Source: https://casetext.com/case/xy-llc-v-trans-ova-genetics-lc-14
Timestamp: 2019-04-19 20:42:16+00:00

Document:
XY, LLC, Plaintiff / Counterclaim Defendant, v. TRANS OVA GENETICS, LC, Defendant / Counterclaim Plaintiff.
Trans Ova appealed the jury's verdict (among other things) and XY cross-appealed the ongoing royalty rates set by the Court (among other things). The Federal Circuit affirmed the verdict and most of the judgment, but vacated the Court's ongoing royalty rates for further consideration. See XY, LLC v. Trans Ova Genetics, 890 F.3d 1282 (Fed. Cir. 2018). As discussed more thoroughly below, the Federal Circuit's major concern was that the rates set by this Court were too low, effectively putting Trans Ova in a better position than it should be as an adjudged infringer.
For the reasons explained below, the Court agrees with XY about the scope of the royalty base. The Court will also set ongoing royalty rates that somewhat align with what XY has requested, but in certain ways do not. Finally, the Court will require XY to submit a form of amended judgment.
The Court finds it appropriate to begin by determining the royalty base.
The jury awarded $4,585,000 (see ECF No. 461 at 9), which is manifestly a rounded-up version of Mr. Schoettelkotte's proposal. The Court therefore previously held "that the jury adopted Mr. Schoettelkotte's damages analysis." (ECF No. 500 at 23.) No party has since challenged this assertion, either in this Court or on appeal.
Although the jury's adoption of Mr. Schoettelkotte's damages analysis is unchallenged, Trans Ova nonetheless argues that his view of the royalty base does not control.
Trans Ova cannot relitigate the patents post-verdict. As for economic infeasibility—a theme that runs through all of Trans Ova's arguments, both as to the royalty base and the royalty rate—the Federal Circuit has already foreclosed that consideration. First, in the appeal from this case, the Federal Circuit established that the ongoing royalty could be no less than the pre-verdict royalty awarded by the jury. XY, 890 F.3d at 1298. The Federal Circuit's decision made no qualification for whether that rate is economically feasible for Trans Ova. By extension, any claim that expanding the royalty base would likewise create economic infeasibility is similarly foreclosed. Second, the Federal Circuit's decision in ActiveVideo Networks, Inc. v. Verizon Communications, Inc., evaluates an ongoing royalty established by the district court that "seem[ed] high" and to which the infringer "likely . . . would not have agreed . . . prior to the litigation." 694 F.3d 1312, 1342. The Federal Circuit held the judgment of validity and infringement created "a substantial shift in the bargaining position of the parties," justifying a royalty rate to which a licensee would never have agreed under normal business conditions. See also State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1580 (Fed. Cir. 1989) ("There is no rule that a royalty be no higher than the infringer's net profit margin."). Thus, Trans Ova's arguments have no relevance here.
Because the jury agreed with XY as to the scope of pre-verdict royalty base, the Court, again, must assess a post-verdict royalty on the same base to avoid granting Trans Ova a windfall. See XY, 890 F.3d at 1298.
XY additionally requests that the Court's order specify that Trans Ova's royalty obligation "shall be considered to have commenced on February 12, 2016, the last day of trial, such that Trans Ova shall owe XY ongoing royalties for all covered sales made since then." (ECF No. 593-9 at 2.) The Court agrees that the judgment should so specify. This request is therefore granted.
XY, 890 F.3d at 1298. Thus, this Court must decide anew an appropriate reasonable royalty, no lower than 15% of gross sales, plus 4% for reverse sorting services, and in any event no lower $5 per straw or per service (prorated per the parties' prior course of dealing, as applicable).
It appears to the Court that Trans Ova is interpreting the Federal Circuit's references to "post-verdict" circumstances as a direction to consider any post-verdict circumstances, up through the present time. The Court, by contrast, interpreted "post-verdict" to refer to circumstances as they existed immediately after the verdict. However, the Court will not foreclose Trans Ova's interpretation without further briefing.
The Court construes the Federal Circuit's repeated focus on circumstances "between the date of first infringement and the date of the jury's verdict," [XY, 890 F.3d at 1297, 1298], as foreclosing the sort of re-opening of the record Trans Ova proposes. Moreover, under the circumstances of this case, the Court finds that re-opening of the record is inappropriate in any event. Accordingly, no new motion practice is needed from either party. The Court will decide anew XY's Motion to Set an Ongoing Royalty Rate on the record as it existed as of XY's reply in support of that motion and under the principles set forth in the Federal Circuit's appeal decision.
The Court's statement "that re-opening of the record is inappropriate in any event" deserves some elaboration. In the Court's view, it would be inequitable to calculate a reasonable royalty based on circumstances as they currently exist, although not because of the delay inherent in the additional discovery Trans Ova proposed. The Court's task is to establish the royalty rate that it should have imposed shortly after the verdict—the rate that Trans Ova should have begun paying as of February 12, 2016. To permit Trans Ova to argue from current (post-remand) circumstances would potentially permit it to profit from what turned out to be this Court's error and the delay inherent in correcting that error on appeal. In other words, if this Court had originally imposed royalty of, say, 18.75% + 5% (XY's lowest pre-judgment proposal, see ECF No. 471 at 6), and the Federal Circuit had affirmed in the face of a challenge from Trans Ova, then Trans Ova's royalty obligation would have been and would continue to be 18.75% + 5%. But if Trans Ova may now try to persuade this Court to impose a royalty lower than these figures based on circumstances since the Court first imposed a royalty, Trans Ova would be gaining an advantage it never would have otherwise received but for the Court's error. Whether changed circumstances might justify a lower rate today (a matter on which the Court expresses no opinion) is not relevant to what Trans Ova should have been paying as of as of February 12, 2016.
The Federal Circuit stated that this Court's "focus [when calculating a reasonable royalty] should have been on XY's improved bargaining position [in light of the verdict] and any other changed economic factors (as articulated in Amado, ActiveVideo, and Paice)." XY, 890 F.3d at 1298. The three referenced decisions are Amado v. Microsoft Corp., 517 F.3d 1353 (Fed. Cir. 2008); ActiveVideo, supra; and Paice LLC v. Toyota Motor Corp., 504 F.3d 1293 (Fed. Cir. 2007). The basic thrust of each of these cases is that a jury verdict declaring a patent infringed and not invalid significantly changes the parties' bargaining positions in favor of the patentee, see ActiveVideo, 694 F.3d at 1342-43; Amado, 517 F.3d at 1361-62; Paice, 504 F.3d at 1314-15, absent intervening factors not present here, XY, 890 F.3d at 1298.
The authority cited in the Federal Circuit's decision on appeal forecloses anything less than the 15% basic rate assessed by the jury. Moreover, even awarding 15% (the same as the jury) would likely be error because the jury was considering a reasonable rate for pre-verdict infringement and the Federal Circuit has emphasized that the verdict itself is a changed circumstance that strengthens the patentee's bargaining position. See XY, 890 F.3d at 1297.
In this light, the Court finds Mr. Schoettelkotte's post-verdict royalties largely, although not completely, persuasive. Concerning the basic rate (what the Court previously awarded at 12.5%), the Court will award 18.75%. The Court finds that this figure, on the low end of XY's proposed range, is most appropriate considering that the highest negotiated rate XY imposed on any licensee was 10%. Given that, a rate substantially higher than the 15% floor that constrains this Court is not justified on this record. The Court finds that an increase of 25% over the 15% floor, to 18.75%, is sufficient and reasonable.
Concerning the minimum royalty on a 2-million-cell straw, Mr. Schoettelkotte proposes $7.50, a figure he arrived at as follows: "the jury found that the royalty rate for sexed straws should be affixed at 15%, which is a 50% increase over the contractual royalty rate of 10%. Applying the 50% increase to the $5 per straw minimum would suggest a new minimum price of $7.50 per straw." (ECF No. 470 ¶ 17.) However, XY has offered no evidence that the 10% royalty rate and the $5 minimum were directly economically correlated, such that an increase to one implies a need to increase to the other. If anything, a higher royalty rate suggests that the per-straw minimum is less important because it would come into play less often. But the Court agrees to the limited extent that XY's changed bargaining power in these circumstances would permit it to extract a higher per-straw minimum, regardless of economic correlation to the royalty rate. The Court finds that, similar to the 25% increase over the 15% floor, a 25% increase to the per-straw minimum is appropriate, or in other words, a minimum of $6.25 per 2-million-cell straw, prorated as appropriate.
Finally, XY requests that "the Court order Trans Ova to provide XY with quarterly royalty reports sufficient to allow XY to evaluate Trans Ova's compliance with the ongoing royalty set by the Court." (ECF No. 471 at 12.) This request is reasonable and will be granted.
For the reasons set forth above, the Court ORDERS as follows: 1. XY's Motion to Set an Ongoing Royalty Rate (ECF No. 471) is GRANTED IN PART and DENIED IN PART as stated above; 2. XY's Motion for Clarification of the Court's Judgment on Ongoing Royalties (ECF No. 592) is GRANTED; 3. No later than April 8, 2019, XY shall file a proposed form of amended judgment embodying the Court's rulings regarding the royalty rates, royalty base, the date on which these rates took effect, and reporting requirements. On that same day, XY shall also e-mail an editable copy of the document to martinez_chambers @cod.uscourts.gov.

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