District Courts Must Follow Georgia-Pacific & Seagate’s Instructions: Aqua Shield v. Inter Pool Cover Team, et al.
Addressing the analysis required to support both damages and willfulness, the U.S. Court of Appeals for the Federal Circuit vacated a district court’s damages calculation and determination regarding willfulness. Aqua Shield v. Inter Pool Cover Team, et al., Case No. 14-1263 (Fed. Cir., Dec. 22, 2014) (Taranto, J.).
The patent claims enclosures designed to cover pools or create sun rooms. Aqua Shield originally sued Inter Pool (IPC) and moved for a preliminary injunction in the U.S. District Court for the Eastern District of New York. The injunction was denied and the case transferred to the U.S. District Court for the District of Utah. The Utah district court granted summary judgment, finding IPC infringed and issued a permanent injunction. Based on its evaluation of IPC’s actual profits, the court granted a 5 percent royalty and awarded Aqua Shield $10,800 in damages. The court further determined that IPC had not willfully infringed the patent before or after the entry of summary judgment. Aqua Shield appealed the royalty calculation and finding on willfulness.
The Federal Circuit reviewed the reasonable royalty methodology for abuse of discretion. The Court found that the district court erred in treating the profit IPC actually earned during the period of infringement as a royalty cap. The district court improperly replaced a hypothetical inquiry into what the parties would have anticipated before the infringement began with a backward looking inquiry into what turned out to have actually happened. Further, the Federal Circuit explained that the district court also improperly replaced an inquiry into what profits would be earned if the hypothetical royalty was to be paid, with an inquiry into what profits were earned when IPC was charging prices without accounting for a royalty. The Federal Circuit explained that district court incorrectly assumed that any royalty paid by IPC would have reduced profits dollar for dollar. Thus, the Federal Circuit vacated the damages finding and remanded with instructions for the district court to consider all the relevant record evidence, including advantages of the patented product, ease and cost of designing around the claimed invention and the relevance of IPC’s actual profits to what IPC’s expectations would have been in a hypothetical negotiation.
The Federal Circuit also vacated the finding of no willfulness by IPC, holding that the district court failed to explain its willfulness analysis in terms of the two-part test mandated by Seagate. The district court found that with respect to willfulness before the summary judgment finding infringement, IPC reasonably relied on the denial of Aqua Shield’s motion for a preliminary injunction to believe its products did not infringe. Seagate expressly connects findings of willfulness to preliminary injunction rulings. However the Federal Circuit noted that Seagate imposed no rigid rule and that “the significance of the preliminary injunction depends on why the preliminary injunction was denied.” Here, the preliminary injunction was denied due to personal jurisdiction issues and accordingly it “cannot reasonably be read to support a conclusion existed for doubting infringement or validity.” The district court similarly failed to provide sufficient analysis for its finding that IPC did not willfully infringe the patent after the entry of summary judgment. The Federal Circuit therefore vacated and remanded, ordering the district court to analyze willfulness under the correct Seagate standard.