After many years of issuing “revolutionary” decisions related to the analysis of reasonable royalty damages in patent infringement cases, 2015 was a year of comparative quiet for the Federal Circuit. Revolutionary decisions such as
, which abolished the use of the 25% Rule,
, which codified consideration of the “smallest salable patent-practicing unit,” and
, which suggested that settlement agreements may be admissible, led to immediate changes in how reasonable royalties are determined. Rather, 2015 saw the Federal Circuit issue a series of more “evolutionary” decisions that refined key principles and provided guidance and clarification in interpreting the more “revolutionary” decisions of prior years. This article provides a summary of the main takeaways from three Federal Circuit opinions in 2015 relating to reasonable royalty damages, and provides practitioners with practical guidance from these decisions.1
AstraZeneca AB v. Apotex Corp.
Reasonable Royalties and the Federal Circuit in 2015: Evolution of the Revolution
Published by the BPLA with the author’s, Hoffman Alvary & Company’s, and Law360’s permission. The article appeared on Law360 on
March 24, 2016
Volume 47, Issue 3
This case
patents related
to the
formulation of drugs containing omeprazole
, the active ingredient in
blockbuster drug,
. In a bench decision, the district court awarded AstraZeneca royalty damages equal to 50% of Apotex’s profits from its infringing sales of generic
. Apotex appealed the decision on several grounds, including that the district court’s royalty award violated the Entire Market Value Rule (“EMVR”) by “improperly bas[ing] its damages calculation on the value of the omeprazole product as a whole.”2 In particular, Apotex argued that it was necessary to reduce the royalty base to account for “the relative contribution of value between the active ingredient” (which was the subject of different, expired patents held by AstraZeneca) and the “inventive element” of the formulation patents in this case, which Apotex asserted was limited to the subcoating of the drug. The Federal Circuit rejected Apotex’s argument, explaining that the EMVR did not apply since the claims of the asserted formulation patents covered the combination of three elements (the drug core, the enteric coating, and the subcoating) that comprised the entire accused product, not only one component of the overall product. However, the Court cautioned that where the claims of a patent cover the entire infringing product by reciting both “conventional and unconventional elements,” it is still necessary to determine a royalty that “account[s] for the relative value of the patentee’s invention in comparison to the value of the conventional elements recited in the claim, standing alone.” The Federal Circuit then explained that the
factors traditionally used by damages experts to determine a royalty rate “bear directly on this issue” as they address the advantages of the patented technologies over prior inventions, and the portion of the profit that should be credited to the invention as opposed to other factors. Citing its prior decision in
University of Pittsburgh v. Varian Medical Systems, Inc.
, the Court explained that “guarding against compensation for more than the added value attributable to the invention is ‘precisely what the
factors purport to do.’” The
decision emphasizes the Federal Court’s focus on the importance of apportionment, and confirmed the need for properly apportioned royalty awards in circumstances where the claims of the asserted patent may cover the entire product by including “conventional” elements. In such instances, the Court concluded that “it is not the case that the value of all conventional elements must be subtracted from the value of the patented invention as a whole when assessing damages.” This suggests that in some circumstances, if a patent claims a combination of elements that form the entire accused product, a patent holder may rely on the entire value of the accused product as the royalty base. However, the royalty rate used in such circumstances must isolate the value of the inventive contribution of the patent so that the ultimate royalty amount is properly apportioned.
Table of Contents
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< Back
Message from the Editor-in-Chief
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Writing Competition
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Decision Regarding the Standard for Willfulness
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Reasonable Royalties and the Federal Circuit in 2015: Evolution of the Revolution
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Community Calendar
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