The U.S. Court of Appeals for the Federal Circuit has now
ruled that courts may not consider that portion of a sale of an infringing
company’s business attributable to "goodwill" when calculating the
base for a determination of reasonable royalty. Transclean Corporation v.
Bridgewood Services, Inc., Case No. 01-1268, 01-1269, 2002 U.S. App. LEXIS
9609 (Fed. Cir. May 21, 2002).
Transclean, the assignee of U.S. Patent No. 5,318,080,
directed to an automatic transmission fluid changing system, sued Bridgewood
claiming that Bridgewood’s automatic transmission fluid changing device
infringed the ‘080 patent. Bridgewood was no longer in business, having sold
all its assets, including goodwill, to Century Manufacturing Company for
$7,744,000 —$6,522,000 more that the book value of Bridgewood’s tangible net
worth. Prior to the sale, Bridgewood’s sole source of revenue was from the sale
of the allegedly infringing devices.
At trial, the jury found that Bridgewood willfully infringed
the ‘080 patent and awarded Transclean three types of damages: $934,618 as a
reasonable royalty based on Bridgewood’s sale of infringing products;
$1,874,500 as additional damages to compensate Transclean for Bridgewood’s
infringement; and $2,708,225 as a reasonable royalty based on Bridgewood’s sale
of its business. The district court, on post-trial motions, overturned that
portion of the jury’s award based on the sale of Bridgewood’s business, finding
that, as a matter of law, Transclean was not entitled to a reasonable royalty
based on that sale.
On appeal, Transclean claimed it was entitled to the entire
$6,522,000 Bridgewood received for its goodwill because Bridgewood’s sole
source of revenue was the sale of infringing products. Citing Minco, Inc. v.
Combustion Eng’g, Inc., Transclean argued that allowing Bridgewood to
retain the profits from its sale of goodwill would create an incentive for
others to infringe a patent and then sell their business.
The Federal Circuit rejected Transclean’s argument, noting
that reasonable royalty damages arise from the sale of the infringing goods and
the portion of the sale of a business attributable to intangible goodwill
"is not the sale of infringing goods." The court recognized that
Transclean did not assert a claim for lost profits and declined to rule on
"whether or not proceeds from the sale of a business including tangible
assets such as infringing inventory would be compensable as a remedy for patent
infringement... ." "What is clear," according to the court,
"is that the portion of a sales price consisting of goodwill, i.e.,
compensation in excess of tangible assets, is not sales of infringing goods
that can form the base for a determination of reasonable royalty." The
court noted that inclusion of goodwill in that determination would
"distort the statute."
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