Lump Sum Reasonable Royalty Damages Award Vacated and Remanded

Last week, the United States Court of Appeals for the Federal Circuit issued an opinion in Enplas Display Device Corp. v. Seoul Semiconductor Co., Ltd., No. 2016-2599 (Nov. 19, 2018). After affirming the district court judgment of induced infringement, the Federal Circuit vacated and remanded the damages award as to one of the asserted patents. At trial, Seoul Semiconductor’s damages expert testified a hypothetical reasonable royalty negotiation with respect to that patent would have resulted in a lump-sum royalty of $2 - $4 million to cover not just the accused products, but also other similar and potentially infringing products Enplas may sell in the future. The expert testified such a license represented the pragmatic business approach to avoid future infringement disputes and negotiations. The jury awarded $4 million in damages based on this testimony, and the district court denied Enplas’s motion for JMOL. The Federal Circuit, Stoll, J., joined by Hughes, J., reversed. The Court held the expert’s method of estimating the volume of potentially infringing future products improperly relied on Enplas’s past sales of non-infringing products. The Court explained a reasonable royalty cannot include activities that do not constitute patent infringement. And the expert failed to explain how past sales volumes for non-accused products predicted future sales volumes of “infringing or even potentially infringing” products. Newman, J., dissented from reversal of the damages award. The dissent asserted Enplas did not appeal the denial of its motions to exclude the expert testimony before and during trial. The dissent further asserted the jury award, viewed with appropriate deference, was based on substantial evidence, including reasonable business considerations and a reasonable expert estimate of sales of infringing and potentially infringing products. The lesson: While a reasonable royalty damages award for patent infringement can properly take the form of a lump sum that includes estimated future sales of infringing or potentially infringing products, the estimated volume of such future sales cannot be based on past sales of non-accused products.