Patent Royalty Damages Aren’t Just a Matter of Simple Math
In Brief: Calculating royalty damages for patent infringement isn’t easy; even against a bratty, no-show defendant.
Here’s What Happened:
Kanga Care LLC manufactures and sells baby diapers and related products. One of its patented products is a “Rump-a-rooz® One Size Cloth Pocket Diaper”.
BumBum Babies LLC, started to sell a pocket diaper too. Kanga Care served a cease and desist letter on BumBum Babies. In response to the cease and desist letter, BumBum Babies wrongfully accused Kanga Care of violating Georgia’s Anti-Patent Troll Statute. In an attempt to prove Kanga Care didn’t have a pudgy baby leg to stand on, BumBum Babies commissioned a prior art report. But the report only covered inventions after the date of Kanga Care’s date of invention. Then BumBum Babies then decided to go to the court of public opinion. It posted defamatory statements about Kanga Care and Kanga Care’s confidential information on social media. When BumBum Babies realized that an infringement lawsuit had been filed, BumBum Babies transferred its accused products to another entity.
BumBum Babies’ registered agent tried to answer the complaint. But, a corporate entity has to be represented by counsel. The court gave BmBum Babies ample time to get a lawyer. But it didn’t. So the court entered an order for default against it. All that was left was to determine the damages recoverable by Kanga Care.
A successful plaintiff in a patent infringement action is entitled to damages “adequate to compensate for the infringement, but in event less than a reasonable royalty for the use made of the invention by the infringer” plus interest and costs.
Kanga Care used a hypothetical negotiation method to calculate the reasonable royalty rate for its damages. Kanga Care compared its diaper prices to the BumBum Babies’ diaper prices. Kanga Care then argued that the royalty rate should be the difference between the two prices. The court rejected this methodology because it was too speculative and didn’t take into account 15 factors that a prior court decided were important in royalty damages calculations. So the court asked Kanga Care to come back with more information.
Despite the fact that Kanga Care didn’t have an actual number for its damages, the court went on to hold that BumBum Babies acted in a willful manner that warranted enhanced damages. Therefore, once the amount of damages is determined, it will be trebled.
The court found that BumBum Babies’ willful conduct created the kind of exceptional case that warranted an award of attorneys’ fees.
The court also entered a permanent injunction.
Since then, Kanga Care has submitted additional information about the reasonable royalty rate and a statement of attorney’s fees.
Why You Should Know This: Kanga Care’s struggle with determining a reasonable royalty rate happens across the patent licensing and litigation spectrum.
A note to those who receive cease and desist letters. The best defense is to actually defend the accusations on its merits rather than engaging in gamesmanship to avoid liability. And if there’s no defense, it’s time to talk settlement.
Case Information: Kanga Care LLC v. BumBum Babies, LLC, No. 1-22-cv-00009 (S.D. Ga., Entered Oct. 25, 2022).