, the jury added its own explanation – writing that the 25% is "double initial percentage of [a low comparable] license as we felt 32.2% [requested by the plaintiffs] was too high." We'll see whether the defense is able to use this added tidbit to challenge the verdict.

Three Patents, One Royalty: The theory for calculating damages when multiple patents is a bit dicey and ill defined. Here, three patents were at stake and the jury was asked "Do you find that the reasonable royalty rate would be any different if fewer than all three of the patents in suit are valid and infringed?" The jury answered "no." That response creates some hypothetical problems – most pointedly would be whether this result is the same if the patents were each held by a different entity.

8 thoughts on “Stacking Royalties: One Royalty for Three Patents

  1. Isn’t it more reasonable that the jury thought lost profits would have been lost either way (multiple infringement by a single product) – and awarded a royalty rate to compensate for the infringement. Had it been otherwise, the infringer would have been complaining about a double recovery.

  2. “Do you find that the reasonable royalty rate would be any different if fewer than all three of the patents in suit are valid and infringed?” The jury answered “no.” That response creates some hypothetical problems – most pointedly would be whether this result is the same if the patents were each held by a different entity.

    There’s nothing necessarily wrong with the jury’s answer. It could also be the case that these patents couldn’t each be held by a different entity. The law allows a patentee to get patents on obvious variants of its own claims; i.e., claims that another party couldn’t obtain. In this scenario, there’s no reason for the plaintiff to get extra royalties, any more than it should get extra royalties if its patent counsel managed to claim the same invention in 85 different ways in the same application.

  3. three patents were at stake and the jury was asked “Do you find that the reasonable royalty rate would be any different if fewer than all three of the patents in suit are valid and infringed?” The jury answered “no.”

    It’s kind of a silly question to ask, when the same jury has just found all three patents infringed. You’re basically asking them “if you’re prepared to consider the possibility that you’re wrong, will you change your mind?” Almost nobody does, and the proof fills these comment threads every day.

    That response creates some hypothetical problems – most pointedly would be whether this result is the same if the patents were each held by a different entity.

    Yes, it’s a ridiculous answer. Which is why it’s a ridiculous question to ask, unless your goal is to plead on appeal that the jury is clearly irrational and hasn’t considered even such obvious facts of the case as “there are this many patents”.

    If what you’re looking for is a breakdown of royalties by patent, you should ask the jury something like “is patent 1 infringed?” “what is the reasonable royalty for patent 1?” and so forth.

    What happened here is that the jury decided what they thought the act of infringement was worth in a broad, general sense. They already knew how much money the plaintiff had lost and the defendant had gained. It seems like they picked a round number percentage that worked out about the same as the plaintiff’s actual damages. And why shouldn’t they? What plaintiff would reasonably license its competitor on any number of patents for less than its provable damages, except in a cross-license scenario?

  4. Interesting case.

    Edit, I think you meant:”black-box,” instead of “back-box.” Pesky things that survive spell check and multiple re-writes.

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