Addressing the correlation between an offer of judgment pursuant to Federal Rule of Civil Procedure 68 and a reasonable royalty determination under 35 U.S.C. §284, the U.S. Court of Appeals for the Federal Circuit held that an offer of judgment pursuant to Rule 68 did not constitute a "litigation royalty" "expressly determined…in accordance with the law applicable to 35 U.S.C. §284." Parental Guide of Texas, Inc. v. Thomson, Inc., Case No. 05-1493 (Fed. Cir. Apr. 21, 2006) (Clevenger, J; Rader, J; Dyk, J.).
Patent owner Parental Guide sued a number of parties, including Thomson, for patent infringement. Parental Guide and Thomson had entered into a settlement agreement whereby Thomson would pay a contingent payment based upon a "litigation royalty" if Parental Guide obtained a "favorable termination" of the lawsuit. A litigation royalty was defined as:
the lowest per unit reasonable royalty, if any, as expressly determined in the Lawsuit in accordance with the law applicable to 35 U.S.C. § 284, by the final, irrevocable, and nonappealable order in the Lawsuit.
As the case progressed, more parties settled with Parental Guide. In October of 2002, the last-remaining party, Mitsubishi, filed an offer of judgment pursuant to Rule 68. Parental Guide accepted and eventually filed a "satisfaction of judgment" with the Court, thus rendering the final judgment irrevocable and non-appealable.
Soon after Parental Guide demanded Thomson’s contingent payment described in their settlement agreement. Thomson refused and argued, among other things, that the royalty rate contained in the Rule 68 offer was not a "litigation royalty" as defined in their settlement agreement, and that no contingent payment was owed. On cross-motions for summary judgment, the district court decided in favor of Thompson, "holding that Thomson did not owe any contingent payment because no ‘Litigation Royalty’ and been ‘expressly determined…in accordance with the law applicable to 35 U.S.C. §284’ in the preceding lawsuit."
On appeal the Federal Circuit upheld the district court’s ruling; by employing a term of art of patent law, i.e., §284, the parties had intended the litigation royalty be defined in accordance with that term. A §284 reasonable royalty calculation is conducted within very specific confines: either a judge or jury performs the calculation in accordance with the Georgia-Pacific factors. In contrast, under Rule 68 the parties themselves agree to the terms of judgment. Neither the jury nor the judge nor the Georgia-Pacific factors need ever come into play. Therefore, the royalties agreed to by Parental Guide and Mitsubishi under Rule 68 did not fall within any of the scenarios contemplated by Parental Guide and Thomson in their settlement agreement.
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