Court Awards Reasonable Royalty of 50% of Gross Margin in Patent Infringement Action

In a December 3, 2013 ruling, Judge Denise L. Cote entered a damages award in the last of a long-running series of patent infringement actions brought by Astrazeneca against generic drug manufacturers over the active ingredient in Astrazeneca’s brand-name drug Prilosec for heartburn.  Apotex Corporation, the largest generic drug manufacturer in Canada, was the remaining defendant.  The Court had previously found Apotex liable for infringement, and the December 3 ruling concerns only the assessment of a reasonable royalty as damages.  After a lengthy analysis, Judge Cote concluded that “the hypothetical licensing fee to which [the parties] would have agreed would have been at least 50% of the Apotex gross margin from its sales” of the infringing products, and ruled that Astrazeneca “is entitled to damages in the amount of $76,021,994.50 plus pre-judgment interest.”

In reaching that decision, the Court considered three threshold issues.  First, Judge Cote analyzed whether the royalty should be applied to the full value of the infringing product, or merely to the supposedly “minimal” value of the infringing component.  The Court noted that “[w]here a product, typically an electronic product, is composed of many different components, royalties for infringement are awarded ‘based not on the entire product, but instead on the smallest salable patent-practicing unit.’”  The Court further wrote, though, that under the “entire market value” rule, “a patentee may assess damages based on the market value of the entire product ‘where the patented feature creates the basis for customer demand or substantially creates the value of the component parts.’”  The Court rejected the notion that a rule developed for complex electronic products should be applied to generic pharmaceutical products.  The Court further ruled that even applying the entire market value rule, the patented component of the infringing generic drug did substantially create the value for the finished products.  So Judge Cote concluded that the royalty rate should be applied to the value of the generic pills sold by Apotex.

Copyright Reasonable Royalty Damages Not Available for Breach of Contract Claim

In a June 17, 2013 ruling, Judge Katherine B. Forrest dismissed plaintiff Jill Stuart (Asia) LLC’s remaining breach of contract claim against Sanei International Co., Ltd., finding that the plaintiff had not suffered any damages as a matter of law. The plaintiff had originally asserted claims for trademark infringement and dilution, unfair competition, copyright infringement and breach of contract. Judge Forrest dismissed all the claims except the breach of contract claim. The plaintiff then asserted that it had suffered two types of damages on the breach of contract claim, damages to its brand from the defendant’s use of the plaintiff’s copyrighted pattern, and for a reasonable royalty for the unauthorized use. In response to the defendant’s motion for summary judgment because of no compensable damages, Judge Forrest dismissed the claim. The Court ruled that the plaintiff had failed to raise a triable fact that it had been harmed because of the defendant’s unauthorized use. Judge Forrest also rejected the reasonable royalty claim, holding that the plaintiffs “point to no legal authority for their theory of ‘contractual copyright infringement’; rather, plaintiffs appear to attempt an end run around the Court’s . . . Order dismissing their copyright claims.”