On June 29, 2009, a jury in the Eastern District of Texas federal district court awarded Centocor a record $1.67 billion in damages for patent infringement against Abbott Labs, involving infringing sales of a drug for treatment of arthritis and related diseases. This eclipses the previous $1.5 billion verdict awarded against Microsoft, won by Alcatel-Lucent.
But wait! There’s more. This is only the “beginning” of the damages story. Crucial decisions are now pending before the trial judge, Judge Ward. He must decide whether he will increase or diminish the award, potentially dramatically.
On the one hand, trial judges have the power to weigh the damages evidence themselves and make a decision contrary to that of the jury. If Judge Ward believes the compensatory damage award is excessive in view of the evidence, he cannot simply change the verdict amount, as such. However, he can issue a decision ordering a new trial, unless the plaintiff accepts a specified, reduced amount (e.g., $600 million). Many plaintiffs accept this “remittitur” rather than choosing to go to trial all over again.
On the other hand, the jury found that Abbott Labs did not simply infringe the Centocor patent; it did so willfully. This gives Judge Ward the discretionary power to treble the damage award to up to $5 billion.
In addition, in willful cases, the judge generally has the power to award the plaintiff not only interest on the damages as they accrued over the years but also all the plaintiff’s considerable attorneys’ fees spent in the action.
How did this happen? The award was divided between lost profits and royalties. The jury determined that Centocor would have sold products resulting in profits of $1.1 billion, but for the infringement of Abbott Labs. Obviously, evidence showed that Abbott Labs had substantial infringing sales since receiving notice of the patent. Additionally, it granted damages on an amount beyond which plaintiff could prove represented lost sales, i.e., $504 million in royalties. The patent statute and case law permit an award of lost profits, but dictate that in no event is a patentee entitled to less than a reasonable royalty in the event of infringement. So long as there is no “double recovery” for the same item (e.g., involving sales to wholesale customer X), both are permissible in the same case.
The interplay between royalties and the 2006 eBay decision on injunctions probably helps explain the large size of the award. Prior to the Supreme Court’s ruling in eBay, patentees routinely got permanent injunctions against defendants when they won their case: no future sales, and thus no royalties on future sales were likely. Here, Centocor elected not to seek an injunction against future sales, and argued instead that Abbott Labs could keep selling the infringing drugs, so long as they paid suitable damages for such future sales. Thus, the new, current era in patent litigation presents plaintiffs and defendants with the potential for expanded damages, in light of continued infringing sales.
This case is interesting on many levels, but one aspect is the uniqueness of the courts in the Eastern District of Texas and the very short time frame allowed for the case. The Eastern District of Texas has in recent years been the “forum of choice” for patent plaintiffs. This is because trials came quickly and their juries were substantially more “pro-plaintiff” than was generally found in other districts. One commonly cited feature of the district is there is no urban center such as Dallas or Houston. Marshall and Beaumont are two of the largest cities.
Judges in the Eastern District of Texas are not the only ones who impose a “clock” on the maximum time each party has to present its case, but it does stand out in that regard as well. In this multi-billion dollar case, at 3:35 p.m. on the second day of trial, the plaintiff rested. I’ve spent substantially more time in a three-million dollar case. Plaintiff thus had presented all evidence it was allowed to present (other than evidence to rebut the defendant’s case), under likely strict time guidelines imposed by the Court. All testimony was completed in four days. Thus, trial counsel are forced to streamline (a kind word, some would say “overly simplify”) their cases to meet those limitations.
Against this backdrop is a national controversy about patent damages. Congress is considering during this session the Patent Reform Act of 2009. While the Senate and House versions of the bill differ at this point, one thing both focus on is the question of apportionment of royalty awards (but not lost profits). One of the main arguments asserted by proponents of the need for change, to reduce or “apportion” a royalty damage award according to the “true contribution” of the patent, is the “runaway” damages scored in some infamous patent cases. The Microsoft case was held up as a prime example of “abuse.” The Centocor case will very likely be cited as well for the same reason, whether or not it merits such attention.
For more information about compensatory patent damages generally, you may wish to read my short paper on the subject, found on our website under lgp@law newsletters.
As a personal note, our firm has brought or defended over a dozen infringement suits in the Eastern District of Texas. I am a member of the Texas Bar Association as well as California. The lead counsel for Centocor is Dianne Elderkin. She will begin serving as Vice Chair of the AIPLA (American Intellectual Property Law Ass'n) Patent Litigation Committee this October, when I take over duties as Chair. Our current chair, Phil Johnson, is Chief Patent Counsel at Johnson & Johnson, the parent company of Centocor. He was heavily involved in overseeing this litigation.