A Compulsory License by Any Other Name Still Smells . . .The Same

Paice, LLC, v. Toyota Motor Corp., [2006-1610,-1631](October 18, 2007)[PROST, LOURIE, RADER] The Federal Circuit affirmed judgment that Toyota infringed claims 11 and 39 of U.S. Patent No. 5,343,970, that Toyota did not literally infringe claims 11 and 39 of the ’970 patent, claim 15 of the U.S. Patent No. 6,209,672, and claims 1 and 2 of U.S. Patent No. 6,554,088, and the district court’s imposition of an ongoing royalty arrangement that allows Toyota to continue practicing the invention of the ’970 patent in exchange for a set royalty payment.
SIGNIFICANCE: The Federal Circuit endorses on-going royalty in lieu of injunctions as a remedy a court can impose.
BRIEF: Regarding the infringement determination, the Federal Circuit rejected Toyota's attack on Paice's expert's testimony. The Federal Circuit also rejected Toyota's argument that Paice's criticism of the prior art limited the claims. Agreeing that criticism of the prior art can limit the scope of claims, as it did in SciMed Life Systems, Inc. v. Advanced Cardiovascular Systems, Inc., Gaus v. Conair Corp., and Dawn Equip. Co. v. Ky. Farms Inc., the Federal Circuit found that Paice distinguished the prior art in the same way Toyota's product was different from the prior art, and thus the criticism of the prior art did not distinguish Toyota's products, which like the claims relied upon a microprocessor controller.
Regarding the denial of the injunction, LOF: "The decision to grant or deny permanent injunctive relief is an act of equitable discretion by the district court, reviewable on appeal for abuse of discretion." As to the on-going royalty, Paice complained that its was beyond the statutory authority of the court, and in any event should be determined by the jury. The Federal Circuit first explained that an on-going royalty was different from a compulsory license, which by definition was open to all comers. The Federal Circuit began with 35 U.S.C. § 283, which provides in relevant part: "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." The Federal Circuit characterized the issues as whether an an order permitting use of a patented invention in exchange for a royalty is properly characterized as preventing the violation of the rights secured by the patent. The Federal Circuit said that under some circumstances, awarding an ongoing royalty for patent infringement in lieu of an injunction may be appropriate. cited Shatterproof Glass Corp. v. Libbey–Owens Ford Co. The Federal Circuit said:

In most cases, where the district court determines that a permanent injunction
is not warranted, the district court may wish to allow the parties to negotiate
a license amongst themselves regarding future use of a patented invention before
imposing an ongoing royalty. Should the parties fail to come to an agreement,
the district court could step in to assess a reasonable royalty in light of the
ongoing infringement.

While not disapproving of an on-going royalty, the Federal Circuit was critical of the way the amount was determined: "the district court’s order provides no reasoning to support the selection of $25 per infringing vehicle as the royalty rate. Thus, this court is unable to determine whether the district court abused its discretion in setting the ongoing royalty rate." Accordingly, the Federal Circuit remanded the case for the limited purpose of having the district court reevaluate the ongoing royalty rate.