Royalty Awarded After Remittitur More Appropriately Based on Percentage Than Dollar Figure Per Unit Sold to Avoid Windfall to Plaintiff

by Jeffer Mangels Butler & Mitchell LLP

In February 2013, Tomita Technologies USA, LLC ("Tomita") went to trial before a jury against Nintendo Co., Ltd. ("Nintendo"). In March 2013, the jury returned a verdict in favor of Tomita in the amount of $30.2 million, finding that the Nintendo 3DS infringed one of Tomita's patents. The jury also found that the Tomita patent was not invalid. The district court also ruled that Tomita had not proven that Nintendo willfully infringed the Tomita patent by clear and convincing evidence.

After judgment was entered in favor of Tomita, Nintendo moved to set aside the judgment or, in the alternative, for a remittitur. The district court then awarded a remittitur to Nintendo for half of the damages awarded by the jury, which Tomita accepted.

After Tomita accepted the remittitur, the district court addressed the issues of an ongoing royalty rate, the amount of supplemental damages and prejudgment interest due to Tomita. The parties agreed to the amount of supplemental damages and prejudgment interest.

Turning to the issue of the ongoing royalty rate, the district court noted that "the parties disagree about two basic issues. The first is whether the ongoing royalty rate should be paid as a dollar figure per unit sold or as a percentage of sale price. The second is what the rate should be. Nintendo favors the rate of the implied jury royalty rate halved, per the remittitur, and expressed as a percentage of sales, which would be 1.36% of the wholesale price. Tomita seeks to double the implied royalty rate of the jury award after remittitur, expressed as a dollar figure per unit sold, which would be $4.45 per unit."

The district court found that "[w]hether the ongoing royalty is expressed as a percentage of sales or on a per-unit basis would have no impact on Nintendo's payment to Tomita so long as the price of the 3DS never changes. The rapid pace of technological advancement -- and its effect on prices -- counsels the Court that it is highly likely that the price will drop with time. If, as Tomita suggests, the ongoing royalty rate were expressed as a flat dollar amount per unit sold, Tomita would capture an increasingly large proportion of each sale as the price falls, even as the technology's reliance on the infringed patent remains constant. This would result in an unearned windfall for Tomita."

As a result, the district court adopted an ongoing royalty rate expressed as a percentage of wholesale price.

The district court then addressed the appropriate percentage of the ongoing royalty rate and set that rate. "Determining what percentage that royalty rate should be is no exact science. The implied royalty rate of the jury award was approximately 2.73%, so the implied royalty rate after the acceptance of remittitur is about 1.360, the rate Nintendo urges the Court to adopt. Tomita, meanwhile, argues with some force that courts routinely increase the implied royalty rate of a verdict after a finding of infringement because the status of the parties has changed, as would the result of the hypothetical negotiation between them. See Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), mod. and aff'd, 446 F.2d 295 (2d Cir. 1971), cert. denied, 404 U.S. 870 (1971). For many of the reasons stated in the Court's Remittitur Opinion, the Court adopts an increase over the remittitur's implied royalty rate of one-third. Accordingly, the ongoing royalty rate is two-thirds of the jury's implied royalty rate of 2.73%, or 1.82%."

Tomita Technologies USA, LLC v. Nintendo Co., LTD., Case No. 11 Civ. 4256 (JSR) (S.D.N.Y. Dec. 11, 2013)


Written by:

Jeffer Mangels Butler & Mitchell LLP

Jeffer Mangels Butler & Mitchell LLP on:

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