United States: The Royalties In License Agreements With Non-Profit Organizations May Be Relevant To Determining Reasonable Royalties To Be Paid For Patent Infringement By A For-Profit Organization

Abstract

A Delaware court allowed a damages expert to use the royalty rates in an agreement with a university as a basis to calculate reasonable royalties to be paid by the infringer in the litigation, finding that an agreement with a non-profit organization was not so different from an agreement with a for-profit organization.

Background

RainDance and the University of Chicago sued 10X Genomics for infringing several patents. They then amended the complaint to drop one patent and assert an additional patent on behalf of RainDance only (though this patent was later dismissed from the case). When Bio-Rad acquired Rain Dance, Bio-Rad was substituted for RainDance as a party.

Later in the case, both sides asked the court to exclude opinions and testimony on several issues, including claim construction and damages. One of the opinions Bio-Rad and the University of Chicago sought to exclude was a license agreement between the University of Chicago and RainDance (Chicago-RainDance Agreement) to determine a reasonable royalty. According to Bio-Rad and the University of Chicago, the Chicago-RainDance Agreement was not comparable and could not be relied upon on the reasonable royalty analysis because the 1) the University of Chicago was a university and non-profit and 2) RainDance and University of Chicago were not competitors at the time of the agreement, whereas Bio-Rad and the University of Chicago were competitors of 10X. The court disagreed, finding the issues raised went to the weight, not the admissibility of the testimony.

The Bio-Rad  Decision

When determining if the Chicago-RainDance Agreement was "comparable" in the context of the reasonable royalty analysis, the court explained that alleging "loose or vague comparability" was not enough. The court, however, also explained that the degree of comparability and factors the expert considered to account for variables are factual issues better addressed through cross examination, rather than exclusion.

Here, Bio-Rad and the University of Chicago argued that the Chicago-RainDance Agreement was not comparable because University of Chicago was a non-profit and the mission of the university is to disseminate knowledge. Thus, the rates in the agreement would be lower than what the parties in this case would have agreed to in a hypothetical negotiation. 10X disagreed, countering that the University of Chicago retained a consultant to analyze and value the patents, and also sought to license the technology to at least 20 other companies. The court ultimately found that a license with a university was not so incomparable to a license with a for-profit company that the expert's testimony should be excluded. 

The court also addressed the argument that reliance on the Chicago-RainDance Agreement was improper because RainDance and Chicago were not competitors at the time of the agreement, whereas the parties in this case were competitors.  On this issue, the court found that was a factual question better addressed through cross-examination.     

Strategy and Conclusion

In calculating reasonable royalties, experts should not disregard agreements with non-profit organizations, as they may be sufficiently comparable in the context of the hypothetical negotiation. Similarly, when entering into agreements with non-profit organizations, parties should be aware that those agreements may later be used in litigation to determine what a reasonable royalty should be for similar patents, products, or technologies.    

Further Information

The  Bio-Rad decision can be found here.

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