Patent Infringement Damages and Injunctions – The Basics

Patents, as one part of intellectual property protection, provide a valuable property right and play an important role in economic development, a reward for innovations, add to the technological knowledgebase, and increase the general welfare. Patentees obtain patents for defensive purposes (file applications for publication and issuance to create prior art against others); commercial purposes (for licensing, monetization, or advertising/marketing); or offensive purposes (for enforcement). When a patentee chooses to enforce the patent, the end goal of patent litigation needs to be well-understood. This article will discuss some of the basics of the remedies available to patentees. Now obviously there are myriad considerations in patent infringement damages and injunctive relief so this article cannot do justice to all those situations. 

Patent Infringement Damages – How Much Can I Win?

Section 285 of the patent law governs the availability of money damages. It says: 

Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.

When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed.

The court may receive expert testimony as an aid to the determination of damages or what royalty would be reasonable under the circumstances.

The statute specifically provides that the available money shall be adequate to compensate for the infringement. It fixes the minimum amount to at least a reasonable royalty. But the statute does not explain what the “other” damages amounts are if not a reasonable royalty. The statute also allows for enhanced damages up to 3 times the amount. Contrary to popular myth, the enhancement of damages is not fixed at 3 times; it is up to 3 times. In 1964, the Supreme Court distilled the damages theory to mean that if the infringer didn’t infringe, then what would the patentee have made? When thinking about a typical patent infringement, suppose both the patentee and infringer compete head to head on the infringing product. Every sale by the infringer would have been made by the patentee. One could measure the damages in a few ways: one is the patentee gets its lost profits (how much it lost because of the infringement); second is the disgorgement of the infringer’s profits; and third is a reasonable royalty. Patent law does not permit, however, a disgorgement of the infringer’s profits. It may seem nonsensical because the patentee could be a small company, the infringer is a huge company, and makes much more from the infringement. Without a disgorgement of the infringer’s profits, it may seem that huge profitable infringers would infringe because it may still be profitable to do so. It is beyond the scope of this article to discuss if disgorgement is appropriate in patent law, and if Congress needs to step in to fix any issue.

Lost Profits In Patent Infringement

Patent damages include: the patentee’s lost profits or a reasonable royalty; but not disgorgement of the defendant’s profits. For more than 50 years, the lost profits calculation has been based on the so-called Panduit factors. This requires a “but-for” causation; that is, but for the infringement, would the patentee have made the sales? Accordingly, the lost profits theory is usually reserved for the two-competitor market (the patentee and the infringer), a duopoly. Under the Panduit factors, the patentee is entitled to lost profits if the patentee can establish 4 things:

(1) demand for the patented product;

(2) absence of acceptable non-infringing alternatives;

(3) manufacturing and marketing capability to exploit the demand; and

(4) the amount of profit it would have made.

Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538, 1545 (Fed. Cir. 1995)(en banc)(citing to: Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156 (6th Cir. 1978).

In the pharmaceutical or medical device patent infringement context, the devil could be in the details. The demand for the patented product considers the demand as a whole. The absence of acceptable non-infringing alternatives can be problematic for patentees. For example, in a specific pharmaceutical drug product, what is “acceptable” or not is contextual. Is the inquiry narrowly focused on that drug product itself (e.g., drug XYZ itself) or on the class of products? More specifically, suppose the infringement is over “Nofattystatin”, a statin used to reduce cholesterol. If there is just one competitor who infringes, is there not acceptable alternative? Or could the infringer argue that Nofattystatin is just one of many other good statins available and that even if the infringer never infringed, patients could have taken other statins. For the last factor on the amount of profit, this is intensely factual. A typical patentee will argue that only COGS should be deducted from the revenues, hence maximizing the profits. Infringers will argue that more expenses should be loaded into the calculus so as to reduce the operative profit margin. I discuss the various theories of patent infringement damages in Chapter 32 of Generic Pharmaceutical Patent and FDA Law (July 2022 Ed.)(available in Westlaw GENPHARMA database). There’s been only one case in which a generic drug infringement case has gone the full distance to a lost-profits jury determination. See Sanofi-Aventis Deutschland GmbH v. Glenmark Pharmaceuticals Inc., USA, 748 F.3d 1354 (Fed. Cir. 2014)(re: Tarka). To be sure, generic companies have launched so-called “at risk” but have later settled. 

Reasonable Royalty In Patent Infringement

If the patentee cannot establish lost-profits entitlement, then the reasonable royalty theory will apply. The royalty calculation is based on the royalty rate (usually as a percentage) multiplied against the royalty base amount. The fundamental basis of the royalty is the reasonableness of it. And this is another devil in the detail. Suppose a generic drug company launched the generic version of the branded drug, but was found infringing. Is it reasonable for the patentee brand company to argue that the royalty rate should be nearly 100% because a reasonable brand drug company would not negotiate with a generic company regarding the generic drug launch. Would the rate be so high in such a compulsory license? If the brand company has settled with other generic companies, would those royalty rates apply? If the branded company in-licensed relevant patents and pays royalties to the original patentee, are those relevant?

The courts use the so-called Georgia Pacific factors, a 15-factor test to determine the royalty. There is no requirement for the patentee to prove up each factor and no one factor is more important than the others. Because of the applicability of the 15-factor test, the royalty calculus is very much driven by competing expert witnesses. The Federal Circuit also has stated that there is no magic royalty rate, such as the famous 25% rule of thumb, against which the rate is raised or lowered. See, Douglas Dynamics, LLC v. Buyers Products Co., 717 F.3d 1336, 1346 (Fed. Cir. 2013)(“In regard to the reasonable royalty award for the ′530 and ′978 Patents, this court vacates and remands for the following reasons. First, the district court abused its discretion by applying the infamous 25% rule of thumb, which this court held in Uniloc was fundamentally flawed. Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1317 (Fed. Cir. 2011).”). Only one case went the full distance to determine the reasonable royalty in a generic drug launch at risk context. See, Astrazeneca AB v. Apotex Corp., 985 F. Supp. 2d 452, 506 (S.D. N.Y. 2013), aff’d in part, rev’d in part, 782 F.3d 1324 (Fed. Cir. 2015) (“Applying that rate to the infringing sales made by Apotex, Apotex owes $76,021,994.50 plus pre-judgment interest.”)(includes detailed discussion of calculating 50% royalty). 

Because prosecuting a patent infringement lawsuit to completion (and completion means a Federal Circuit ruling), a patentee must evaluate whether the basic patent infringement damages are worth it. It should be recalled that patent damages are not automatically enhanced nor is reimbursement of fees/costs the norm.  

Patent Injunctive Relief – Can I Throw The Infringer Off The Market?

There are different kinds of injunctive relief available. A party can seek an injunction to force the other party to do something the other party is not yet doing. Or an injunction can be used to stop a party from doing something it is currently doing. Typical patent infringement usually involves the latter. Federal Rule of Civil Procedure Rule 65 governs injunctions and restraining orders. The first kind of injunction is the temporary restraining order (TRO). A TRO usually is obtained quickly but is time-limited. The patentee can seek the TRO on an ex-parte basis (without written oral notification to the infringer). Even if the patentee wins the TRO, it only lasts for 14 days and the TRO then dies its natural death. The patentee can then seek a preliminary injunction (PI). Like the TRO, the PI is designed to preserve the status quo during the litigation pendency. The patentee must show that it is entitled to the PI, by showing the traditional PI factors: (i) likelihood of success on the merits; (ii) irreparable harm; (iii) balance of equities; and (iv) the public interest. Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 20 (2008); BlephEx, LLC v. Myco Industries, Inc., 24 F.4th 1391, 1398-99 (Fed. Cir. 2022). 

In the PI context, much of the inquiry will be on the “likelihood of success” factor because questions of infringement and invalidity will be fiercely contested. And timing also matters. Obviously early in the case, there will be generally be less evidence about infringement and invalidity. One issue that rankles the courts is the level of proof needed to show a likelihood of invalidity. Because the patent is presumed valid, in a full trial on the merits, the defendant bears the burden of proving invalidity by clear and convincing evidence. But is that the same burden needed during the PI proceeding? Courts will say “no” but a court may seemingly force the defendant to show the full case of invalidity by clear and convincing evidence even at the PI level. Courts have stated that the accused infringer need only show a substantial question of invalidity and need not fully prove up the invalidity as if it was at trial. 

Finally, the last injunction is the permanent injunction. Assuming the patentee wins the infringement case (and the competitor is on the market with the competing product), can the patentee win an injunction that throws the infringer off the market? This is the concept of a permanent injunction. Normally, patent infringement is considered akin to the tort of trespass. And if a trespasser is found liable, it can be enjoined from further trespassing. 

The Supreme Court in Ebay v. MercExchange, 547 US 388 (2006), was asked to determine that if the patentee has finally won, is the permanent injunction automatic to throw the infringer off the market. The Supreme Court rejected the Federal Circuit’s per se rule that if the patentee won, the permanent injunction is automatically awarded, except in the few and rare circumstances. The Supreme Court stated that the traditional rules of equity apply, namely that: (1) it has suffered an irreparable injury; (2) remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) the public interest would not be disserved by a permanent injunction. eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006). The analysis begins, as it must, with Section 283 of the statute, which says (emphasis added): 

The several courts having jurisdiction of cases under this title may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable.

As the plain language of the statute states, the court “may grant” the injunction, not “must grant” the injunction. This permissive versus mandatory grant should be reconciled with Section 154(a)(1), which is the right to exclude others from infringement, and with Section 261, which is that patents have the attributes of personal property. 

In other words, Sections 154(a)(1) and 261 state that patentees have property rights that include the right to exclude someone from trespassing on that property right. The eBay Supreme Court made obtaining a permanent injunction harder to get because it relied, without much discussion, that the “may grant” provision is explicit. Some may suggest that the permanent injunction should be automatic but that only in the cases of public safety or public health should the “may grant” provision apply. That is, the exception should be narrow. The 1934 case relating to the City of Milwaukee sewer treatment is an example of the public health exception. There, the permanent injunction was denied because the City itself would be enjoined from sewer sludge treatment. City of Milwaukee v. Activated Sludge, 69 F.2d 577, 593 (7th Cir. 1934). 

Accordingly, for a permanent injunction, the winning patentee may no longer be entitled to the full injunction automatically, but is now required to prove up the 4 factors in eBay. The issue of the permanent injunction is very fact specific. Patentees may argue that winning the infringement case creates at least a presumption of irreparable injury (factor 1). 

In health care, the patentee may also argue that there is inadequate remedy at law. The patentee may argue that in the generic drug context, continued sales of the generic drug will continue to erode the patentee’s drug product sales because of insurance payor plans or state substitution laws. 

Hardships also are balanced. Patentees will argue that it unfair that the brand company patentee invested $X millions to develop the drug and that compulsory licenses puts the patentee into a hardship. Both parties would argue that hardships would include decreased sales or profits, employee layoffs, diverted attention to other life saving measures, etc. 

And as to public interest, losing health care companies, like pharma companies or medical device companies, would argue that patients need different choices in drugs or devices, that patients can respond differently to different products (e.g., a choice between the patentee’s products versus the infringer’s products), or that costs matter to patients or other payors. As such, it is unfair to throw the infringer off the market and deprive patients of such choices. The courts need to strike a workable balance between protecting patentee rights and protecting the public from the injunction’s effects. 

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