The U.S. Court of Appeals for Federal Circuit affirmed a district court’s authority to set an "ongoing royalty" in lieu of an injunction, but remanded the case to the district court for additional fact finding on the proper amount of the "ongoing royalty." Paice LLC v. Toyota Motor Corporation, et. al., Case No. 07-1610, -1631 (Fed. Cir., Oct. 18, 2007) (Prost, J.; Rader J., concurring).
After a successful infringement trial, Paice sought an injunction. In light of the Supreme Court’s eBay decision, the district court denied the injunction. Sua sponte, the district court entered an order requiring that Toyota pay a $25 per vehicle royalty for future acts of infringement. The $25 per vehicle figure matched the jury award for past infringement damages.
Paice appealed the post-verdict royalty rate set by the district court. Paice argued that the district court did not have the statutory authority to set a royalty rate between the parties and, if it did have such authority, Paice had a Seventh Amendment right to have a jury set the rate for the ongoing royalty.
In affirming the district court, the panel first turned to the language of 35 U.S.C. § 283, noting that the statute allows a district court to enter injunctions "to prevent the violation of any right secured by a patent." Thus, the question turned on whether a court-imposed royalty payment prevents the violation of rights secured in the patent. Relying upon past precedent that allowed the imposition of ongoing royalty payments in antitrust settings and others, the panel determined that a district court had the power to set an ongoing royalty rate in lieu of an injunction.
The panel then turned to and rejected Paice’s argument that it was entitled to have a jury set the ongoing royalty. First, the panel reviewed § 283 to determine if Congress granted a right to have a jury set a royalty award. Finding it did not, the panel applied a traditional Seventh Amendment analysis that asks whether the cause of action was one that would have been tried at law or equity upon the enactment of the Constitution. Noting that equity courts often required accounting for profits, the panel determined the monetary award sought by Paice standing alone was insufficient to trigger rights under the Seventh Amendment. Thus, Paice failed to show the district court erred in not having a jury determine the royalty rate.
Although the panel rejected Paice’s arguments, it vacated the amount set for the "ongoing royalty" because the record was insufficient for the panel to review the district court’s rate determination. The panel remanded for further proceedings on the proper "ongoing royalty," with a suggestion that the district court have the parties negotiate an amount. The district court could hold further hearings and determine the rate if the parties could not agree.
Judge Rader wrote separately to take issue with the majority’s characterization of the order as an "ongoing royalty," as opposed to a "compulsory licenses."; and with the majority "suggesting" that the district court have the parties negotiate the royalty rate. Judge Rader noted that any order by a court that allows the continued infringement of a patent for a royalty payment is a compulsory license. In Judge Rader’s view, any ongoing payment would not be a compulsory license if the parties agree to the amount. Therefore, Judge Rader would require the district court to have the parties hold negotiations concerning the proper amount; only upon the failure of these negotiations, should the district court step in to set the amount of the future royalty.
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