"Market Entry Fee" Damage Award Precludes Injunction on Future Sales

In Innogenetics v. Abbott Laboratories (January 18, 2008), the Federal Circuit vacated the lower court’s injunction prohibiting future sales of Abbott’s genotyping assay kits as an abuse of discretion where the reasonable royalties awarded to Innogenetics included an upfront "market entry fee" based upon future sales by Abbott in a long term market.

According to Circuit Judge Moore,

Innogenetics conceded at oral argument that the final amount of damages awarded by the jury included both a market entry fee of $5.8 million and an ongoing royalty payment amount of $1.2 million. The jury’s damage award exactly tracked damages proposed by Innogenetics’ expert, John Jarosz, at trial—$7 million, which included an upfront payment that equated to approximately $5.8 million and a running royalty of 5 to 10 Euros per test on the 190,000 tests Abbott had sold up to that point. Docket No. 340 (Trial Tr. vol. 2, 9:15-10:8, Sept. 5, 2006). Contrary to Innogenetics’ contentions, the jury verdict of $7 million was not a royalty for Abbott’s past infringement only.

[Footnote 7: It is hard to believe that a hypothetical negotiation between Innogenetics and Abbott would result in a royalty of $7 million that included a market entry fee of $5.8 million to sell licensed products for a three year period only, Abbott’s total revenue during the period of infringement was just $13 million. State Contr. & Eng'g Corp. v. Condotte Am., Inc., 346 F.3d 1057, 1072 (Fed. Cir. 2003) ("[A]n actual infringer's profit margin can be relevant to the determination of a royalty rate in a hypothetical negotiation.") (citing Interactive Pictures Corp. v. Infinite Pictures, Inc., 274 F.3d 1371, 1385 (Fed. Cir. 2001)). ]

The record is replete with references to the market entry fee as an amount paid in anticipation of Abbott’s long-term license to sell its products. For example, Mr. Jarosz, testified that the hypothetical negotiation upon which he was basing his proposed amount of damages was not capped by the date of the jury award, but would have involved looking at "what, over a longer term, would be a sensible license." Docket No. 340 (Trial Tr. vol. 2, 18:21-22, Sept. 5, 2006.) Having used Innogenetics’ licensing agreement with Roche as a template for his calculations for this case, Mr. Jarosz also testified that one of the reasons Roche entered a deal for an upfront market entry fee of $6 million plus a running royalty is that "the long run is what drove its licensing perspective." Docket No. 340 (Trial Tr. vol. 2, 18:22-19:2, Sept. 5, 2006).

The reasonable royalties awarded to Innogenetics include an upfront entry fee that contemplates or is based upon future sales by Abbott in a long term market. When a patentee requests and receives such compensation, it cannot be heard to complain that it will be irreparably harmed by future sales. Moreover, this factor greatly outweighs the other eBay factors in this case. As a result, the district court’s grant of an injunction prohibiting future sales of Abbott’s genotyping assay kits was an abuse of discretion and must be vacated. While the market entry fee was based upon the projection that Abbott could sell its product through 2019, even Abbott acknowledges that such future sales would be subject to the running royalty, a compulsory license. We remand to the district court to delineate the terms of the compulsory license, such as conditioning the future sales of the infringing products on payment of the running royalty, the 5-10 Euros per genotyping assay kit.

[Footnote 9: An injunction delineating the terms of the compulsory license would permit the court to retain jurisdiction to ensure the terms of the compulsory license are complied with.]