Damages for Post-Infringement-Verdict Sales Are Affected by the Stay of Injunction

Addressing the issue of damages for a post-infringement-verdict period, the U.S. Court of Appeals for the Federal Circuit reversed the district court’s unexplained damage award, which trebled the per unit royalty rate for the post-verdict period, and remanded the damages issue for further consideration in view of the parties’ post-verdict legal relationship. Amado v. Microsoft Corp., Case Nos. 07-1236, -1255 (Fed. Cir., Feb. 27, 2008) (Linn, J.).

The plaintiff is the inventor and owner of a patent directed to automatically linking database records. The plaintiff alleged that multiple versions of Microsoft’s Office Suite infringed the patent. The jury found for the plaintiff and awarded reasonable royalty damages of $0.04 per infringing unit. The district court issued but stayed a permanent injunction against Microsoft pending the appeal and required that Microsoft make escrow deposits of $2.00 per unit sold during the stay. In an earlier appeal, the Federal Circuit affirmed and remanded for consideration of the disposition of the escrow funds. On remand, the district court initially stayed and ultimately dissolved the permanent injunction (based on its finding of no irreparable harm) and awarded Amado $0.12 per unit for Microsoft’s post-verdict infringement, i.e., the trebled the rate awarded for infringement before the verdict. Amado contended that the proper award was $2.00 per unit, the full escrow amount, while Microsoft contended it was the $0.04 per unit awarded by the jury. Amado appealed the dissolution of the injunction. Microsoft cross-appealed the award of $0.12 per unit and the denial of its motion for relief from judgment.

The Federal Circuit affirmed the orders dissolving the injunction and denying relief from judgment, but vacated the award of $0.12 per infringing unit sold during the stay, holding that different economic factors were involved in calculating damages during the post-verdict period versus the pre-verdict period and that a clear explanation of the post-verdict damages was required.

The Federal Circuit panel concluded that the district court failed to adequately explain the basis for its post-verdict damages award and that the recent Supreme Court case Microsoft v. AT&T may affect the determination of liability and post-verdict damages. The Court also indicated that, post- eBay, the factors affecting the assessment of damages after the injunction is granted should include the infringer’s likelihood of success on appeal, the infringer’s ability to immediately comply with the injunction and whether the stay was entered by consent or stipulation.

The Federal Circuit also rejected both Amado’s and Microsoft’s damages contentions. As for Amado’s contentions, the Court noted that that $2.00 per unit was simply an upper limit on damages. Responding to Microsoft’s contention, the Court observed that while $0.04 per unit was the proper measure for pre-verdict damages, there were fundamental differences between reasonable royalties before and after the verdict due to the uncertainty of the patent validity and infringement before the verdict. The Court held that the district court should have expressly considered Microsoft’s infringing sales following the grant of the injunction for three reasons: the legal relationship between the parties changed after the verdict and Microsoft was enjoined from further sales but allowed to continue only by the stay; trebling the jury award was not the accurate measure of damages because willfulness was not the proper inquiry when the infringement was permitted by the court-ordered stay; using the pre-verdict damages as baseline for trebling was improper because the pre-verdict award was dictated by different circumstances. The Court remanded the case, indicating its belief that the post-verdict damages would logically fall between $0.04 and $2.00 per infringing unit.

Practice Note: In this case the Federal Circuit has squarely held that in cases in which a permanent injunction against the infringer is stayed pending the appeal there is no presumption of treble damages during the stay period.

In an interesting side issue, Amado challenged the authority of the district court to continue the stay of injunction or for Microsoft to now attempt to invoke the permanent injunction analysis handed down by the Supreme Court in eBay, contending that under the Federal Circuit mandate rule the issue was foreclosed to Microsoft since the eBay decision came down prior to the oral argument in the first appeal; Microsoft expressly declined to seek relief from the permanent injunction (based on the eBay decision) during oral argument; and therefore, after the Federal Circuit mandate issued in this case, it was inappropriate for Microsoft to seek relief on the basis that eBay was an “intervening” case. The Federal Circuit agreed with Amado on the applicability of the mandate rule, but nevertheless held that the district court was “well within its discretion” to reconsider prospective application of the injunction in light of eBay.

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