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April 15, 2014

What Did You Say? $31 Million Awarded for Infringement of Hearing Aid Patent

In a case involving the alleged infringement of two patents related to hearing aids, one of which was found under judgment as a matter of law (JMOL) to not be infringed.  The U.S. Court of Appeals for the Federal Circuit affirmed a judgment awarding $31 million in damages based on infringement of both patents.  Energy Transportation Group, Inc. v. William Demant Holdings A/S, Case Nos. 11-1487, -1488, -1489 (Fed. Cir., Oct. 12, 2012) (Rader, C.J.).

A jury found that the defendants had infringed two patents related to technology for reducing acoustic feedback in digital hearing aids and awarded $31 million in damages to Energy Transportation Group (ETG).  The district court subsequently granted the defendants’ motion for JMOL of non-infringement of one of the patents.  Nonetheless, the district court declined to order a new trial on damages or to grant the defendants any relief from judgment.  Defendant William Demant Holdings appealed.

On appeal, the defendants sought a new trial on damages or a reduction of the amount of damages awarded.  The jury had found that defendants had infringed both of the asserted patents, and its award of $31 million was presumably calculated using a royalty base including sales made during the terms of both patents.  The defendants had made sales of $417 million through the term of both patents, but only $357 million through the expiration of the patent not eliminated on JMOL.  The defendants requested that the court recalculate the amount of damages by assuming that the jury had used the larger sales base in its calculations, determining the effective royalty rate used by the jury and multiplying that rate by the smaller sales base.

The Federal Circuit rejected the defendants’ challenge, concluding that defendants had waived their argument by failing to ask the district court to reduce the damage award in the event that it granted JMOL of non-infringement.  Moreover, even if the defendants had not waived their argument, the Court indicated that it would be unable to “correct” the jury’s calculations.  According to the Court, because the jury was not asked to identify what portion of its award was based on infringement of which patent, any attempt to reduce the damage award would be arbitrary and would deprive the parties of their right to a jury trial under the Constitution.

In addition, the Court rejected the defendants’ argument that a report from the German Federal Cartel Office (the Cartel Report) was unduly prejudicial and should not have been admitted.  The defendants had presented evidence related to licensing rates from the Hearing Instrument Manufacturers Patent Partnership (HIMPP), and ETG’s damages expert indicated that the HIMPP rates did not reflect market rates for ETG’s patents, citing the Cartel Report’s determination that the hearing aid market is concentrated and enjoys high profit margins due to a lack of competition.  Although a German court overturned the Cartel Report’s ultimate conclusion that an “oligopoly” existed in the hearing aid market, the Federal Circuit noted that the Cartel Report’s underlying findings of fact were not disturbed by the German court and were relevant to the determination of a reasonable royalty rate for ETG’s patents.  Further, the district court had reduced the risk of prejudice by prohibiting ETG from using the Cartel Report to engage in hyperbolic or inflammatory statements alleging collusion by defendants.

© 2014 McDermott Will & Emery

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