In a previous post, I wrote about Toyota’s infringing hybrid drive train and the Federal Circuit’s order for the district court to reassess its ongoing royalty rate of $25 per infringing vehicle.

That decision affirmed a $4.3 million jury verdict that Toyota’s hybrid drive trains infringed U.S. Patent No. 5,343,970, owned by hybrid technology company Paice LLC (Paice), as an equivalent system but vacated the district court award of a $25 per vehicle ongoing royalty.

Last month, after considering new evidence on damages, Judge David Folsom of the U.S. District Court in Marshall, Texas ordered the rate increased to about $98 per infringing vehicle, or 0.48% on each Prius, 0.32% on each Toyota Highlander and 0.26% on each Lexus RX400h.

Before stepping in to reset the ongoing royalty rate, the court allowed the parties to go through mediation and exhaust their efforts to set a rate themselves.

According to the court order (paice_royalty_order.pdf), when an injunction is not proper, the question that should guide a court’s determination is “what amount of money would reasonably compensate a patentee for giving up his right to exclude yet allow an ongoing willful infringer to make a reasonable profit?”

Judge Folsom decided to raise the rate for several reasons:  Toyota is now an adjudged infringer; higher oil and gas prices have made Paice’s hybrid technology more valuable and increased Toyota’s hybrid sales; Toyota’s hybrid vehicles help it meet the increased U.S. fuel efficiency standards; and the popularity of the infringing vehicles has enhanced Toyota’s reputation as a green company.

The court’s final calculation was based on application of a 25% “rule of thumb” to Toyota’s profit margin of 9%, which yields an initial figure of 2.25%.  The court then reduced that figure by one-third to 1.5% in view of the jury’s award for past damages and because Toyota makes less profit on its hybrid vehicles than its non-hybrids. 

Finally, the court excluded the value of the internal combustion engine (ICE) from the royalty base because it is not a core component of Paice’s invention.  Taking 1.5% of $6,500 (the value of the hybrid drive train less the ICE as determined by one of the economics experts in the case), the court arrived at a per-vehicle ongoing royalty of $98.

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