The Federal Circuit in re: Douglas Dynamics, LLC v. Buyers Product Company (Fed. Cir. May 21, 2013) provides reminders of how reasonable royalty damages must be calculated, and then remanded the damages verdict for retrial. The Federal Circuit succinctly summarized the parties and their products as follows:
“Douglas and Buyers both manufacture snowplow assemblies for mounting on the front of a truck. These companies compete against one another for sales of those assemblies. Douglas commands about sixty percent of the snowplow market and “is recognized as producing good quality, innovative snowplows.” Buyers entered the market in 2007, selling less expensive snowplow assemblies, which Douglas accuses of infringement. By 2010, Buyers had increased its market share to about 5%.”
With this description of the parties and their products quoted at the beginning of this post, I would have been interested in a discussion as to why this was a reasonable royalty damages case, instead of a claim for lost profits. Nevertheless, the Federal Circuit does not address this question, which apparently had been decided (and not appealed) at the trial court level.
The Federal Circuit repeated reasonable royalty principles established in prior cases as follows:
“First, the district court abused its discretion by applying the infamous 25% rule of thumb, which this court held in Uniloc was fundamentally flawed. Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1317 (Fed. Cir. 2011). Second, the district court clearly erred by limiting the ongoing royalty rate based on Buyers’s profit margins. This court has held that an infringer’s net profit margin is not the ceiling by which a reasonable royalty is capped. Golight, Inc. v. Wal-Mart Stores, Inc., 355 F.3d 1327, 1338 (Fed. Cir. 2004). The infringer’s selling price can be raised if necessary to accommodate a higher royalty rate, and indeed, requiring the infringer to do so may be the only way to adequately compensate the patentee for the use of its technology.”