United States District Court, D. Colorado
ORDER ON ONGOING ROYALTIES
WILLIAM J. MARTINEZ UNITED STATES DISTRICT JUDGE.
In
February 2016, Plaintiff XY, LLC (“XY”),
convinced a jury that Defendant Trans Ova Genetics, LC
(“Trans Ova”), was infringing several of XY's
patents, and that those patents are valid. (ECF No. 461.) In
post-verdict motions, the Court held that XY was not entitled
to a permanent injunction against Trans Ova's ongoing
infringement, but instead would be awarded a reasonable
ongoing royalty. (ECF No. 500 at 21-28.)
Trans
Ova appealed the jury's verdict (among other things) and
XY cross-appealed the ongoing royalty rates set by the Court
(among other things). The Federal Circuit affirmed the
verdict and most of the judgment, but vacated the Court's
ongoing royalty rates for further consideration. See XY,
LLC v. Trans Ova Genetics, 890 F.3d 1282 (Fed. Cir.
2018). As discussed more thoroughly below, the Federal
Circuit's major concern was that the rates set by this
Court were too low, effectively putting Trans Ova in a better
position than it should be as an adjudged infringer.
The
Federal Circuit's vacatur requires the Court to reopen
two motions: (1) XY's Motion to Set an Ongoing Royalty
Rate (ECF No. 471), and (2) XY's Motion for Clarification
of the Court's Judgment on Ongoing Royalties (ECF No.
592). The title of the first motion explains its content. The
title of the second motion does not. The second motion asks
the Court to clarify the “royalty base, ” or in
other words, the products and services on which Trans Ova
must pay royalties, regardless of the royalty rates. Disputes
about the royalty base arose soon after the parties appealed,
but the Court found that it lacked jurisdiction to resolve
those disputes while the case remained with the Federal
Circuit, and so denied the motion as premature. (ECF No. 613
at 3-4.)
For the
reasons explained below, the Court agrees with XY about the
scope of the royalty base. The Court will also set ongoing
royalty rates that somewhat align with what XY has requested,
but in certain ways do not. Finally, the Court will require
XY to submit a form of amended judgment.
I.
ROYALTY BASE
The
Court finds it appropriate to begin by determining the
royalty base.
A.
Background
At
trial, XY's damages expert, Mr. Todd Schoettelkotte,
proposed a damages model that included, among other things,
assumptions and opinions about the products and services on
which Trans Ova must pay a royalty. Of note in that regard
was the following:
1. By “the parties' long-standing practice, ”
Trans Ova's minimum per-straw royalty of $5 had been
prorated based on the number of cells in the straw, with 2
million cells considered the baseline. Thus, the minimum
royalty on a 2-million-cell straw would be $5, but would
increase to $7.50 for a 3-million-cell straw, and so forth.
(See ECF No. 592 at 5.)
2. The royalty base includes “making the sexed embryos
[Trans Ova] uses for its embryo transfer services.”
(Id. at 4.)
3. The royalty base includes “revenues Trans Ova
receives for each and every step of the IVF process, ”
including “payments it receives for the necessary
oocyte retrieval services and IVF fertilization drugs.”
(Id.)
4. The increased royalty for reverse sorting applies to all
revenues generated when reverse-sorted semen is used, not
simply when it is sorted. (Id. at 8-9; ECF No. 609
at 8.)
Mr.
Schoettelkotte included each of these revenue components as
part of the royalty base when formulating his damages model
(ECF No. 592 at 3-6)-although, for reasons explained below
(Part II.D), he assigned no value to the third item.
Regardless, added together with all other aspects of his
damages model, he proposed damages for pre-verdict
infringement of $4, 584, 555. (See ECF No. 470
¶ 4.)
The
jury awarded $4, 585, 000 (see ECF No. 461 at 9),
which is manifestly a rounded-up version of Mr.
Schoettelkotte's proposal. The Court therefore previously
held “that the jury adopted Mr. Schoettelkotte's
damages analysis.” (ECF No. 500 at 23.) No. party has
since challenged this assertion, either in this Court or on
appeal.
B.
Scope of the Royalty Base
Although
the jury's adoption of Mr. Schoettelkotte's damages
analysis is unchallenged, Trans Ova nonetheless argues that
...