Uncertain Times: Three Distinct Approaches to Ongoing Patent Royalties

The Supreme Court’s 2006 decision in eBay Inc. v. MercExchange overturned decades of Federal Circuit precedent by rejecting the Federal Circuit’s “general rule” of granting a permanent injunction upon a finding of patent infringement. 547 U.S. 388 (2006). Any court that declines to grant a permanent injunction must now decide whether and how to award an “ongoing royalty rate” for future damages following a verdict of patent infringement. In the absence of Federal Circuit precedent, district courts have crafted three different approaches to the ongoing royalty issue, each of which presents benefits and drawbacks.

The “General Rule” Prior to eBay v. MercExchange

Prior to the Supreme Court’s decision in eBay v. MercExchange, courts traditionally granted a permanent injunction following a finding of infringement. As the Federal Circuit explained in Smith Int’l Inc. v. Hughes Tool, 718 F.2d 1573 (Fed. Cir. 1983), denying an injunction would “seriously undermine” the constitutional purpose of patent rights and curtail the patentee’s right to exclude. Smith, 718 F.2d at 1578. The Federal Circuit went on to state in Richardson v. Suzuki Motor Co. Ltd, 868 F.2d 1226, 1247 (Fed. Cir. 1989), that “[i]t is the general rule that an injunction will issue when infringement has been adjudged, absent a sound reason for denying it.” District courts applied this general rule almost without exception, and any prevailing patentee could expect to obtain a permanent injunction barring post-verdict infringement.