Saw Guard Infringement Costs Home Depot $24M

The Court of Appeals for the Federal Circuit affirmed an award of nearly $24M for patent infringement of an in-store radial saw guard against Home Depot.  Powell v. The Home Depot U.S.A., Inc., Case No. 2010-1409 (Fed. Cir. Nov. 14, 2011) (available here).  Patentee Powell, prior to securing a patent, had offered to sell the saw guard to Home Depot for $2,000 per unit (one per store).  Home Depot bought a handful of Powell’s guards, used them in several stores, then invited another company, Industriaplex, to copy the Powell guard.  Industriaplex sold Home Depot the guards for about $1,300 per unit.  After widespread installation of the Industriaplex guards, Home Depot’s saw related employee accident losses dropped nearly $1M per year.  Powell obtained the patent, sued Home Depot, and the jury awarded Powell $15M in compensatory damages, the trial court enhanced the award by $3M and awarded Powell $2.8M for his attorneys fees.  The enhancement and attorneys fees award was based upon a finding of bad faith litigation.

This case presents an issue regarding a use-based reasonable royalty. “As sent to the jury, the question it was required to answer was what amount would [Mr. Powell] have received from [Home Depot] for the right to use his patented invention in the United States.  The jury awarded $15 million, or approximately $7,736 per unit, in damages as a reasonable royalty that Mr. Powell would have received from Home Depot for the right to use his invention in the United States for the duration of the ’039 patent.”  Slip opn. P. 23.

“First, we address Home Depot’s argument that a reasonable royalty cannot exceed lost profits. On this point, we note that Mr. Powell’s citation to Golight, Inc. v. Wal- Mart Stores, Inc. for the proposition that [t]here is no rule that a royalty be no higher than the infringer’s net profit margin is not controlling. 355 F.3d 1327, 1338 (Fed. Cir. 2004). Here, the point made by Home Depot is not that its net profit margin should set the upper bound of the reasonable royalty calculation. That argument is foreclosed by Golight. Rather, its argument is that Mr. Powell cannot recover more than his expected profits from selling saw guard units to Home Depot as a reasonable
royalty. We disagree with Home Depot for two reasons.”  P. 23.

It is settled law that an infringer’s net profit margin is not the ceiling by which a reasonable royalty is capped. P. 24; see also  Golight, 355 F.3d at 1338; State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1580 (Fed. Cir. 1989).

The court found it equally appropriate to impose the “no rule for expected net profit” concept here.  Home Depot argued that the patentee’s profit expectation must be a cap on the reasonable royalty that the patentee may receive. “While either the infringer’s or the patentee’s profit expectation may be considered in the overall reasonable royalty analysis, Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970), neither is an absolute limit to the amount of the reasonable royalty that may be awarded upon a reasoned hypothetical negotiation analysis under the Georgia-Pacific factors.” P. 25, see also Stickle v. Heublein, Inc., 716 F.2d 1550, 1563 (Fed. Cir. 1983).

Home Depot argued that the “reasonable royalty” would be 3-5% of Industriaplex’s sales price ($38-65 per unit).  Further, Home Depot argued that a 50% royalty rate ($1,295 per unit), resulting in a potential award of $1.3M in compensatory damages, was grossly high.  P. 26.  Patentee Powell’s expert opined that a reasonable royalty rate range was $2,180 to $8,500 per unit.  The jury awarded $7,736 per unit.  Key factors supporting the experts’ lump sum royalty calculation included (1) Home Depot’s competitive advantage over Lowes’ due to Depot’s “cut your lumber to your needs” program (Loew’s had removed saws due to excessive employee injuries); (2) the sudden drop in radial saw injuries when Industriaplex guards were installed; and (3) Home Depot’s follow-on purchases of nails, hinges etc. when its customers bought custom-cut lumber.  Classic Georgia-Pacific Corp. v. U.S. Plywood Corp., factors were applied by Powell’s expert.

“Reliance upon estimated cost savings from use of the infringing product is a well settled
method of determining a reasonable royalty.” P. 28, see also Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1080–81 (Fed. Cir. 1983).

The Court was not persuaded by Home Depot’s argument that the jury’s award of $7,736 per unit was unreasonably high in light of the concession by Powell’s expert that a reasonable royalty would be some amount less than $7,000 per unit.  The “expert testified that the scope of possible reasonable royalties was bounded by a range from $2,180 per unit up to approximately $8,500 per unit. He also testified that a $7,000 per unit royalty amounted to roughly $1 per store, per day for Home Depot’s use of Mr. Powell’s invention over the life of the patent. The jury was entitled to choose a damages award within the amounts advocated by the opposing parties.” P. 29-30, citing Spectralytics, Inc. v. Cordis Corp., 649 F.3d 1336, 1347 (Fed. Cir. 2011); (Fuji Photo Film Co. v. Jazz Photo Corp., 394 F.3d 1368, 1378 (Fed. Cir. 2005) ([T]he jury is not bound to accept a rate proffered by one party’s expert but rather may choose an intermediate royalty rate.)  “Its award is not so outrageously high . . . as to be unsupportable as an estimation of a reasonable royalty, Rite–Hite, 56 F.3d at 1554, and is within the range encompassed by the record as a whole.” P. 29-30, citing Unisplay, S.A. v. Am. Elec. Sign Co., 69 F.3d 512, 519 (Fed. Cir. 1995).

As a trial note, practitioners should be keenly aware of the opposer’s damages calculation and not ignore cost savings due to non-use of a patented product.  Apparently the jury considered and awarded Powell damages because (a) Home Depot saved $1.00 per store per day for the life of the patent and (b) the employee accident loss prevention due to use of the patented saw guard saved Home Depot $1M per year.  The $15M in compensatory damages was deemed reasonable.

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