Morpho Detection, Inc. v. Smiths Detection, Inc., No. 2:2011cv00498 - Document 416 (E.D. Va. 2013)
Court Description: OPINION AND ORDER - Conclusion For the reasons set forth above, Morpho's motion is GRANTED, in part, and DENIED, in part. Prejudgment interest is AWARDED at the prime rate, compounded quarterly, and post-judgment interest is AWARDED at the s tatutory rate set forth at 28 U.S.C. § 1961. Damages from the accounting period that can be recovered in this Court are limited to the eighteen sales made to customers other than TSA because the United States has directly assume d liability for the infringing sales made to TSA, and Morpho is required to recover its reasonable and entire compensation for such infringement in the United States Court of Federal Claims. As to the eighteen sales before this Court, lost profit s are awarded on nine sales and a reasonable royalty is awarded on nine sales, for a combined total of $418,719.51. As for any post-judgment infringement by Smiths, the ongoing royalty rate for each post-judgment infringing sale is $9,375. Signed by District Judge Mark S. Davis and filed on 10/17/13. Copies distributed to all counsel of record 10/18/13.(ldab, )
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UNITED STATES DISTRICT COURT EASTERN DISTRICT OF VIRGINIA Norfolk Division MORPHO DETECTION, INC., Plaintiff, Civil No. 2:llcv498 SMITHS DETECTION INC., Defendant. OPINION AND ORDER This matter is before the Court on a post-trial motion for prejudgment and post-judgment interest and damages patent plaintiff infringement ("Morpho"). filed Defendant disputes the rate well the quantum of as and post-judgment of by Smiths prejudgment damages Detection, interest sought infringement.1 below, Morpho's motion is GRANTED, Morpho for ongoing Detection, Inc. Inc. ("Smiths") sought by Morpho as for Smiths' For the prejudgment reasons in part, and DENIED, discussed in part. I. Prejudgment Interest Morpho's is intended instant to motion compensate seeks a patent prejudgment owner for interest, the time which period between the date of infringement and the date of the judgment in 1 A familiarity with the case file and trial result is assumed. For additional details, see this Court's post-trial Opinion and Order dated July 11, 2013. ECF No. 410. order to "make the patent owner whole." Devex Corp., 461 U.S. 648, dispute the fact entitled prejudgment to that, 655-56 based on (1983) . the interest, (approximately .1%) rather Smiths does jury's verdict, but Court should award such interest at rate General Motors Corp. v. instead the than not Morpho is argues that the 3-month Treasury bill the prime rate (3.25%) sought by Morpho. "The rate of prejudgment interest and whether it should be compounded or discretion of v. uncompounded the are district court." Nicolet Instrument Corp., (citations omitted). court "must be matters left Bio-Rad 807 F.2d 964, largely Laboratories, 969 (Fed. In exercising such discretion, guided by the purpose of to prejudgment Cir. the Inc. 1986) a district interest, which is 'to ensure that the patent owner is placed in as good a position as he would have been into a Corp., have reasonable 461 U.S. selected cases, royalty at 655). varying district courts [in] had agreement.'" Although, prejudgment the infringer entered Id. over time, interest (quoting Devex district courts rates in patent "most often award either the prime or the U.S. Treasury rate." I/P Engine, rate Inc. v. AOL Inc., No. 2:llcv512, 2013 WL 3991472, at *2 (E.D. Va. Aug. 1, 2013). Exercising the discretion afforded to this Court, the Court GRANTS Morpho's request for rate, compounded quarterly. prejudgment interest at the prime See id. at *4 (awarding prejudgment interest at "the prime rate, district courts compensates a infringement have patentee because borrowing money, compounded quarterly"). recognized, for the lost prime "the revenues rate prime during As other rate the represents best period of the cost of which is 'a better measure of the harm suffered as a result of the loss of the use of money over time.'" IMX, Inc. (D. Del. Inc. v. Conlux USA Corp. , 818 F. Supp. 707, v. 2007) (quoting Mars, 720-21 Cir. LendingTree, (D. Del. 1993)). LLC, 1993), 469 aff'd, In contrast, 16 F. Supp. 2d F.3d 421, 203, 1993 WL 516659 time. reflect a corporation's Stryker Corp. v. (Fed. "[t]he 3 month Treasury Bill rate is the cost of raising funds by the Government," generally 227 loss of and thus does not use of Intermedics Orthopedics, money Inc., over 891 F. Supp. 751, 833 (E.D.N.Y. 1995).2 II. Morpho's motion Post-judgment Interest requests post-judgment statutory rate set forth in 28 U.S.C. interest § 1961. at the Morpho argues 2 Although Smiths argues that Morpho has not advanced facts to prove why an award at the prime rate is necessary in this case, an award at the 3-month Treasury Bill rate, which is currently approximately onetenth of one percent, would deprive Morpho of virtually any prejudgment interest award and thus does not appear to put Morpho "in as good a position as [it] would have been had the infringer entered into a reasonable royalty agreement" when the compensable infringement began in the fall of 2011. Devex Corp. , 461 U.S. at 655; see also Uniroyal, Inc. v. Rudkin-Wiley Corp., 939 F.2d 1540, 1545 (Fed. Cir. 1991) (noting that a patentee is not required to demonstrate that "it borrowed at the prime rate in order to be entitled to prejudgment interest at that rate" and that a district court's wide-latitude permits prejudgment interest "at or above the prime rate"). that post-judgment interest should apply to each element of the judgment, the Court." "including any prejudgment Morpho Damages Mem. 4, ECF No. v. Life Ins. Co. of North America, 1993)). Based on post-trial rulings, the jury's for 375 awarded (citing Quesinberry 987 F.2d 1017, verdict and Accordingly, post-judgment 1031 (4th Cir. this Court's Although 2012, the prior interest the Court GRANTS Morpho's on each element judgment, to be calculated as set forth in 28 U.S.C. III. by Smiths does not contest Morpho's request for post-judgment interest. request interest of the § 1961. Pre-verdict Infringement Accounting the jury's jury's verdict damages was award returned was infringing sales through September 6, based 2012. on December only on 11, Smiths' In the intervening period between September 6, 2012 and the date of the judgment3 (the "accounting period"), Smiths sold more than one hundred infringing units to the Transportation Security Agency ("TSA"),4 and eighteen infringing units to other customers. a damages award on all such units, Morpho seeks to include a combination of lost profits and reasonable royalty payments consistent with the jury's verdict. Smiths argues that Morpho may 3 The Clerk's judgment was entered on December 19, 2012. 4 The publicly available versions of the parties' redact the confidential details regarding Smiths' only recover ECF No. 365. post-trial briefs sale to TSA. As the specific quantity and sales price of units sold to TSA is not directly relevant to this Court's ruling, the Court will simply refer to the sale to TSA as involving "more than one hundred units." damages for the eighteen units sold to customers other than TSA because TSA pursuant has to 28 assumed U.S.C. liability § 1498(a). for Smiths' Smiths infringement further argues that Morpho is not entitled to lost profits for any of the sales made during the accounting period. As set forth below, the Court agrees with Smiths that Morpho may only recover damages in this Court for the However, finds as that reasonable eighteen units sold to such to Morpho sales, is royalty the entitled customers other than TSA. Court to compensation, a agrees mix with lost consistent and profits of Morpho and with the jury's damages award. A. Governmental Assumption of Liability Pursuant to 28 U.S.C. Whenever an § 1498(a): invention described in and covered by a patent of the United States is used or manufactured by or for the United States without thereof or lawful right same, the owner's remedy the United States in license of the owner to use or manufacture the shall be by action against the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture. Id. (emphasis added). Although such statutory provision is indisputably a waiver of the government's sovereign immunity for direct infringement of a patent, the Federal Circuit and United States more Supreme Court have than a waiver of recognized that immunity liability by the government.'" and section 1498(a) effects an "'is assumption of Advanced Software Design Corp. v. Fed. Res. Bank, 583 F.3d 1371, 1375 Richmond Screw Anchor Co. v. (Fed. Cir. 2009) United States, 275 U.S. (quoting 331, 344 infringement, it (1928)) . Here, appears based to be on the undisputed jury's that: verdict (1) of Smiths sold more than one hundred infringing devices to TSA in late September of 2012; (2) the jury never considered such sales to TSA because Smiths did not produce the relevant sales information pre-trial, and was only ordered at trial to produce sales data through September 6, 2012; (3) Smiths' manufactured TSA "for issued contract patent an with in pursuant the to United "authorization Smiths order to sale to the TSA States"; and permitting complete September was the (4) use delivery 2012 in consent" the sale of January devices of amendment of the to any United of contract; and 2013, States devices (5) its sold it is permissible under the law for the government to retroactively issue its "authorization and consent." Notwithstanding such facts, Morpho argues that this Court should award it damages on Smiths' infringing sales to TSA because Smiths waived its § 1498(a) affirmative defense by failing to pursue it at trial. Morpho separately argues that this Court should award damages to Smiths for sales to TSA based on the jury's finding that Smiths was responsible for "indirect infringement" of Morpho's patent. i. The Court rejects Waiver Morpho's "waiver" argument based on the nature of the evidence adduced at trial. It is undisputed that Smiths properly raised § 1498 as an affirmative defense in its Answer. Morpho thereafter filed a motion in limine to preclude Smiths from raising such defense at trial and, before this Court issued its ruling on such motion, Smiths voluntarily opted not to pursue such affirmative defense before the jury. As Morpho appears issue to acknowledge, presumably sales based that on were Smiths' the before fact decision that the jury the were on such eighty-six either was infringing made to non governmental customers or to governmental customers who had not assumed liability for any infringement. See Morpho Damages Reply Mem. 3-4, ECF No. 402; see also Morpho Mo. in Limine, ECF No. 186 (indicating that Smiths' sales records indicate that the relevant sales that would be before the jury were made to "many private companies"). Although Smiths' decision trial clearly precluded Smiths immune from liability as not Smiths law or other "waived" such to any of persuasive defense pursue from later sales that were before the jury, case to as the such defense at arguing that it was eighty-six infringing Morpho has failed to cite any authority to to Smiths' demonstrate sales to the that U.S. government that were made shortly5 before trial and were simply not before the jury. Furthermore, it appears that requiring Smiths to put on such defense at trial in order to "preserve" it for unrelated have sales introduced would have sale to an confused TSA has that were not in evidence irrelevant legal the Although jury. convinced Morpho theory the that at trial that would undoubtedly timing of Smiths Smiths' engaged in intentional discovery abuses in an effort to conceal large scale infringement from Morpho, "waiver" argument and ultimately from the jury, appears to be more akin to a Morpho's discovery sanctions argument than an argument grounded in waiver doctrine. Notwithstanding any possibility of discovery abuses ring true, that Morpho's allegations Morpho fails to demonstrate that "waiver" occurs when a party does not advance a defense at trial that is relevant only to infringing sales that were simply not part of the trial evidence. As stated at trial, during the period between the close of 2012) trial. discovery all sales made (September 6, and the date of the judgment would be accounted for postPursuant to federal statute, "[w]hen the damages are not 5 The crux of Morpho's frustration appears to be that Smiths' largequantity sale to TSA was made more than two months before trial and Smiths appears to have had more than sufficient time to report such sale to Morpho as part of its ongoing discovery obligations. Although Morpho's timing argument appears well-taken, Morpho failed to file a pre-trial motion seeking to compel production of such information. Accordingly, at this stage in the proceedings and absent any findings of discovery abuses by a Magistrate Judge or the undersigned Judge, Morpho is simply surmising that Smiths initially abused the discovery process to conceal such sales information from the jury. 8 found by a jury, Here, in addressing asserted a made defense during previously Morpho Based on the such measure is of such period Smiths' Answer. to prevent Smiths at trial facts, the through Court to Smiths has a specific sale defense was Furthermore, from it introducing filing a not find does § 284. such and in 35 U.S.C. damages, only applicable accounting sought defense the that asserted that theory of the court shall assess them." motion that in was such limine. the § 14 98 defense was "waived" when it was not pursued at trial due to its indisputable lack of relevance to any of the trial evidence before the jury.6 ii. Indirect Infringement The Court similarly should recover damages the theory of U.S.C. rejects in this Morpho's Court for sales made "indirect" or "contributory" § 271(b)-(c). 6 Morpho notes in First, contention that it to TSA on infringement. See 35 the jury's verdict on indirect and its reply brief that the Federal Circuit has recognized that a § 1498 defense, "'[i]f appropriate, should be resolved by summary judgment under Rule 56 . . . .'" Morpho Damages Reply Mem. 4 n.3, ECF No. 402 (quoting Toxgon Corp. v. BNFL, Inc., 312 F.3d 1379, 1382 (Fed. Cir. 2002)). However, if the only sales to which such defense is relevant occur shortly before trial and are not before the jury, and the Defendant has timely raised such affirmative defense in its Answer, this Court is unaware of any rule that would preclude the Court from resolving such defense as a matter of law while conducting a post-trial accounting. Notably, as discussed herein, Morpho does not dispute any of the facts advanced by Smiths that demonstrate that § 1498 is a viable defense in this case. Accordingly, as there are no material factual disputes to be reserved for the jury, Smiths' § 1498 defense is appropriately determined by the Court as a matter of law. contributory infringement before the jury, theories were limited to Accordingly, the demonstrate that contributed to in that violates Smiths' sales which were purportedly made to customers other than TSA. to use the Smiths product jury verdict does a manner or not conclusively actively induced TSA the relevant method claims of Morpho's patent. Second, and more compelling, the case on this issue fails to establish that it a government contractor such contractor is United States contractor's also liable liable government direct for 1980). has infringement proposition immunity for that such the indirect pursuant to purportedly indirect/contributory such See 1580 640 F.2d 1156, not for 1498(a). § 113 F.3d 1572, has when infringement and the liability cases government infringement assumed v. United States, Although is appropriate to hold for direct Gargoyles Inc. v. United States, 1997); Decca Ltd. law cited by Morpho 1167 stand waived infringement (Fed. Cir. (Ct. CI. for the its sovereign under § 271(b) or § 271(c), such cases do not directly analyze the liability of a contractor who is manufacturing an infringing product for the United States government and purportedly contributing towards or inducing the government to use such product in an infringing manner. Turning to the language of § 1498(a), that whenever an invention covered by a U.S. 10 such statute states patent "is used or manufactured by or for the United States" without a license or a lawful right to do so, "the owner's remedy shall be by action against the United States in the United States Court of Claims for the recovery of his reasonable compensation for such use and manufacture." (emphasis added). Such language and 28 U.S.C. demonstrates Federal entire § 1498(a) that the sole remedy of a patent owner in such circumstances is a suit against the United States in the Court of relief obtained in that court is Federal that the "entire compensation" the Claims and for both the manufacture and the use of the patented invention. In addition to the plain language of from the United States Supreme Court the statute, and the case law Federal Circuit both support the above interpretation of the statutory text. Zoltek Corp. 2012), the v. United States, Federal Circuit 672 F.3d 1309, recently 1316 (Fed. at length, discussed, evolution of § 1498 since its initial passage in 1910. in 1918, Supreme in Court version of patent include States the midst decided § 14 98 as infringement the as the a World case War I and interpreting shortly the Cir. the Notably, after the then-operative failing to shield warship contractors from liability, language well of In Congress referencing language amended the statute to manufacture indicating proscribed remedy in the Court of Federal 11 that "for" the the United statutorily Claims would be the "entire compensation" Id. at 1315-16. As a for any infringing use and manufacture. As noted by the Federal Circuit in Zoltek: result of the [1918] amendment, the Government not only waived sovereign immunity for its own unlawful use or manufacture of a patented invention, but, in most cases, assumed liability when its contractors did so. Moreover, when applicable, the amendment made the specified remedy exclusive. Id. at 1316 (citation omitted) (emphasis added). The statutory analysis in Zoltek draws heavily from the Supreme Court's prior opinion in Richmond Screw Anchor Co. v. United States, 331 (1928), amendment as The in which the Supreme Court amendment was described 275 U.S. the 1918 follows: purpose of the to relieve the contractor entirely from liability of every kind for the infringement of patents in manufacturing anything for the government, and to limit the owner of the patent and his assigns and all claiming through or under him to suit against the United States in the Court of Claims for the recovery of his reasonable and entire compensation for such use and manufacture. The word 'entire' emphasizes the exclusive and As comprehensive character of the remedy provided. the Solicitor General says in his brief with respect to the act, it is more than a waiver of immunity and effects an assumption of liability by the government. Id. at 343-44 (emphasis added). Accordingly, it is clear that the § 1498(a) directly aligns with Congress' by the Federal Circuit recently, century ago. entirely from That purpose was language of purpose as interpreted and the Supreme Court nearly a to "'relieve liability of every kind for 12 plain the the contractor infringement of patents in manufacturing anything for the government' in order 'to stimulate contractors to furnish what was needed for War I] , without infringements.'" fear of Zoltek becoming Corp., (quoting Richmond Screw, 275 672 U.S. at liable F.3d [World themselves at 1324 343-45) for (en banc)7 (emphasis added). Morpho's argument therefore fails based on the plain language of the statute, accepted which provides responsibility contractor, the sole that the for remedy once direct against the United States has infringement its United States the of or such government contractor is reasonable compensation obtained in the Court of committed committing Federal some Claims. form direct of The indirect infringement infringing devices to TSA, directive in § 1498(a) as fact that Smiths infringement, by in manufacturing may have addition and to selling is insufficient to undercut the clear to the exclusive nature of the remedy provided therein.8 7 The Federal Circuit's opinion in Zoltek expressly overruled prior Federal Circuit precedent, including an earlier opinion in that case, and in order to do so, a portion of the opinion was en banc. 8 Although this Court's ruling is based on the plain language of § 1498(a), the Court separately notes that the rule espoused by Morpho could eviscerate the purpose of the statute. Under Morpho's interpretation, if a government contractor directly infringed on a patent by manufacturing an infringing product for the government, but in doing so, also committed some form of indirect infringement, the government's assumption of liability under § 1498 would not operate to insulate the supplier from a civil suit for infringement. Accordingly, the statutory "immunity" established by Congress for government contractors, therefore fail to would be ineffective, "'stimulate contractors 13 and the statute would to furnish what [is] In addition to the above, the Court notes that the case law relied on by Morpho to support the proposition that the United States government can never be held responsible for indirect infringement pursuant to § 14 98 appears to have been called into question by the last year. en banc portion of Although the Federal the Zoltek opinion, Circuit's Zoltek opinion was not addressing indirect infringement under 35 U.S.C. § 271(c), § 271 in liability order is to determine necessarily liability Circuit opinions), whether predicated (as held in prior "[t]he plain language of independently 1498(a) or § government 271(a) direct published Federal liability could result Zoltek Corp. , 672 F.3d at 1317-23 The en banc Court concluded that, operates § on or whether § 1498(a) from § 271(g) liability. law, § 271(b) it directly addressed the interplay between § 1498 and infringement banc). decided § 1498(a) from Title (en contrary to prior case indicates 35" and that that § 1498 u[i]nstead of relying on any infringement sections of § 271, § 1498(a) creates its own independent cause of action." Id. at 1321 (emphasis added). Although notes the conclusion of that the opinion does not the panel reach "the opinion in Zoltek issue of indirect necessary'" for effective operation of the government (here, securing safe air travel) because the government contractors would remain in "'fear of becoming liable themselves for infringements.'" Zoltek Corp., 672 F.3d at 1324 (en banc) (quoting Richmond Screw, 275 U.S. at 343-45) . 14 infringement, before under § 271(b), [the Court]," the (c) , and (f) , en banc portion of which the [was] not opinion quoted above appears to undercut the continuing viability of pre-Zoltek cases that recognize a direct interplay between 28 U.S.C. and 35 U.S.C. Zoltek, ever However, like the Federal Circuit in this Court need not determine whether the government can be 271(b) § 271. § 14 98 held or § liable under 271(c) § 1498(a) for the indirect/contributory government's infringement § because the facts of this case clearly demonstrate that Smiths directly infringed on Morpho's granting that government, See manufacture of consent, through expressly accepted liability for such direct infringement. § 14 98(a) and the and or authorization and affirmatively 28 U.S.C. its patent ("For the purposes of an invention this section, described in patent of the United States by a contractor, and the use covered by a a subcontractor, or any person, firm, or corporation for the Government and with the authorization or consent of the Government, shall as use or manufacture for the United States.") Accordingly, based on government's express the "authorization September 2012 TSA contract, and entire remedy undisputed provided facts and be construed (emphasis added). surrounding consent" as to the the this Court finds that the exclusive in § 1498(a) applies to Smiths' infringing sales to TSA as the manufacture of such infringing devices is being conducted "for 15 the Government and with the authorization therefore, and must consent obtain of its the Government." reasonable and Id. entire Morpho, compensation for such infringement in the Court of Federal Claims. request for damages TSA is in this Court as to Smiths' Morpho's large sale to therefore denied. B. Damages Calculation for Accounting Period Turning to the eighteen infringing units Smiths sold during the accounting period to customers grants Morpho's request for damages found by the jury. on Smiths' At trial, profits were TSA, the Court in a ratio similar to that sale of 89 infringing units. lost than Morpho was awarded damages based Morpho did not seek lost profits.9 on which other before On nine of those units, Accordingly, of the 80 units the jury, the jury awarded lost profits on 41 units and a reasonable royalty on 39 units. Such divide percentage suggests of that slightly the more jury than selected 50 percent a lost of profits qualifying infringing sales. Contrary to Smiths' argument in its brief in opposition to Morpho's post-judgment damages motion, nothing about the jury's verdict suggests that the jury concluded that an acceptable non infringing alternative device "became available" to Smiths 9 At trial, Smiths was ordered to update Morpho on Smiths' sales data through September 6, 2012, and the sale of nine additional infringing units was disclosed through such update. Rather than seek to modify its expert's lost profits calculations to incorporate these additional units, Morpho only sought a reasonable royalty as to these nine additional units. 16 sometime between September of 2011 period of infringing sales that contrary, based on the agrees with Morpho and September were before the evidence presented at that the jury verdict 6, 2012, jury. trial, To the the suggests the Court that the several alternative non-infringing devices proposed by Smiths at trial such each had sufficient drawbacks alternatives damages period, its sales market. had been such that implemented Smiths would have by if Smiths the only other direct Accordingly, the Court the eighteen during lost slightly more to Morpho, calculation for one or more finds sales that made during the than half competitor in the of the proper damages the accounting period to customers other than TSA is the award of lost profits on nine such sales and the award of a reasonable royalty on the remaining nine sales. Co. , 2:06cv72, See DataTreasury Corp. 2011 WL 8810604, at *5-6 v. Wells Fargo & (E.D. Tex. Aug. 2, 2011) (explaining that, because "a patentee is entitled to damages for the entire period of infringement," be awarded "for any periods of jury verdict" and should be supplemental damages should infringement not covered by the "calculated damages awarded in the jury verdict"); Inc. Cir. v. Helena Laboratories Corp., 1991) (noting that "[i] f a consistent with the SmithKline Diagnostics, 926 F.2d 1161, winning 1164 n.2 patentee seeks (Fed. and proves lost profits, he is entitled to an award reflecting that amount," and that a judge awarding damages retains discretion to 17 both "choose between for determining way to the determine reasonable amount the of alternative accounting methods and of number lost profits" units") infringing "a reasonable (emphasis added). Based on the jury's total lost profits award and the number of qualifying infringing units identified by the jury, the total lost profits per unit (a calculation that included expected ongoing revenue from consumables necessary to operate the device over a number of years) that did not reasonable unit, a Morpho qualify royalty, the for the calculation and was $39,204.39. lost profits jury awarded a that royalty As to infringing sales fell between argued for by but did $7,500 the qualify for royalty on each royalty Smiths. sought Applying that qualify $3 9,024.3 9 per unit, $351,219.51. royalty, of The for result nine in a sales multiplied by $7,500, $67,500. lost Accordingly, profits, total lost that qualify result in a the total multiplied profits for a by such figures to the eighteen sales during the accounting period, nine sales a the by award of reasonable total royalty award damages award eighteen units sold during the accounting period, for the prior to the applicable interest calculation, is $418,719.51. IV. There Smiths is making not any Post-Judgment Ongoing Damages currently any infringing evidence sales 18 before after the the Court judgment of was entered in permanent this case. Nevertheless, injunction, determination of an Morpho's ongoing rather damages royalty than motion rate, pursing a Court equitable an seeks remedy that is sometimes appropriate in lieu of a permanent injunction. Paice LLC v. (Fed. Cir. Toyota Motor Corp., 2007). 504 F.3d 1293, Morpho's motion suggests, in opposition confirms, 1313 n.13, and Smiths' that the opposing parties' 1314 brief viewpoints on an ongoing royalty are so divergent that it appears impossible for the parties to agree on a royalty absent a Court order.10 See id. at 1315 (noting that although a district authority to impose a Court ordered ongoing royalty, court may wish to allow the parties to court has a "district negotiate a license amongst themselves regarding future use of a patented invention before imposing an ongoing royalty"). The low-likelihood of a successful negotiation is further underscored by the fact that several months have passed since Morpho filed its motion seeking an ongoing royalty and the parties have failed to reach agreement on a post-judgment reasonable royalty. Additionally, at informed the parties, was conclusion of the on the record, available to help between the parties. jury trial, the Court that a Magistrate Judge of this facilitate any post-verdict Trial Tr. 1041, ECF No. 353. the Court discussions The parties 10 Smiths seeks an ongoing royalty of $2,000 per unit, whereas Morpho seeks an ongoing royalty as high as $11,000 per unit, which is 5 M times the figure proposed by Smiths. 19 have not, however, taken facilitate negotiations. parties to fruitful, engage the in Court the Court up Accordingly, negotiations addresses on its offer to help rather than ordering the that are the parties' unlikely to be competing arguments below and concludes that an ongoing royalty for any post-verdict infringing sales shall be in the amount of $9,375 per infringing device. As previously discussed reasonably royalty figure at $7,500. the jury jury's finding of validity bargaining the sale royalty rate argued for by Smiths' Morpho seeks a royalty somewhere between $7,500 and $11,000 per infringing sale, (when the Such rate fell between the royalty rate argued for In the instant motion, superior affixed infringing for each pre-verdict by Morpho's expert and the expert. herein, and position hypothetical infringement as of negotiation the puts date takes arguing that the of place Morpho the for in a judgment the post- trial royalty) as compared to the position that Morpho was in at the time compensable infringement began (the date that the jury relied on as the date of In contrast, Smiths argues that the royalty should be $7,500 and Smiths purportedly around" Smiths, of at the hypothetical royalty negotiation). as little made Morpho's some as $2,000 substantial patent point based in in early the 20 on: (1) strides 2013; future, the toward (2) plans the to less than fact a that "design fact that retrofit infringing infringing devices sold after technology; (3) December the 19, that fact 2012 with a non third-party competitor has entered the "trace detector" market; and (4) the fact that Morpho is no longer seeking a permanent injunction. Having considered all of Smiths' arguments for reducing the ongoing royalty below the amount awarded by the jury, the Court finds that such a reduction is not appropriate in this case. Although Smiths argues that it is far along in the process to design around Morpho's patent, and that Smiths will retrofit any infringing units infringing sold after technology, December Smiths 19, 2012 acknowledges with such non that its design around work did not commence until after the jury returned its verdict of validity and infringement and Smiths is still speculating as to when such design around will be complete as well as whether it will be acceptable to Smiths' customers.11 Smiths has also failed to introduce any evidence quantifying the impact of the entry into the market of an additional competitor. Finally, Smiths has failed to demonstrate why Morpho's decision not to pursue a permanent injunction, which was made after the judgment was 11 The entered, should Court further notes that result in a reduction Smiths agrees that the of the "hypothetical negotiation" for an ongoing royalty occurs at the time of the judgment, and two months after the judgment was entered Smiths was still speculating as to how many months it would take to complete and fully implement its ongoing post-judgment efforts to effectuate a de sign-around. 21 ongoing royalty rate applicable to what, post-verdict, appears to amount to willful infringement of a valid patent. In argument contrast that to after found that Smiths' the the above, jury Morpho found offers Morpho's a compelling patent valid and commercialized product infringed on Morpho's patent, Morpho was in a far superior bargaining position than it was in more than a year earlier, affixing this the pre-verdict earlier date, the date the jury relied on in royalty Smiths not rate only at had $7,500. a Notably, reasonable basis at to argue that its product was non-infringing, but clearly believed, as demonstrated by its vehement arguments throughout this case, that Morpho's patent was as invalid as anticipated and/or invalid obvious based on prior art. verdict, any post-infringing In contrast, sales to after the third parties jury's were/are made with a substantially diminished belief that such sales are permissible non-infringing sales. See Amado v. Microsoft Corp., 517 F.3d 1353, 2008) 1361-62 (Fed. Cir. ("[E]asily dispos[ing]" the defendant's argument that the district court was limited by the jury's reasonable fundamental difference pre-verdict infringement," royalty . . infringement and . award because between a and explaining reasonable damages that "[t]here for prejudgment is a royalty for post-verdict damages are affixed within the context of uncertainty regarding infringement and validity, whereas post-verdict 22 "a judgment of validity and infringement markedly has different involved") ; because that Inc., while . . [and] different F.3d Amado an . calculus 1343 with injunction was v. are Verizon (Fed. the is factors Inc. 1312, dealt the economic Networks, 694 "although royalty damages [such] entered ActiveVideo Communications, (noting been Cir. 2012) imposition of stayed during appeal, holding applies with equal force in the ongoing royalty context"). In sum, having considered both parties' changed circumstances between September of the judgment in December of 2012, circumstances Court the on finds the parties' that arguments as to 2011 and the date of as well as the impact of such respective an ongoing bargaining positions, royalty 25% found by the jury is appropriate in this case 12 Morpho has not specifically invoked 35 U.S.C. higher 12 than that Accordingly, § 284, which governs "enhanced damages" based on a finding of willful infringement. Furthermore, Morpho's current request for an ongoing royalty of no greater than the $11,000 figure advanced by Morpho's expert at trial further suggests that Morpho is not seeking "enhanced" damages. If a request for enhanced damages had been made and post-trial willful infringement was found to have occurred, this Court would balance the nine factors (Fed. Cir. Instruments, set 1992), forth in Read Corp. v. Portec, abrogated on other grounds Inc. , 52 F.3d 967, 975 (Fed. Inc., 970 F.2d by Markman v. Cir. 1995) 816 Westview (en banc)). If called upon to weigh such factors, this Court would similarly conclude that a 25% increase in the reasonable royalty set by the jury in this case was appropriate because several of the Read factors favor Morpho, but others favor Smiths. favoring Morpho are that Specifically, the the jury found that most compelling Smiths factors copied Morpho's patented product, and that Smiths' non-infringement and invalidity defenses have been squarely rejected by the jury undercutting Smiths' "good faith" belief that its product was non-infringing. In contrast, the most compelling factors favoring Smiths are Smiths' asserted remedial action (including its claimed 23 plan to retrofit infringing after considering all the arguments advanced by the parties, the evidence royalty adduced for at trial, post-judgment the Court infringing sets sales the at and ongoing $9,375 per infringing device. V. For GRANTED, the reasons Conclusion set forth in part, and DENIED, Prejudgment interest compounded quarterly, above, Morpho's motion is in part. is AWARDED at and post-judgment the interest the statutory rate set forth at 28 U.S.C. prime is rate, AWARDED at § 1961. Damages from the accounting period that can be recovered in this Court are other limited to than TSA because liability for the required to the eighteen sales made the United States infringing sales made has to to customers directly assumed TSA, and Morpho is recover its reasonable and entire compensation for such infringement in the United States Court of Federal Claims. As to the eighteen sales reasonable lost nine sales, post-judgment royalty profits infringement is are for a combined total of $418,719.51. any a Court, nine for and this awarded on As sales before by awarded on Smiths, the ongoing royalty rate for each post-judgment infringing sale is $9,375. devices), as well infringement. as the relatively short 24 time frame of actionable The Clerk is INSTRUCTED to send a copy of Order to IT all IS SO counsel of this Opinion and record. ORDERED. / ¢^n# Mark UNITED Norfolk, Virginia October H , 2013 25 STATES S. Davis DISTRICT JUDGE
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