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Uropep v. Eli Lilly & Co.

United States District Court, E.D. Texas, Marshall Division

July 18, 2017

ERFINDERGEMEINSCHAFT UROPEP GbR, Plaintiff,
v.
ELI LILLY AND COMPANY, Defendant.

          MEMORANDUM OPINION AND ORDER

          WILLIAM C. BRYSON, UNITED STATES CIRCUIT JUDGE

         Before the Court is the motion of plaintiff Erfindergemeinschaft UroPep GbR (“UroPep”) for ongoing royalties in this case. Dkt. No. 363. Defendant Eli Lilly & Co. (“Lilly”) opposes. The Court GRANTS IN PART UroPep's motion for royalties for the period between April 17, 2017, and July 9, 2017.

         BACKGROUND

         In its complaint, UroPep alleged that Lilly infringed UroPep's patent, U.S. Patent No. 8, 791, 124 (“the '124 patent”), by marketing the drug Cialis for the treatment of benign prostatic hyperplasia (“BPH”). Lilly answered by denying infringement and contending that the '124 patent was invalid. The evidence at trial showed that Lilly made approximately $704.3 million in sales of Cialis attributable to the BPH indication between October 9, 2014 (the date on which Lilly was notified of UroPep's patent), and April 16, 2017 (the day before the beginning of the trial). See Dkt. No. 342, Trial Tr. at 401, 403; Dkt. No. 344, Trial Tr. at 1120. The jury found that Lilly had infringed the '124 patent and that the patent was not invalid. It awarded UroPep $20 million in damages. The implied royalty rate adopted by the jury was therefore 2.84 percent of the total infringing sales for the pretrial infringement period.

         For the reasons set out in detail below, the Court will apply twice the jury's implied royalty rate to the infringing sales of Cialis made between April 17, 2017, and July 9, 2017 (the date the '124 patent expired). That amount has been added to the total amount awarded to UroPep, as reflected in an amended judgment entered today. The prejudgment interest rate (the applicable prime rate, compounded quarterly) will apply to the entire monetary award granted in the amended judgment. The statutory post-judgment interest rate will apply thereafter. The parties are directed to determine the precise amount owed by Lilly to UroPep as an ongoing royalty for the April 17 to July 9 period, based on the Court's award and in light of the volume of the relevant infringing sales during that period. The parties are also directed to determine the dollar value of the prejudgment interest to be paid on the ongoing royalty for the period between April 17 and July 18, the date of the amended judgment in this case.

         DISCUSSION

         UroPep requests an ongoing royalty rate of 15 percent-much greater than the 2.84 percent royalty rate implied by the jury's verdict for Lilly's pretrial infringing conduct. According to UroPep, the proposed 15 percent rate is supported by (1) the increased profitability of Lilly's post-verdict infringing sales, (2) UroPep's post-verdict bargaining power, and (3) Lilly's post-verdict willful infringement. Lilly, on the other hand, contends that the Court should not award an ongoing royalty. If the Court does award an ongoing royalty, Lilly argues that it should be limited to a royalty rate of 2.84 percent, or at most 3 percent.

         I. UroPep's Right to an Ongoing Royalty

         At the outset, it is clear to the Court that UroPep is entitled to be compensated for infringement occurring between the cut-off date for its calculation of damages, April 16, 2017, and the expiration date of the '124 patent, July 9, 2017. See Fresenius USA, Inc. v. Baxter Int'l, Inc., 582 F.3d 1288, 1303 (Fed. Cir. 2009) (“A damages award for pre-verdict sales of the infringing product does not fully compensate the patentee because it fails to account for post-verdict sales.”). Lilly makes several arguments for why any recovery for that period is barred, but none of those arguments is persuasive.

         First, Lilly argues that the statement in the Court's Final Judgment denying all relief other than that set forth in the judgment bars any recovery for the post-verdict period. See Dkt. No. 360, at 2, ¶ 6. In fact, however, the Court explained in a telephonic conference conducted on May 15, 2017, shortly before the judgment was entered, that the Court would address the issue of ongoing royalties in an amended judgment following the parties' briefing of that issue. As part of that discussion, the Court stated that it would allow the parties additional time to brief the ongoing royalties issue based on Lilly's request for an extension of time for filing its response to UroPep's motion. The Court made clear that it contemplated addressing the ongoing royalties issue separately from the initial judgment. There is thus no force to Lilly's suggestion that the Court's initial judgment contemplated the termination of UroPep's rights in that regard.

         Second, Lilly argues that UroPep waived its right to an ongoing royalty award pursuant to 35 U.S.C. § 283 by not requesting an injunction. Section 283 provides that a court “may grant [an] injunction[] in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable.” The Federal Circuit has “interpreted that provision to permit a court to award ‘an ongoing royalty for patent infringement in lieu of an injunction' barring the infringing conduct.” Prism Techs. LLC v. Sprint Spectrum L.P., 849 F.3d 1360, 1377 (Fed. Cir. 2017) (quoting Paice LLC v. Toyota Motor Corp., 504 F.3d 1293, 1314 (Fed. Cir. 2007)); SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods., LLC, 807 F.3d 1311, 1332-33 (Fed. Cir. 2015) (en banc) (“[A]bsent egregious circumstances, when injunctive relief is inappropriate, the patentee remains entitled to an ongoing royalty.”), vacated in part on other grounds, 137 S.Ct. 954 (2017).

         In its complaint, UroPep sought an injunction, or an accounting of future royalties if an injunction was denied. Lilly points out, however, that in the joint pretrial order UroPep did not include an express request for ongoing royalties in lieu of an injunction. Instead, UroPep stated in the joint pretrial order that it “is entitled to recover both pre-verdict and post-verdict damages in the form of a reasonable royalty for the infringement of the '124 patent by Lilly.” Dkt. No. 251, at 9, ¶ 2.

         The Court interprets that statement as a request for ongoing royalties in lieu of an injunction, to be assessed by the Court pursuant to 35 U.S.C. § 283. UroPep did not request an injunction, no doubt appreciating that the equities would not favor issuance of an injunction in favor of a non-competitor and for the short period of time remaining in the life of the '124 patent. See Prism, 849 F.3d at 1377 (an ongoing royalty may be awarded if “a conduct-barring injunction is not warranted”). In addition, UroPep likely recognized that it would be better served by a post-verdict award of ongoing royalties than by an order enjoining Lilly from promoting the Cialis's BPH indication for a three-month period. Under those circumstances, UroPep's decision to seek a post-verdict royalty award-i.e., ongoing royalties in lieu of an injunction-cannot reasonably be treated as a forfeiture of its right to relief of any sort for the post-verdict infringement period. Lilly cites no authority that would support that odd proposition. Thus, the Court concludes that UroPep has not waived its right to post-verdict ongoing royalties under 35 U.S.C. § 283.

         Third, Lilly argues that the Court has the option to refuse to award any ongoing royalties. While that is technically true, it would be improper for the Court first to conclude that the damages awarded by the jury do not cover the post-verdict period, but then to rule that UroPep is not entitled to any relief for that period. Lilly quotes language from the Federal Circuit's decision in Whitserve, LLC v. Computer Packages, Inc., 694 F.3d 10, 35 (Fed. Cir. 2012), where the court stated that “[t]here are several types of relief for ongoing infringement that a court can consider: (1) it can grant an injunction; (2) it can order the parties to attempt to negotiate terms for future use of the invention; (3) it can grant an ongoing royalty; or (4) it can exercise its discretion to conclude that no forward-looking relief is appropriate in the circumstances.” Lilly interprets that statement as offering the Court the unfettered option of granting no relief at all for post-verdict infringement. In Whitserve, however, the Federal Circuit did not suggest that it would be proper to deprive the prevailing plaintiff of any remedy whatsoever for post-verdict infringement. Quite the opposite. The court concluded that the jury's award covered only past harm, rejecting the argument that the jury's verdict indicated that the award was meant to “cover future use of [the asserted] patents.” Id. at 35. The Federal Circuit then held that the district court abused its discretion by denying the request for prospective relief (i.e., an injunction or an ongoing royalty), and forcing the plaintiff to “resort to serial litigation” to obtain compensation for the post-verdict period. Id. at 35-36.

         This case is quite similar. The parties did not argue to the jury (or the Court) that the damages award would constitute compensation for a paid-up license, nor did they otherwise indicate that the jury should consider future conduct in making its damages assessment. Rather, as Lilly acknowledges, both experts “applied their proposed royalty rates to the pretrial royalty base-i.e., the incremental profits and revenues that existed at the time of trial.” Dkt. No. 370, at 4 (emphases omitted). As in Whitserve, the parties “limited their damages arguments to past infringement rather than projected future infringement.” 694 F.3d at 35. In addition, “[t]he jury was instructed to award ‘damages, ' which by definition covers only past harm, ” and its “verdict did not indicate that the award was meant to cover future use” of the patented invention. Id.

         Lilly has offered no reason for the Court to decline to provide prospective relief under section 283. See Whitserve, 694 F.3d at 36 (court is required “to explain any decision it makes” denying such relief). Lilly only points out that the experts at trial neither addressed future royalty payments nor explained why any royalty would change post-trial. Dkt. No. 370, at 4. But that reinforces the fact that, as in Whitserve, the issue of future royalties was not before the jury and not resolved by the verdict.

         The Court has concluded that an injunction would not be appropriate in this case, given the short period between the verdict and the expiration of the '124 patent and the absence of any evidence that UroPep would suffer irreparable harm during that period without an injunction. The Court also has concluded that ordering the parties to attempt to negotiate terms for future use of the invention is unlikely to be successful in light of the wide divergence between the parties' positions on the ongoing royalty issue. Nor have the parties indicated that they “believe additional negotiation attempts would be fruitful”; rather, they have indicated by their briefing “that they wish[ ] the court to resolve the issue of the amount of any ongoing royalty.” Affinity Labs of Tex., LLC v. BMW N. Am., LLC, 783 F.Supp.2d 891, 896-97 (E.D. Tex. 2011). Finally, the Court has no reason to deny UroPep relief for Lilly's ongoing infringement and consign UroPep to the inefficient process of initiating follow-on litigation to seek damages for the three-month period of infringement at issue here. See Whitserve, 694 F.3d at 34-35. Accordingly, the Court concludes that UroPep is entitled to an award of ongoing royalties for the period between April 17, 2017, and July 9, 2017.

         Although the Court has addressed the question of relief under section 283, the Court appreciates that this indirect infringement case presents an additional wrinkle: Even if UroPep had obtained an injunction under section 283, it would still be entitled to damages under 35 U.S.C. § 284 for post-verdict infringing sales that were attributable to Lilly's pretrial inducement. Those damages would be derived from infringing sales that were caused by Lilly's pretrial acts of inducement but were not covered by the jury's verdict because the induced sales occurred after the jury's verdict. See Finjan, Inc. v. Secure Computing Corp., 626 F.3d 1197, 1213 (Fed. Cir. 2010) (reversing denial of request for damages because “the district court should have awarded compensation for any infringement [activity] prior to the injunction.”). Under section 284, the Court has “broad discretion in determining appropriate relief for patent infringement.” Id. at 1212-13. But “injunctions [under section 283] and damages [under section 284] must be tailored to the circumstances and be correlatively determined.” Id. at 1212-13; accord Carborundum Co. v. Molten Metal Equip. Innovations, Inc., 72 F.3d 872, 881 (Fed. Cir. 1995). Therefore, the Court's determination of the ongoing royalty due to UroPep in lieu of an injunction under section 283 (i.e., the ongoing royalty on infringing sales attributable to Lilly's post-verdict inducement) must be added to the damages due to UroPep for post-verdict infringing sales attributable to Lilly's pre-verdict inducement under section 284. For that reason, the Court includes both forms of relief in its analysis of the post-verdict hypothetical negotiation to determine a reasonable ongoing royalty.

         Lilly raises two objections to UroPep's claim to such damages under section 284, neither of which has merit. First, Lilly argues that section 284 bars the Court from departing from the jury's implied royalty rate. However, section 284 and Federal Circuit case law contradict Lilly. Section 284 instructs the court to assess damages “not found by a jury” (the jury in this case awarded damages for the pretrial period but did not consider future conduct and sales), and requires the court to determine a royalty that is “reasonable under the circumstances.” The Federal Circuit's decision in Finjan clarifies that courts have “broad discretion” to fashion an appropriate remedy and requires the court to consider the differing circumstances that may apply to an award of damages under section 284 for a period not covered by the jury's verdict. 626 F.3d at 1212.

         Second, Lilly argues that UroPep was required to disclose before trial and to present at trial any argument for post-verdict damages under section 284. But there is no rule that plaintiffs must ask the jury to decide all prospective damages under section 284. Such a rule would make no sense in this context in light of the fact that the post-verdict sales giving rise to damages under section 284 had not occurred at the time the case was submitted to the jury. See Finjan, 626 F.3d at 1213 (remanding for the district court to award post-verdict damages based on Finjan's request, made after trial, “to amend the judgment to include damages for infringing sales that the jury did not consider”).

         II. Calculation of ...


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