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IP Alert: Federal Circuit Gives Guidance on Royalty Evidence and Willfulness

March 16, 2021

On March 1, in Bayer HealthCare LLC v. Baxalta Inc., the Federal Circuit held that a damages expert in a patent case may testify to a range of reasonable royalty rates and not a single royalty rate, and a jury may reasonably choose a rate within that range. The court also held that an infringer’s mere knowledge of infringement of the asserted patent is inadequate to show willful infringement without a further showing of wanton, malicious, and bad-faith behavior.

The Federal Circuit addressed Baxalta’s appeal of a jury award of $155,190,264 in reasonable royalty damages based on a 17.78% royalty rate applied to a $872,836,128 royalty base. At trial, the expert testified to a range from 5.1% to 42.4%, but not to a single royalty rate. The district court had excluded the expert’s chosen single royalty rate of 23.75% because it was the midpoint of the range and inadequately based on the Nash Bargaining Solution and nothing else. The Federal Circuit held the expert’s opinion on the upper and lower royalty rates was adequately supported by analysis of Georgia-Pacific factors. The court noted that the jury’s decision to use the 17.78% royalty rate was supported with substantial evidence because it was within the range that was in evidence.  

Regarding the district court’s judgment as a matter of law that Baxalta did not willfully infringe the asserted patents, the Federal Circuit rejected Bayer’s argument that evidence of Baxalta’s knowledge of infringement of the asserted patent was enough to show willfulness. Instead, the Federal Circuit held such evidence “is insufficient to establish that Baxalta’s ‘conduct rose to the level of wanton, malicious, and bad-faith behavior required for willful infringement.’” The Federal Circuit went on to explain, “Knowledge of the asserted patent and evidence of infringement is necessary, but not sufficient, for a finding of willfulness. Rather, willfulness requires deliberate or intentional infringement.” The court’s holding begs the question of what more is needed to show deliberate or intentional infringement, but the court did not answer the question or elaborate on what further proof is needed. 

The Bayer decision provides guidance to parties in establishing a reasonable royalty by allowing the damages expert to testify to a range of reasonable royalty rates without testifying to any single royalty rate and allowing the jury to choose a single rate with the range. The decision also confirms that there is a relatively high bar to proving willful infringement, with mere knowledge of infringement of the asserted patent not being enough.

For more information regarding this decision, please contact Fitch Even partner Karl R. Fink, author of this alert.

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