XY, LLC v. Trans Ova Genetics, LC

          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 ...