Opinion ID: 697651
Heading Depth: 3
Heading Rank: 4

Heading: Computation of Reasonable Royalty

Text: 56 The district court found that Rite-Hite as a manufacturer was entitled to an award of a reasonable royalty on 502 infringing restraint or restraint-leveler sales for which it had not proved that it contacted the Kelley customer prior to the infringing Kelley sale. Rite-Hite, 774 F.Supp. at 1534, 21 USPQ2d at 1816. The court awarded a royalty equal to approximately fifty percent of Rite-Hite's estimated lost profits per unit sold to retailers. Id. at 1535, 21 USPQ2d at 1817. Further, the court found that Rite-Hite as a retailer was entitled to a reasonable royalty amounting to approximately one-third its estimated lost distribution income per infringing sale. Kelley challenges the amount of the royalty as grossly excessive and legally in error. 57 A patentee is entitled to no less than a reasonable royalty on an infringer's sales for which the patentee has not established entitlement to lost profits. 35 U.S.C. Sec. 284 (1988); Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1078, 219 USPQ 679, 681-82 (Fed.Cir.1983) (If actual damages cannot be ascertained, then a reasonable royalty must be determined.). The royalty may be based upon an established royalty, if there is one, or if not, upon the supposed result of hypothetical negotiations between the plaintiff and defendant. Id. at 1078, 219 USPQ at 682. 13 The hypothetical negotiation requires the court to envision the terms of a licensing agreement reached as the result of a supposed meeting between the patentee and the infringer at the time infringement began. Id. One challenging only the court's finding as to amount of damages awarded under the 'reasonable royalty' provision of Sec. 284, therefore, must show that the award is, in view of all the evidence, either so outrageously high or so outrageously low as to be unsupportable as an estimation of a reasonably royalty. Lindemann Maschinenfabrik GmbH v. American Hoist & Derrick Co., 895 F.2d 1403, 1406, 13 USPQ2d 1871, 1874 (Fed.Cir.1990). 58 The district court here conducted the hypothetical negotiation analysis. It determined that Rite-Hite would have been willing to grant a competitor a license to use the '847 invention only if it received a royalty of no less than one-half of the per unit profits that it was foregoing. In so determining, the court considered that the '847 patent was a pioneer patent with manifest commercial success; that Rite-Hite had consistently followed a policy of exploiting its own patents, rather than licensing to competitors; and that Rite-Hite would have had to forego a large profit by granting a license to Kelley because Kelley was a strong competitor and Rite-Hite anticipated being able to sell a large number of restraints and related products. See Deere & Co. v. International Harvester Co., 710 F.2d 1551, 1559, 218 USPQ 481, 487 (Fed.Cir.1983) (court may consider impact of anticipated collateral sales); Georgia-Pacific Corp. v. United States Plywood Corp., 318 F.Supp. 1116, 166 USPQ 235, (S.D.N.Y.1970) (wide range of factors relevant to hypothetical negotiation), modified and aff'd, 446 F.2d 295, 170 USPQ 369 (2d Cir.), cert. denied, 404 U.S. 870, 92 S.Ct. 105, 30 L.Ed.2d 114 (1971). It was thus not unreasonable for the district court to find that an unwilling patentee would only license for one-half its expected lost profits and that such an amount was a reasonable royalty. The fact that the award was not based on the infringer's profits did not make it an unreasonable award. See State Indus., 883 F.2d at 1580, 12 USPQ2d at 1031 (The determination of a reasonable royalty ... is based not on the infringer's profit margin[; t]here is no rule that a royalty be no higher than the infringer's net profit margin.); Stickle v. Heublein, Inc., 716 F.2d 1550, 1563, 219 USPQ 377, 387 (Fed.Cir.1983) (royalty need not be less than price of infringing unit). Furthermore, the fact that the award was based on and was a significant portion of the patentee's profits also does not make the award unreasonable. The language of the statute requires damages adequate to compensate, which does not include a royalty that a patentee who does not wish to license its patent would find unreasonable. See Del Mar, 836 F.2d at 1328, 5 USPQ2d at 1261 ([The] imposition on a patent owner who would not have licensed his invention for [a certain] royalty is a form of compulsory license, against the will and interest of the person wronged, in favor of the wrongdoer.). Moreover, what an infringer would prefer to pay is not the test for damages. See TWM, 789 F.2d at 900, 229 USPQ at 528 (that the parties might have agreed to a lesser royalty is of little relevance, for to look only at that question would be to pretend that the infringement never happened; it would also make an election to infringe a handy means for competitors to impose a compulsory license policy upon every patent owner). 59 We conclude that the district court made no legal error and was not clearly erroneous in determining the reasonable royalty rate. Accordingly, we affirm the trial court's calculation of a reasonable royalty rate. However, because we vacate the court's decision to include dock levelers in the royalty base, we remand for a redetermination of damages based only on the sale of the infringing restraints and not on the restraint-leveler packages.