Aqua Shield v. Inter Pool Cover Team, No. 2014-1263, 2014 U.S. App. LEXIS 24132 (Fed. Cir. Dec. 22, 2014) (Taranto, J.). Click Here for a copy of the opinion.
Aqua Shield sued IPC for infringement of U.S. Pat. No. 6,637,160. The district court in New York denied Aqua Shield's request for preliminary injunction, and the case was eventually transferred to the District of Utah. Aqua Shield moved for summary judgment of infringement and validity, which the court granted. On issues concerning relief, the court granted a permanent injunction against IPC, found that Aqua Shield failed to prove lost-profit damages or a reasonable royalty, and held that IPC's infringement was not willful. Upon reconsideration, the court allowed Aqua Shield to recover a reasonable royalty. Using IPC's profits on past infringing sales as the royalty base and 5% as the royalty rate, premised on a hypothetical arms-length negotiation, the court awarded Aqua Shield $10,800 in damages. Aqua Shield appealed the district court's royalty award methodology and its ruling of non-willfulness.
The Federal Circuit vacated the district court's royalty calculation and remanded. In a hypothetical-negotiation, the core question is what the infringer "would have anticipated the profit-making potential of use of the patented technology to be, compared to using non-infringing alternatives." The infringer's actual profits during the period of infringement may be relevant, but "only in an indirect and limited way." Thus, the district court erred in treating IPC's actual profit as a royalty cap. The district court also "incorrectly replace[d] the inquiry into the parties' anticipation of what profits would be earned if a royalty . . . were to be paid with an inquiry into what profits were earned when IPC was charging prices without accounting for any royalty." Because IPC could have raised its price to account for a royalty payment, the district court's royalty award was incorrect. In other words, an infringer cannot rely on its infringement (lower costs and lower prices) to discount a reasonable royalty award.
To prove willful infringement, a patentee must: (1) show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent; and (2) demonstrate that this objectively-defined risk was either known or so obvious that it should have been known to the accused infringer. The district court concluded there was no willful infringement because it denied Aqua Shield's motion for preliminary injunction. The court also relied on IPC's design-around efforts. After summary judgment finding that IPC's accused products were infringing, IPC instructed its factory to change its product in a manner it believed would avoid the patent's claims, and it argued this change was relevant to non-willfulness.
The Federal Circuit observed that denial of a preliminary injunction denial may influence a finding of no willfulness, but this "depends on why the preliminary injunction was denied." Here, the district court denied a preliminary injunction because of personal jurisdiction questions and because Aqua Shield had insufficient knowledge for IPC's accused product to show a likelihood of success on the merits. These considerations are irrelevant to the infringement or validity analysis and, and hence to willfulness, because they "cannot reasonably be read to support a conclusion that any substantial basis existed for doubting infringement or validity." Regarding IPC's design-around, the Federal Circuit held that whether the IPC's product changes were actually implemented or whether the resulting products avoided infringement are relevant to willfulness, but are questions yet to be answered. The Federal Circuit therefore vacated and remanded the district court's non-willfulness decision.
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