Center for Advanced Study & Research on Intellectual Property

 

CASRIP Newsletter - Winter/Spring 2008, Volume 15, Issue 1

The Federal Circuit Clarifies Rules on Damages for Post-verdict Patent Infringement: Amado v. Microsoft Corp.

By Zhe Peng[1]

I. OVERVIEW

On February 26, 2008, the Federal Circuit decided Amado v. Microsoft Corp.[2] and clarified damage calculation rules for post-verdict infringement. The Federal Circuit held that damages for post-verdict infringement could be considered separately from damages for pre-verdict infringement, and required the district court to provide a clear explanation for its damage assessment on remand. Moreover, the Federal Circuit provided a more detailed standard to guide district courts when considering damages for the sale of an infringing product during a stay of a permanent injunction. The Federal Circuit also held that the Supreme Court’s Microsoft v. AT&T case, decided after the appeal was filed, has retroactive effect. [3]

II. BACKGROUND

Patent owner, Carlos Armando Amado (“Amado”) filed a complaint against software developer, Microsoft Corporation (“Microsoft”), alleging patent infringement of U.S. Patent 5,293,615 (“the '615 patent”).[4] The disputed patent is directed to a point and shoot interface for linking database records to spreadsheets. After a jury verdict in the patentee's favor, royalties were assessed ($0.04 per unit), and a permanent injunction was entered, but the injunction was stayed pending resolution of the appeal. Microsoft was ordered to deposit $2.00 per unit in escrow during the stay. Microsoft filed an appeal denying infringement, arguing that the court wrongfully interpreted a claim in the patent. Amado then filed a cross appeal asserting that Microsoft’s actions constituted willful infringement and requesting a new trial on damages.

The Federal Circuit affirmed in part and remanded in part.[5] On remand, the United States District Court for the Central District of California assessed a royalty for the infringing units sold during the stay, and dissolved previously-issued permanent injunction.[6] The royalty during the stay was $0.12 per unit —$0.04 trebled— due to a willfulness finding. The parties appealed again. The Federal Circuit affirmed the dissolution of the permanent injunction while vacating and remanding for determination, the appropriate award of damages for the sale during the stay of the injunction.

III. ANALYSIS

A.
  1. RECONSIDERATION OF DAMAGE FOR POST-VERDICT SALE

The Federal Circuit clarified that a district court is allowed to recalculate its damage award according to infringement during the stay of a permanent injunction, but required the district court to provide a sufficient explanation for a new royalty rate. While dissolving the injunction, the district court had awarded $0.12 cents per infringing unit for sale during the stay. Both Microsoft and Amado appealed this award: Microsoft argued that the original $0.04 per infringing unit was the proper amount, Amado argued for the $2.00 per infringing unit escrow amount.[7]

The Federal Circuit cited its prior opinion in Amado I[8] to clarify that even though the district court ordered the $2.00 per unit escrow payment, that did not mean that Amado would receive $2.00 in damages per unit. The damage award for post-verdict infringement is still open to review, according to the court.

By reviewing and clarifying Paice LLC,[9] the Federal Circuit confirmed that the royalty rate for post-verdict infringement could be different from that for pre-verdict infringement.[10] Thus, the district court should reconsider the damages for sales during the stay, which will be different from the royalty rate set by the jury for the pre-verdict infringement. The Federal Circuit explained that prior to judgment, liability for infringement, as well as the validity of the patent, is uncertain, and damages are determined in the context of that uncertainty. Once a judgment of validity and infringement has been entered, the calculus is markedly different because different economic factors are involved.[11]

The Federal Circuit was not persuaded by the district court’s reasoning in setting the post-verdict damages at $0.12 per unit. The Federal Circuit reasoned that the jury’s finding for pre-verdict infringement should not be used for determining damages for post-verdict infringement and that willfulness is not the right inquiry for sale during the stay. Thus, the court remanded the decision on damages for further consideration.[12] The Federal Circuit also provided the factors that the district court should take into account on remand.[13]

B. FACTORS IN RECONSIDERATION

The Federal Circuit required the district court to provide a clear and concise explanation of its damage award[14] and it set criterion to guide the district court on remand.[15]

The Federal Circuit clarified that sales authorized under the terms of the district court’s stay were nevertheless infringing and subject to an injunction.[16] However, it stated that willfulness is not the inquiry when the infringement is permitted by a court-ordered stay. The district court should not have centered its damages assessment on willful infringement.[17]

In addition to willfulness, the Federal Circuit also provided several factors which the district court should take into account when reconsidering the damages for the post-verdict infringement, especially the infringement that happened during the stay of the injunction, which is pending on appeal. These factors include the change in the parties’ bargaining positions, and the resulting change in economic circumstances, resulting from the determination of liability--for example, the infringers likelihood of success on appeal, the parties’ ability to immediately comply with the injunction, the parties’ reasonable expectations, as well as the evidence and arguments found material to the granting of the injunction and the stay.[18]

C. RETROACTIVE EFFECT OF SUPREME COURTS’ DECISIONS ON REMAND

The Federal Circuit also confirmed that certain Supreme Court decisions will have a retroactive effect on the ongoing trial. As a result, the Supreme Court’s decision in AT&T may affect the damage award when the district court reconsiders damages for the post-verdict sales.[19]

The Federal Circuit concluded that the Supreme Court’s decision in AT&T, which was decided after the parties filed the appeal, could be asserted on remand. In AT&T, the Supreme Court held that the liability under 35 U.S.C. §271 does not extend to the installation of software onto a computer abroad when the copies of that software were made abroad, because in such case the copies are not “supplied” from the United States within the meaning of the statute.[20] Consequently, Microsoft argues that any damages awarded to Amado should be limited to products manufactured or sold in the United States. Citing Harper,[21] the Federal Circuit said that when the Supreme Court applies a rule of federal law, that rule must be given full retroactive effect in all cases still open on direct review. Also, it stated that it is irrelevant whether such events open on review predate or postdate the announcement of the rule. The Federal Circuit concluded that Microsoft could assert the potential limiting effect of the AT&T decision, however, the district court instead of the Federal Circuit should decide whether the AT&T decision should be applied, depending whether sales were “supplied from the United States.”[22]

IV. CONCLUSION

The Amado case, which has ping-ponged between the district and appellate courts, raises the problem of damage calculation for post-verdict infringement. It presented the opportunity for the Federal Circuit to summarize and clarify the rules on this issue. The Federal Circuit confirmed that damages for post-verdict infringement could be different from damages for pre-verdict infringement. Meanwhile the jury’s damage award for the pre-verdict infringement should not be used to decide the post-verdict infringement damages. Since the damages for the post-verdict infringement are still open to review, the Supreme Court’s decision in AT&T has retroactive effect, eventhough this decision was decided after the appeal was filed. In addition to reviewing and clarifying precedents, the Federal Circuit provided a more detailed guideline to determine damages for infringement taking place during the stay of an injunction. While the court made it clear that willfulness is not the right inquiry, since the sale was permitted according to the stay, application of other factors are left for the district court’s consideration on remand.

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Footnotes

  • [1] Zhe Peng is an LL.M candidate at University of Washington School of Law, Intellectual Property Law and Policy Program.
  • [2] Amado v. Microsoft Corp., 517 F.3d 1353, (Fed. Cir. 2008).
  • [3] Id.
  • [4] Id. at 1356.
  • [5] Amado v. Microsoft Corp., 185 Fed. Appx. 953 (Fed. Cir. 2006).
  • [6] Amado v. Microsoft Corp., No. 8:03-CV-242 (C.D. Cal. Mar. 13, 2007).
  • [7] Amado, 517 F.3d at 1356.
  • [8] See Amado, 185 Fed. Appx. 953, 953 (Fed. Cir. 2006).
  • [9] Paice LLC v. Toyota Motor Corp., 504 F.3d 1293, 1315 - 17. (Fed. Cir. 2007).
  • [10] Amado, 517 F.3d at 1361,1362.
  • [11] Id, at 1358.
  • [12] Id.
  • [13] Id.
  • [14] Hensley v. Eckerhart, 461 U.S. 424, 437 (1983).
  • [15] Amado, 517 F.3d at 1362.
  • [16] Id.
  • [17] Id.
  • [18] Id.
  • [19] Id. at 1364.
  • [20] Amado, 185 Fed. Appx. 953 at 953.
  • [21] Harper v. Va. Dep't of Taxation, 509 U.S. 86, 97 (1993).
  • [22] Amado, 517 F.3d at 1364.

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Last updated 4/27/2012