Opinion ID: 697651
Heading Depth: 3
Heading Rank: 1

Heading: Reasonable Royalty is a Proper Measure of Adequate Damages

Text: 184 Finally, Rite-Hite argues that the highest possible damages should be imposed to deter infringers and that the district court, therefore, correctly assessed a higher lost profits award in lieu of a reasonable royalty. Rite-Hite also argues that a reasonable royalty creates a compulsory license. Both points are meritless. As indicated, a finding of infringement is not dependent on a finding of negligence or culpable intent by the wrongdoer. An infringement, like a trespass, may be committed unknowingly. In such situations, the amount of damages manifestly can have no effect to deter an unknowing infringer. Basic damages, which are at issue here, fall on the innocent and the culpable to the same extent. See Intel Corp. v. United States Int'l Trade Comm'n, 946 F.2d 821, 832, 20 USPQ2d 1161, 1171 (Fed.Cir.1991); Thurber Corp. v. Fairchild Motor Corp., 269 F.2d 841, 845, 122 USPQ 305, 308 (5th Cir.1959); see also Kansas City S. Ry. Co. v. Silica Prods. Co., 48 F.2d 503, 508, 8 USPQ 476, 481 (8th Cir.), cert. denied, 284 U.S. 626, 52 S.Ct. 11, 76 L.Ed. 533 (1931); Thompson v. N.T. Bushnell Co., 96 F. 238, 243 (2d Cir.1899). Cf. Seymour v. McCormick, 57 U.S. (16 How.) at 488. The provision for trebling damages is the deterrent against deliberate infringement. 185 The spectre of a compulsory patent license is raised. However, a damages award calculated as a reasonable royalty gives no mandatory license. If it did, relief by way of an injunction against future use makes no sense. 21 A reasonable royalty is simply a measure of damages, not a license. Dowagiac, 235 U.S. at 649, 35 S.Ct. at 224; Fromson v. Western Litho Plate & Supply Co., 853 F.2d 1568, 1574-76 (Fed.Cir.1988). The remedy Congress itself selected cannot be condemned on the ground it conflicts with Congress' views reflecting compulsory licenses. Obviously, it does not. 22 A reasonable royalty is in fact a Congressional largesse for cases where a patentee might otherwise receive only nominal damages. A patentee is now statutorily entitled to a reasonable royalty even though it has not suffered or cannot prove a financial loss to its market in patented goods. J. Conclusion 186 The majority holds that it has balanced the interests of the patentee and the infringer. I disagree. In Fogerty v. Fantasy, Inc., --- U.S. ----, ----, 114 S.Ct. 1023, 1030, 127 L.Ed.2d 455 (1994) the Supreme Court stated: 187 Because copyright law ultimately serves the purpose of enriching the general public through access to creative works, it is peculiarly important that the boundaries of copyright law be demarcated as clearly as possible. To that end, defendants who seek to advance a variety of meritorious copyright defenses should be encouraged to litigate them to the same extent that plaintiffs are encouraged to litigate meritorious claims of infringement.... Thus a successful defense of a copyright infringement action may further the policies of the Copyright Act every bit as much as a successful prosecution of an infringement claim by the holder of a copyright. 188 The same policy statement applies equally to patent law enacted under the complementary provision of Article I, section 8 of the Constitution. Challengers who have meritorious defenses to a charge of patent infringement should be encouraged to litigate them without fear of ruinous damage awards. Kelley mounted a substantial and legitimate challenge to the validity and its infringement of the '847 patent in suit. Kelley was held to be wrong on both points, but its infringement was not willful. The district court stated that the Kelley people [acted] in the spirit of good competition and certainly did not intend to infringe. 629 F.Supp. 1042, 1045, 231 USPQ 160, 161. The consequence of expansion of legal injury in this case is that the patentee's major competitor, an innocent infringer, has been forced into bankruptcy by the lost profits award on unprotected goods. This result does not further the policies of the patent statute. Patentees are a favored class but this decision goes too far in the scope of protection. It is not the remedy Congress understood and intended to provide. 189 Commercialization of inventions in the fast changing world of today is at least as viable a purpose of the patent statute as under the prior statutes. For our patent system to fully serve its goal of promoting economic growth, innovations must make it to market during the patent term. The period of exclusivity, a monopoly in the market place, is granted to that end. 190 The Senate Report on the legislation that culminated in this court's creation cites the following testimony of Harry F. Manbeck, Jr., then General Patent Counsel for the General Electric Company and later Commissioner of Patents and Trademarks: 191 Patents, in my judgment, are a stimulus to the innovative process, which includes not only investment in research and development but also a far greater investment in facilities for producing and distributing goods. Certainly, it is important to those who must make these investment decisions that we decrease unnecessary uncertainties in the patent system 192 The Federal Courts Improvement Act of 1981, S.Rep. No. 97-275, 97th Cong., 1st Sess., 6 (1981). 193 The Senate Report on the 1980 Reexamination statute cites the following testimony of then Commissioner of Patents and Trademarks Sidney Diamond: 194 Indeed, the patent system was established to provide certain incentives for the conduct of activities critical to our economic and technological prosperity--the invention of new and improved technology, the disclosure of this technology to the public, and the investment in its commercialization. 195 Patent Reexamination, S.Rep. No. 96-617, 96th Cong., 2d Sess., 9 (1980). These are but two examples emphasizing the present day importance of patents as an incentive for investment in marketing the products for which the exclusive market is given. An exhaustive treatment would occupy a sizeable tome. 196 It cannot be disputed that Congress intended that the patent grant provide an incentive to make investments in patented products during the patent term. If a patentee is rewarded with lost profits on its established products, the incentive is dulled if not destroyed. Why make the investment to produce and market a new drug if the patent on the new discovery not only protects the status quo in the market but also provides lost profits for the old? 197 For the foregoing reasons, I would hold that an injury to the patentee's marketing of products protected only by other patents--if at all--does not fall within the grant of rights protected by the '847 patent in suit and is not compensable. Thus, I would vacate the award of lost profits on 3,283 sales based on Rite-Hite's loss of business in ADL-100 restraints and remand for damages to be assessed on the basis of a reasonable royalty for those infringements.