The Federal Circuit, in ruling on a patent infringement case involving two major pharmaceutical companies, recently clarified the apportionment requirement. The court found the plaintiff based its reasonable royalty calculation on a comparable license that closely covered the value of the patent in the instant case and made further apportionment unnecessary.
The plaintiff, Vectura Ltd., owned a patent that covered “composite active particles” for use in dry-powder inhalers. The defendant, GlaxoSmithKline LLC (GSK), made certain inhalers that Ventura said contained composite active particles that violated its patent. A jury awarded Ventura a reasonable royalty of 3% of GSK’s $2.99 billion in sales for the infringing inhalers. The award was nearly $90 million.
GSK unsuccessfully challenged the award in post-trial motions and subsequently with the U.S. Court of Appeals for the Federal Circuit.
Regarding the damages challenges, the Federal Circuit noted that the parties had a “licensing history.” Most relevant for this litigation was a 2010 nonexclusive, worldwide license Vectura had granted GSK related to more than 400 patents, covering certain GSK respiratory therapeutics. At trial, Vectura’s damages expert used the 2010 license in determining a reasonable royalty. Specifically, she used the 2010 license’s top-tier royalty rate and the royalty base, which consisted of total sales of licensed products for the royalty base. Vectura offered evidence that the key part of the 2010 license covered the contested invention and that the 2010 license and the hypothetical negotiation dealt with “roughly very similar technology.” Also, Vectura argued, successfully, that the principles of apportionment were “baked into” the 2010 license. Therefore, it was not necessary to perform further apportionment.
The district court found, where a party relied on a sufficiently comparable license, it could adopt that license’s royalty rate and royalty base without further apportionment or proving that the infringing features drove the entire market value of the accused product.
The Federal Circuit said, in ordinary circumstances, using the entire market value as the royalty base is only permissible if the plaintiff can show the patented feature created the basis for consumer demand or substantially created the value of the component parts. However, the Federal Circuit went on to say that the court’s case law provides that, if the reasonable royalty is based on a sufficiently comparable license (or comparable negotiation), further apportionment is not necessary. The idea is that the comparable license has a “built-in apportionment.”
Such was the situation here, the Federal Circuit said, noting that GSK’s own damages expert acknowledged how close and comparable the 2010 license was to covering the value of the patent giving rise to the suit.
A digest of Vectura v. GlaxoSmithKline LLC, 2020 U.S. App. LEXIS 36393; __ F.3d__; 2020 WL 6788757 (Nov. 19, 2020), as well as the court’s opinion, is available to BVLaw subscribers.