Heeling Sports v. US Furong International, Air Fly, Apple Footwear, Zi Zhen Qiao, 2000 Shoes and Does 1-10 Inclusive (CAFC 2008-1483) non-precedential

In 2006, Heeling sued the defendants, a number of footwear importers and distributors, for infringing its patents by selling footwear similar to the Heelys Skates. The defendants failed to appear, and the United States District Court for the Central District of California entered a default judgment against them. The court issued a preliminary injunction and ordered discovery relating to damages. After the defendants failed to respond to the court-ordered discovery, Heeling filed a motion for contempt. The district court granted the motion and allowed seizure of defendants' documents in order to assist in calculating damages. The documents indicated that the defendants had imported at least 186,150 units of "roller skate" shoes.

Then Heeling skated into the dirt. Rather than arguing for a percentage on revenue, they tried to be precise about per unit profit as a damages grab.

Heeling then filed a motion for an award of damages. The motion was supported by the declaration of an expert witness. Based on various factors, including his determination that each unit would produce at least $15.00 in profit, the expert concluded that a reasonable royalty would be $15.00 per infringing unit. See Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), modified and aff'd, 446 F.2d 295 (2d Cir. 1971); see also Interactive Pictures Corp. v. Infinite Pictures, Inc., 274 F.3d 1371, 1385-86 (Fed. Cir. 2001). By multiplying the royalty rate by the number of infringing units imported, Heeling concluded that its damages were $2,792,250.00. Heeling accordingly requested that the court enter an award in that amount and grant $54,436.95 in attorney fees.

In response, the defendants asserted that rather than selling the shoes for $45.00 per pair, as Heeling's expert had concluded they could have, they actually sold the shoes for $6.50 per pair. The defendants claimed that their profit per pair was only $1.50. After hearing from both sides, the district court issued a permanent injunction, awarded damages of $279,000.00, and ordered the defendants to pay a total of $9,184.50 in attorney fees pursuant to 35 U.S.C. § 285 and Central District of California Local Rule 55-3. Heeling appeals the damages award and the attorney fees award.

The case law capsule on damages, featuring the rather ridiculous "hypothetical negotiation" -

After a finding of patent infringement, "the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court." 28 U.S.C. § 284. One appropriate means of calculating the amount of a reasonable royalty is to employ "the conceptual framework of a hypothetical negotiation between the patentee and the infringer." Interactive Pictures, 274 F.3d at 1384; see also Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1554 (Fed. Cir. 1995) (en banc).

The concept of lost profits, badly written in case law quotation -

As we have previously explained, "The question to be asked in determining damages is how much had the Patent Holder and Licensee suffered by the infringement. And that question is primarily: had the Infringer not infringed, what would the Patent Holder-Licensee have made?" King Instruments Corp. v. Perego, 65 F.3d 941, 948 (Fed. Cir. 1995) (citations removed); see also Paper Converting Mach. Co. v. FMC Corp., 432 F. Supp. 907, 916 (E.D. Wis. 1977), aff'd, 588 F.2d 832 (7th Cir. 1978) ("If a rule were to be applied limiting post-infringement court determination of royalties to the infringer's actual profits, the effect would be to insure the infringer against losses in those situations where actual profits are less than the royalty level that would have been freely negotiated prior to the infringement."). Heeling asserts that in selecting an award of damages that was only 10 percent of Heeling's request, the court must have determined the reasonable royalty based on the defendants' profits rather than the profits the patentee would have made absent infringement. Heeling asks us to set aside the district court's award and to grant its entire damages request.

The district court hadn't bothered to explain itself. Remanded with demand for explanation.

If the damages award is based on a determination of the reasonable royalty per unit, the court should explain why the per unit damages award represents a reasonable royalty that would have been agreed upon following a hypothetical negotiation between the patentee and the infringer.

As an aside, whoever wrote the CAFC decision (per curium) doesn't know the definition of "method" vis-à-vis "methodology," a common flaw among sniffy dime-store writers, as judges often are.

[I]n this case we cannot review the court's methodology because the court did not provide an explanation of how it arrived at the damages award that it entered.

The two terms, though they have different meanings, are used interchangeably in the remand ruling.