Opinion ID: 210050
Heading Depth: 3
Heading Rank: 3

Heading: The District Court's Escrow Determination

Text: Charged in our last remand with the disposition of the funds placed in escrow during the stay of the permanent injunction, the district court determined that Amado was entitled to $0.12 per infringing unit. The district court start[ed] with the jury's reasonable royalty of four cents, and trebled the award to $0.12 using the trebling for willful [infringement] as a guideline. Escrow/Injunction Order at 33. Amado argues that the district court abused its discretion by failing to award the full $2.00 per infringing unit placed into escrow. Microsoft also challenges the award, arguing that the district court abused its discretion by awarding more than the $0.04 reasonable royalty found by the jury. Amado's argument for reversal of the district court's damages award rests on his belief that the district court, in its order staying the injunction, set the amount he would receive if he prevailed on appeal. Thus, he argues that the district court did not have discretion on remand to step in after-the-fact and issue Microsoft a refund. As we expressly observed in our prior opinion, we do not read the district court's order, or the proceedings leading to that order, as setting an amount Amado would receive if successful on appeal: [W]e wish to make clear that we do not read the district court's August 2, 2005, order  requiring the creation of an escrow account as a condition of the stay of the permanent injunction  as having determined the ultimate disposition of the funds required to be deposited in the escrow account. Amado I, 185 Fed.Appx. at 953. Consistent with our understanding of the order, on remand the district court explained: In ordering the two dollar per unit escrow payments, the Court ensured that Microsoft set aside the upper limit of any eventual stay-related escrow award. The Court never indicated that Amado would receive two dollars per unit, rather the Court left the determination of how much Amado should receive per unit for another day, observing that this issue could be rendered moot by subsequent developments in the case. Escrow/Injunction Order at 29. Not only is the district court's interpretation of its escrow order consistent with our understanding, it is reasonable, and thus entitled to deference. Consequently, we reject Amado's claim that he is necessarily entitled to $2.00 per infringing unit. On the other side of the dispute, Microsoft argues that the district court was entitled to award Amado no more than $0.04 per infringing unit, the amount the jury found to be a reasonable royalty. We easily dispose of this argument as well. The jury's award of $0.04 per unit was based on Microsoft's infringing conduct that took place prior to the verdict. There is a fundamental difference, however, between a reasonable royalty for pre-verdict infringement and damages for post-verdict infringement. Cf. Paice LLC v. Toyota Motor Corp., 504 F.3d 1293, 1317 (Fed.Cir. 2007) ([P]re-suit and post-judgment acts of infringement are distinct, and may warrant different royalty rates given the change in the parties' legal relationship and other factors.) (Rader, J., concurring). Prior to judgment, liability for infringement, as well as the validity of the patent, is uncertain, and damages are determined in the context of that uncertainty. Once a judgment of validity and infringement has been entered, however, the calculus is markedly different because different economic factors are involved. See id. at 1315. This is not a case like Paice, however, where the court's task was to assess an appropriate level of damages for ongoing infringement under circumstances in which an injunction was not warranted. Here, Microsoft was enjoined from further infringing activity yet was permitted to continue only by virtue, and with the imprimatur, of the court-ordered stay. The district court's escrow award of a $0.12 post-verdict royalty did not expressly consider that Microsoft's infringing sales took place following the grant of an injunction that was stayed. As noted above, the district court had authority to dissolve the permanent injunction only prospectively. Therefore, the royalty determination should have taken into account the fact that the sales, although authorized under the terms of the district court's stay, were nevertheless infringing and subject to an injunction. Here, the district court centered its damages assessment on willful infringement. But willfulness, as such, is not the inquiry when the infringement is permitted by a court-ordered stay. Moreover, the district court, by trebling the amount the jury found to be a reasonable royalty, began with a faulty premise, because as we have noted, that damages award was based on pre-verdict infringement. When a district court concludes that an injunction is warranted, but is persuaded to stay the injunction pending an appeal, the assessment of damages for infringements taking place after the injunction should take into account the change in the parties' bargaining positions, and the resulting change in economic circumstances, resulting from the determination of liability  for example, the infringer's likelihood of success on appeal, the infringer's ability to immediately comply with the injunction, the parties' reasonable expectations if the stay was entered by consent or stipulation, etc.  as well as the evidence and arguments found material to the granting of the injunction and the stay. Because we are unable to determine whether the district court's award of $0.12 was a reasonable exercise of its discretion, id. (It is important for the district court to provide a concise but clear explanation of its reasons for the fee award. (internal punctuation modified) (citing Hensley v. Eckerhart, 461 U.S. 424, 437, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983))), we vacate the district court's escrow award and remand the matter to the district court for reconsideration. [2]