Centocor v. Abbott: $1.67 Billion Jury Verdict

Centocor (Johnson & Johnson) & NYU v. Abbott Labs (E.D.Tex. 2009)

In what may be the largest patent jury verdict in US history, an Eastern District of Texas jury held Abbott Labs liable for $1.67 billion in damages for infringing Centocor's patents covering antibodies against tumor necrosis factor. Abbott's drug Humira (adalimumab) was found to infringe. That drug is used to reduce treat arthritis, psoriasis, Crohn's disease, and ankylosing spondylitis and had $4.5 billion in sales last year.

In an interesting split, the Jury awarded $1.168 billion in lost profits and also $504 million in a reasonable royalty. Although double recovery is not allowed, there is no reason why the damages cannot be split between the two theories of recovery.

The jury also found Abbott to be a willful infringer.

Judge Ward will now decide whether to uphold the verdict and whether the adjudged willful infringement warrants additional damages.

According to news reports, Centocor is not seeking injunctive relief.

Centocor_Abbott_Verdict_Form.pdf

Comments

[Andrew Dhuey]

J&J, I am now willing to accept this case on a contingency fee basis.

[Justice for Paul]

Chump change. Abbott already has a Gross Operating Profit of $16.92 Billion for 2009. They'll make it up on the back side.

[Just an ordinary inventor(TM)]

I understand the difference between lost profits and reasonable royalty. I assume the particular dollar amounts the jury arrived at were proffered by Centocor's damage experts.

What is a “double recovery”?

[WJ]

"Splitting" the damages between lost profits and royalties is not a double recovery. Centocor is only due lost profits on the sales that it would have made, but for the infringement. This is likely less than 100% of Abbott's Humira sales. Centocor likely argued that it would only have made a portion of Abbott's infringing sales (i.e. 75%) and received lost profits on that amount. Centocor is still due royalties on the remaining sales it would not have captured (the other 25%), which likely accounts for the $504 million in royalties.

[Just an ordinary inventor(TM)]

Dear WJ,

Using your 75% figure for the lost profits, I calculate Abbott’s sales to have been $1.557 billion. And I calculate the awarded royalty rate to be 32.36% of the $1.557 billion amount.

[Derick]

I do not agree with 90% of what WJ indicated. Why would Centocor argue that it would only have made a portion of Abbott's infringing sales? That makes no sense whatsoever. And then attempt to recover the remaining 100% on the rr. That analysis is flawed..big time.

[James Daily]

To answer JAOI's double recovery question more directly: it would be a double recovery if the jury had calculated that the damages were X under lost profits, Y under reasonable royalty, and then awarded both.

So, imagine the defendant had $100 in sales, of which half was profit, and the reasonable royalty rate was 10% of gross sales. It would be double recovery to award both $50 lost profits and ($100 * 10%) in royalties. In this case, the award was more like $30 in lost profits plus ($40 * 10%) in royalties.

[metoo]

Usually this type of damage recovery arises when the patent owner proves that it is entitled to its lost profits based on its relevant market share. For example, if the patent owner's market share (not including the infringer's sales) is 35%, it is entitled to recover its lost profits on 35% of the infringer's sales. For the other 65% of the infringer's sales, the patent owner is entitled to a reasonable royalty.

[Just an ordinary inventor(TM)]

Dear James daily and metoo,

Thanks for your clarifications -- let's see if I got it right:

If you get awarded the profit from the sales you would have made but for the infringement, you don't also get a royalty on those sales (based on the assumption that you were awarded the profit and you wouldn't have charged yourself royalty).

If the infringer made additional infringing sales that the patent holder would not have made, the patent holder is awarded a royalty on those additional sales.

A double recovery would be where a patent holder was awarded lost profits but for the infringement, and a royalty on top of that loss profit.

If, arguendo, Mr. WJ’s figures were correct, the jury assess Abbott 129.45% royalty on sales it made that Centocor would not have made ($389 million times 129.45% equals approximately $504 million).

(I vaguely recall a slot machine case about eight years ago in which International Game Technology's, IGT, prevailed against Williams Gaming. As memory serves, IGT was awarded $2450 or thereabouts for lost profits and $550 royalty per slot machine.)

Question:
However, suppose the patent holder successfully argues that he not only would've made the profit the infringer made on the infringing sales, but, given the patented improvement, he also would have raised his price akin/equivalent to a royalty.

Would be theory of “double recovery” preclude him getting the royalty as well as the loss profits on the same infringing sales?

[metoo]

I think you have it right, JAOI - perhaps an easier way to look at it is that for each sale, the patent owner gets EITHER its lost profits or a reasonable royalty (but not both).

As for WJ's figures, I think he was just throwing out random %'s rather than some specific figure. I don't think there's any way to determine from the verdict form what % of sales went into the lost profits calculation and what % went to the reasonable royalty calculation.

I don't recall the IGT case.

As for your question, I'm not sure I understand it. Remember, we're talking about the patent owner's lost profits, NOT the profit made by the infringer. When calculating lost profits you primarily look at the infringer's sales (in terms of units were sold), the patent owner's market share for the product in question, and the patent owner's profit for each unit sold. Yes, there are some other factors which might come into play (e.g., did the patent owner have the manufacturing capacity to make the infringer's sales).

Ahh...OK, I think I understand your question. Yes, a lost profits determination can take into account "price erosion." This can result if, for example, the patent owner has to lower its price due to the infringer's presence in the market. Here's am article on that subject: http://www.nafe.net/JFE/j16_1_03.pdf

[Just an ordinary inventor(TM)]

Dear metoo,

Re:
“…the patent owner gets EITHER [ [ its ] ] -- HIS -- lost profits or a reasonable royalty (but not both).”

You clarified my understanding in your penultimate paragraph,

“we're talking about the patent owner's lost profits, NOT the profit made by the infringer”

and you taught me about an additional factor, price erosion, in your last paragraph.

Thank you, thank you.
And thanks for the article -- I'll look through it this evening over cocktails -- I wish I could buy a round for you and Mr. James daily.

[WJ]

Just to clarify, and as Metoo pointed out, the percentages (75% and 25%) I mentioned earlier were random amounts meant only to illustrate how the market share of each party impacts the calculation of lost profits. They were not meant to represent any particular facts of the Centoco-Abbott case. Metoo hit the nail on the head with his explanation of how infringing sales are "allocated" between lost profits and royalties using a market share analysis.

As for price erosion, not only can a patent holder claim that it would have made the accused sales at a higher selling price (and calculate its profits from this higher selling price), but it can also claim price erosion damages on its other, existing sales. By "existing sales", I mean those that the patent holder has already made--not the sales claimed in the lost profits calculation. In general, this requires that the patent holder show that, but for the infringer's presence in the market, it would have made its existing sales at a higher price.

For example, if a patent holder sold 100 widgets in a year for $10 each, and it showed that but for the infringer's presence in the market, it would have sold its widgets for $15 each, it can claim price erosion damages of ($15 - $10) x 100 = $500. This $500 would be separate from its lost profit or royalty damages.

[Just an ordinary inventor(TM)]

Dear WJ,

Thanks for your additional input -- I would guess everyone but Mr. Derick understood your figures to be merely illustrative.

So, I wish I could buy a round for you, metoo, and Mr. James daily -- and of course Prof. Crouch, to whom we all owe a lot.

PS:
Mr. Derick was not only rude, he was rude and showed himself to be a dunce (no offense, but if the shoe fits...). Mr. Derick, may I suggest an apology to Mr. WJ? If you apologize you can join the educated crowd at the bar (the drinking bar, I doubt you are qualified for the other bar) for a drink on me.

[Derick]

That is not nice. The way it was written did not make sense and I didnt agree with it. It has now been clarified.

[Just an ordinary inventor(TM)]

Dear Derick,

Re: “The way it was written did not make sense and I didnt agree with it.”

Okay but, you were criticizing when he said, “That makes no sense whatsoever.”
It would have been polite to ask for clarification.

Shall I accept your comment to be an apology to Mr. WJ? (Now the true test of Mr. Derick's attitude will come out.)

[Just an ordinary white rabbit(TM)]

Hey boss, who was it that once said these boards can be used as a personality test? If so, you better be careful -- the men in white jackets might be right around the corner.

[Just an ordinary white rabbit(TM)]

Hey boss, do you think anybody noticed your latest and greatest white paper on the cruddy eBay decision?
http://www.patentlyo.com/patent/2009/06/bits-and-bytes-dudas-kappos.html?cid=6a00d8341c588553ef0115709a07ee970c#comment-6a00d8341c588553ef0115709a07ee970c

[Fiber]

Very interesting

[Malcolm Mooney]

I read an interesting article about the case where it was implied that the jury didn't "connect" with Abbott's counsel (a relatively low-key Bostonian of Asian descent who quoted Chinese philosophy in his closing argument) but was moved by Johnson & Johnson's Bible-quoting counsel.

Ah, America! It'll be interesting to see how this plays at the Federal Circuit.

[wiseacre]

"According to news reports, Centocor is not seeking injunctive relief."

But wait, isn't an exclusive right without an injunction like a gun without bullets?

[wisea$$]

More like a knife without bullets.

One would wish for a gun with bullets, of course, but a knife in the right hands will still cause plenty of damage.