Page 84 - Intellectual Property Disputes

stating, "the law does not require that an infringer be permitted to make a profit." The Federal Circuit
continues to uphold this opinion. In Aqua Shield v. Inter Pool Cover Team, fn 77 the court vacated a tiny
reasonable royalty award because district court erred in how it considered defendant’s actual profits. The
court ruled that actual profits are relevant only to the extent they shed light on anticipated profits at the
time of the hypothetical negotiation and are not a cap on the royalty. Additionally, in Mars, Inc. v. Coin
Acceptors, Inc. (Coinco), fn 78 the defendant argued that "it should not be required to pay more in
reasonable royalty damages than it would have paid to avoid infringement in the first place by switching
to an available non-infringing alternative." In this case, the district court found that the defendant
"probably could have designed" an acceptable alternative, but had not, and, therefore, reduced the
royalty rate accordingly; the defendant argued that the reduction was not enough to take into account the
cost of its least expensive alternative. The Federal Circuit commented that "even if Coinco had shown
that it had an acceptable non-infringing alternative at the time of the hypothetical negotiation, Coinco is
wrong as a matter of law to claim that reasonable royalty damages are capped at the cost of
implementing the cheapest available, acceptable, non-infringing alternative." fn 79

The Mars court, in rejecting Coinco’s argument, cited Monsanto Co. v. Ralph fn 80 for the conclusion
that "a reasonable royalty deduced through a hypothetical negotiation process can never be set so high
that no rational self-interested wealth-maximizing infringer acting ex ante would ever have agreed to it."
fn 81 The district court and the Federal Circuit, however, "reject[ed] Coinco’s argument that a reasonable
royalty can never result in an infringer operating at a loss." fn 82 The appellate court remarked that,
although profitability is among the Georgia-Pacific factors, "the law does not require that an infringer
be permitted to make a profit." fn 83

In Monsanto Co. v. McFarling, fn 84 the Federal Circuit rejected the defendant’s opinion that a
"technology fee" in its license with the plaintiff was an established royalty for the determination of a
reasonable royalty; instead, the court ruled that the bargain for the technology fee was not similar to the
hypothetical negotiation context. Using the technology fee as the upper limit for the reasonable royalty
would create a windfall for infringers like McFarling. Such infringers would have a huge advantage over
other farmers who took the standard Monsanto license and were required to comply with the provisions
of the license, including the purchase-of-seed and non-replanting provisions. The evidence at trial

fn 77 Aqua Shield v. Inter Pool Cover Team, 774 F.3d 766 (Fed. Cir. 2014) (Taranto, J.).

fn 78 Mars, Inc. v. Coin Acceptors, Inc., 527 F.3d 1359 (Fed. Cir. 2008). The patents at issue relate to coin authentication technology
used in vending machines. After a bench trial, the court concluded that a blended rate of 7% for the two patents was reasonable and
awarded damages of $14,376,062.

fn 79 Id.

fn 80 Monsanto Co. v. Ralph, 382 F.3d 1374 (Fed. Cir. 2004). The patents at issue relate to herbicide-resistant plants.

fn 81 Id.

fn 82 Mars, 527 F.3d at 1359.

fn 83 Monsanto, 382 F.3d 1374 (Fed. Cir. 2004).

fn 84 Monsanto Co. v. McFarling, 488 F.3d 973 (Fed. Cir. 2007). The patents at issue relate to herbicide-resistant plants. The jury
awarded a reasonable royalty of $40 per bag of seed, less than the plaintiff’s proffered royalty of $80.65–$73.20 but well above that
proffered by the defendant, $6.50.

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