Virginia Lawyers Weekly VA Lawyers Weekly
Where a patent holder argued an infringing competitor should be permanently enjoined from selling the infringing products, its motion was denied. The patent holder was instead awarded a reasonable royalty to compensate it for the competitor’s continuing infringement and the loss of its right to exclude.
Background
After a six-day trial, the jury returned a verdict in favor of Philip Morris Products SA, finding that RJ Reynolds Vapor Company infringed two of Philip Morris’ patents for components of electronic cigarettes. Before the court is Phillip Morris’ motion for a permanent injunction or, alternatively, an ongoing royalty.
Permanent injunction
Philip Morris has not met its burden of establishing that a permanent injunction prohibiting Reynolds from selling infringing Alto and Solo 02 cartridges is warranted. First, Philip Morris has not shown that it has or will suffer an irreparable injury in the absence of a permanent injunction, and this factor strongly weighs against granting an injunction. Second, a monetary remedy would be sufficient to compensate Philip Morris for its injury.
The court finds that the third factor, balance of hardships, is neutral and neither favors Philip Morris nor Reynolds. Finally, the touchstone of the public interest factor is whether an injunction, both in scope and effect, strikes a workable balance between protecting the patentee’s rights and protecting the public from the injunction’s adverse effects. A prohibition on the sale of Alto and Solo G2 cartridges in the United States would not strike such a balance.
Ongoing royalty
In the absence of a permanent injunction, an ongoing royalty is appropriate to compensate Philip Morris for Reynolds’ continuing infringement and the loss of its right to exclude. The parties agree that an ongoing royalty rate should be set at a percentage of the net sales of infringing Alto and Solo G2 cartridges for the remaining life of the patents but have provided the court with vastly different proposed rates.
Philip Morris seeks a royalty rate of 33.5% for the Alto, representing a baseline royalty of 22.3% for the Alto cartridges from the first half of 2022, which is then enhanced by 50% for willfulness. For the Solo G2, Philip Morris seeks a royalty rate of 3.75%, representing a 2.5% baseline royalty based on the jury’s rate and adjusted for the applicable factors, which is then enhanced by 50% for willfulness. Reynolds contends that an ongoing royalty rate reflecting the jury’s royalty rates – 0.6% for the Alto and 2.0% for the Solo O2 – should be awarded with no adjustments.
Although Philip Morris agrees with starting with the jury’s rate of 2.0% for the Solo G2, Philip Morris has abandoned the jury’s 0.6% royalty rate for the Alto and instead proposes a 22.3% baseline royalty rate reflecting or Alto cartridges. The court finds Philip Morris’ position perplexing given that the jury’s rate for the Alto was indisputably based on the testimony of one of Philip Morris’ experts, and given that the starting point for a court’s analysis of an ongoing royalty is often the jury’s implied royalty rate.
To justify disregarding the jury’s rate, Philip Morris points to three “drastically” changed circumstances since the 2018 pre-verdict hypothetical negotiations. It is not clear why the three purported changed circumstances identified by Philip Morris warrant using a profit-sharing approach when they are incorporated into the factors that inform a hypothetical negotiation.
Therefore, this court will begin with the jury’s royalty rates for both the Alto and the Solo G2 and determine whether the rates should be adjusted based on the relevant factors and the changed circumstances identified by Philip Morris. The court concludes that an increase in the jury’s royalty rate for the ‘265 patent to 1.8% of net sales of infringing Alto cartridges is appropriate, and that a slight increase of the jury’s rate to 2.2% of net sales of infringing Solo 02 cartridges is appropriate. The court rejects Phillip Morris’ arguments that these baseline royalty rates should be enhanced by 50 percent because Reynolds’ infringement of the patents following the jury’s verdict is willful.
Phillip Morris’ motion for a permanent injunction denied. Phillip Morris’ motion for an ongoing royalty granted in part, denied in part.
Phillip Morris Products SA v. RJ Reynolds Vapor Company, Case No. 1:20-cv-393, March 30, 2023. EDVA at Alexandria (Brinkema). VLW 023-3-182. 31 pp.
