Although the “25% Rule” has been largely declared dead, here a district court determined a post-trial royalty rate using the 25% rule as a starting point as per Paice v. Toyota, a commonly cited case for setting the framework for post-trial royalties.
Here, a jury had awarded damages to Douglas effectively at a 3.3% rate. In determining a post-verdict royalty rate, the court notes that (a) the infringed patents were by Douglas’s own description “minor” patents, (b) that Douglas could point to no actual lost sales to Buyers, (c) the “royalty should realistically leave some room for profit,” and (d) that a post-verdict royalty should be higher than the pre-verdict royalty, thereby reflecting the change in bargaining positions.
The court begins thus: “the court is persuaded to start with the approach used by the district court in Paice. There the court applied ‘the 25% Rule of Thumb,’ which entailed setting the ongoing royalty rate at 25% of Toyota’s 9% profit margin or 2.25%. Paice 609 F.Supp. 2d at 630. Here, 25% of Buyers’ 12.9% profit margin is 3.225%.” The court then adjusts this rate upward, to reflect the change in bargaining positions, to a post-trial rate of 6.225%.
In its 2011 decision in Uniloc, the Federal Circuit concluded that the “25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation.” I am no lawyer so I won’t attempt to distinguish the two cases, but perhaps this court was comforted by the wide acceptance of the Paice framework or because the present case deals with post-verdict royalties instead of pre-verdict royalties as in Uniloc.
Douglas Dynamics, LLC v. Buyers Products Company, 3-09-cv-00261 (W.D. WI, Sep 22, 2011, Order) (Conley)