Case 2:20-cv-00337-JRG Document 485 Filed 11/10/22 Page 1 of 8 PageID #: 21344
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`IN THE UNITED STATES DISTRICT COURT
`EASTERN DISTRICT OF TEXAS
`MARSHALL DIVISION
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`Civil Action No. 2:20-CV-00337-JRG
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`SEAGEN INC.,
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`v.
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`Plaintiff,
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`DAIICHI SANKYO CO., LTD.,
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`Defendant,
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`ASTRAZENECA PHARMACEUTICALS LP,
`and ASTRAZENECA UK LTD,
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`
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`Intervenor-Defendants.
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`SEAGEN’S REPLY IN SUPPORT OF
`MOTION FOR SUPPLEMENTAL DAMAGES
`AND ONGOING ROYALTIES
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`Case 2:20-cv-00337-JRG Document 485 Filed 11/10/22 Page 2 of 8 PageID #: 21345
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`I.
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`INTRODUCTION
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`Defendants’ opposition brief confirms that the Court should grant Seagen’s motion.
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`Defendants do not challenge that supplemental damages and an ongoing royalty are appropriate.
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`The only dispute is the appropriate rate for the ongoing royalty.
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`Seagen’s motion demonstrated that its improved bargaining position in a post-verdict
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`hypothetical negotiation should result in a modest increase in the royalty from the jury’s implied
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`rate of 8% to a rate of 10–12%. Defendants’ response ignores authority from this District that
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`the absence of a requested injunction has no negative impact on Seagen’s leverage in the
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`hypothetical negotiation. Defendants also refuse to accept straightforward inferences from the
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`jury’s verdict, and they disregard changes in circumstances from the pre-verdict hypothetical
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`negotiation.
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`II.
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`THE COURT SHOULD SET AN INCREASED ONGOING ROYALTY RATE
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`A.
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`Defendants’ Arguments Regarding Downward Pressure Are Flawed
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`Defendants’ “downward pressure” arguments lack support in the applicable case law.
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`1.
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`Seagen’s Post-Verdict Royalty Should Not Be Affected by Its Decision
`Not to Seek Injunctive Relief.
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`Defendants’ assertion that Seagen’s bargaining position would be diminished because it
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`did not seek an injunction ignores decisions to the contrary. (Opp. at 5.) In Paice LLC v. Toyota
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`Motor Corp., this Court held that “[e]ven though a permanent injunction may no longer be
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`proper in many patent cases in light of eBay, an ongoing royalty rate must still adequately
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`compensate a patentee for giving up his right under the law to exclude others from making,
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`using, selling, offering for sale or importing his invention.” 609 F. Supp. 2d 620, 630 (E.D. Tex.
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`2009) (“Injunction or no injunction, pre-suit and post-judgment licensing negotiations are
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`necessarily different due at least to the change in legal status of the parties.”) (id. at 626).
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`Case 2:20-cv-00337-JRG Document 485 Filed 11/10/22 Page 3 of 8 PageID #: 21346
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`Nothing in that decision suggests the outcome would have been different if the patentee had not
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`sought an injunction. In Arctic Cat Inc. v. Bombardier Rec. Prods., Inc., No. 14-cv-62369-
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`BLOOM/Valle, 2017 WL 7732873, at *2–3 (S.D. Fla. Jan. 3, 2017), the court awarded an
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`ongoing royalty double that set by the jury even though the patentee apparently sought only an
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`on-going royalty and did not seek a prohibitory injunction. The Federal Circuit affirmed in
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`relevant part. 876 F.3d 1350, 1370 (Fed. Cir. 2017)
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`The framework for an ongoing royalty rate presumes that there is no injunction, and
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`compensates for the infringement that will continue to occur:
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`“However, when an injunction is not proper under eBay, the question instead
`becomes: 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? See Georgia–Pacific, 318 F. Supp. at 1120 (factor 15). It is
`under this modified Georgia–Pacific framework that the Court proceeds.”
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`Paice, 609 F. Supp. 2d at 624 (emphasis added). Because an ongoing royalty is awarded in lieu
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`of an injunction, the absence of an injunction is properly not a factor in the hypothetical
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`negotiation. Dr. Meyer cannot fault Ms. Distler’s analysis on the basis that Seagen did not seek
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`or obtain an injunction. (Dkt. 469-1 (“Meyer Decl.”) ¶ 17.)
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`DSC itself recognized this in litigation involving its subsidiary Plexxikon Inc. in the
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`Northern District of California. There, Plexxikon correctly argued that “[t]he shift in bargaining
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`power occurs even in the absence of a request for a permanent injunction.” (Chivvis Decl. ¶ 3,
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`Ex. B at 6 (emphasis added).) Defendants now take a squarely inconsistent position and cite
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`only one out-of-district decision—EMC Corp. v. Zerto, Inc.—that does not command the result
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`Defendants seek. In EMC, the court found the lack of an injunction to be a neutral factor, not
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`one that puts downward pressure on the jury’s implied royalty rate. EMC Corp. v. Zerto, Inc.,
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`No. 12-cv-956-GMS, 2017 WL 3434212, at *3 (D. Del. Aug. 10, 2017). Defendants also ignore
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`Case 2:20-cv-00337-JRG Document 485 Filed 11/10/22 Page 4 of 8 PageID #: 21347
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`the perverse incentives of their proposed rule: Were successful patentees required to seek a
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`permanent injunction to benefit from their improved bargaining position, litigants would bring
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`burdensome and unnecessary motions and potentially seek to enjoin sales notwithstanding the
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`public interest. Seagen wants effective therapies available to patients. That should not stand in
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`the way of adequate compensation for DSC’s post-verdict willful infringement.
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`2.
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`Seagen’s Success in Defeating PTAB Institution Strengthens Its
`Bargaining Position in the Hypothetical Negotiation.
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`Defendants also argue that while the PTAB’s April 7, 2022 order would be a factor in the
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`hypothetical negotiation, the subsequent decision declining to institute PGR would not because it
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`was decided on July 15, 2022. (Opp. at 7.) But contrary to Defendants’ view, the book of
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`wisdom permits consideration of later-occurring events in hypothetical negotiations. See
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`ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 872 (Fed. Cir. 2010) (“[T]he district court may
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`also consider the panoply of ‘events and facts that occurred thereafter and that could not have
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`been known to or predicted by the hypothesized negotiators.’”) (citation omitted).1 In such a
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`negotiation, the PTAB proceedings would only enhance Seagen’s bargaining position. (Mot. at
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`9–10.) Defendants’ argument that a third-party could possibly seek to institute post grant
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`proceedings in the future is wholly speculative. (Opp. at 7–8.) Nor do Defendants’ dim
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`prospects before the Precedential Opinion Panel or on appeal support a lowered royalty rate.
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`3.
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`Seagen’s Disclaimer Does Not Affect the Post-Verdict Negotiation
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`Defendants’ arguments regarding disclaimer similarly lack any basis. (See Dkt. 465.)
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`Seagen did not disclaim any of the asserted claims, and Defendants cite to no authority for their
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`1 It thus makes no practical difference whether the parties negotiated on April 8, 2022, or the
`date of judgment, July 19, 2022. (Dkt. 443-1 (“Distler Decl.”) ¶ 6 n.9.) Some courts even
`suggest that the hypothetical negotiation occurs on the date of final judgment. See Arctic Cat,
`876 F.3d at 1370 (“Ongoing royalties may be based on a post-judgment hypothetical negotiation
`using the Georgia–Pacific factors.”) (emphasis added).
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`Case 2:20-cv-00337-JRG Document 485 Filed 11/10/22 Page 5 of 8 PageID #: 21348
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`assertion that Seagen’s disclaimer would “cast a dark cloud over the ’039 patent.” (Opp. at 7–8.)
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`For their argument that Seagen’s disclaimer “call[s] into question the validity of the remaining
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`claims” (id. at 8), Defendants cite only Dr. Meyer, who admitted she did not have any legal
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`understanding of disclaimer. (Chivvis Decl. Ex. A (“Meyer Dep. Tr.”) at 44:17–45:13.)
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`B.
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`The Jury Implied an 8% Royalty Rate
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`Defendants’ argument that an 8% royalty cannot be implied from the verdict makes no
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`sense. (Opp. at 5.) The jury awarded $41.82 million to compensate Seagen “for its damages for
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`infringement from October 20, 2020 through March 31, 2022.” (Dkt. 369 at 7.)
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` (Trial (Day 4) Tr. at 181:15–11; 286:13–19; Meyer Dep.
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`Tr. at 29:8–24.) The result is an implied royalty rate of 8%. (Distler Decl. ¶ 8.) Courts regularly
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`determine implied royalty rates from lump sum past damages awards. See, e.g., Genband US
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`LLC v. Metaswitch Networks Corp., No. 2:14-cv-33-JRG, 2018 WL 11357619 (E.D. Tex. Mar.
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`22, 2018). Seagen cited many such cases in its motion. Defendants’ suggestion that “the jury
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`believed that a much lower royalty rate applied” and was improperly swayed by one sentence in
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`Seagen’s closing argument has no support in the record. (Opp. at 5.) The jury selected the
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`precise lump sum—$41.82 million—that corresponded with Ms. Distler’s 8% reasonable royalty
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`assessment. (See also Dkt. 466 at 14–15.)
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`Likewise, the jury’s adoption of the highest rate Ms. Distler presented—8%—indicates
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`that
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` is the most comparable. (Mot. at 6–7.) As Ms. Distler explained,
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` (Distler
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`Decl. ¶ 10.) Ms. Distler also explained that
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` would be even further
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`removed from the economic realities of Seagen’s bargaining position in a post-verdict
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`hypothetical negotiation. (Id. ¶ 9.) Defendants do not dispute these facts. (Opp. at 5–6.)
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`Case 2:20-cv-00337-JRG Document 485 Filed 11/10/22 Page 6 of 8 PageID #: 21349
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`Defendants also disregard the business policy implications of accepting a royalty rate from an
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`adjudged infringer lower than willing licensees that seek rights to Seagen’s property and
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`negotiate terms before infringement. (Mot. at 7.)
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`C.
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`Changed Circumstances Support an Increased Royalty Rate
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`Defendants fault Seagen for neglecting that “Seagen wanted . . . sales [] to be as high as
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`possible.” (Opp. at 10.) Seagen’s interest in increased sales does not defeat its claims to an
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`increased royalty rate. Though added indications and increased sales would increase the royalty
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`base, additional FDA approvals mean that Enhertu is more valuable to DSC than in the original
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`hypothetical negotiation, giving Seagen greater bargaining leverage. (Mot. at 8; Distler Decl.
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`¶ 13–19.) Similarly, the new indications may have been in clinical trials and “expected at the
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`time of trial” (Opp. at 10), but the subsequent FDA approvals removed uncertainty, similarly
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`benefiting Seagen’s bargaining position. The same is true of the increased competition between
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`Enhertu and Seagen’s HER2 targeted therapy—Tukysa. While the initial hypothetical
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`negotiation may have contemplated competition, Enhertu’s FDA approval in the second line, an
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`indication it now shares with Tukysa, did not occur until after the verdict. (Distler Decl. ¶ 15.)
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`Defendants also do not address post-verdict clinical trial results showing Enhertu’s efficacy in
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`patients with active brain metastases—a patient population for which Tukysa has demonstrated
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`efficacy and received approval. (Id. ¶ 24.)
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`III. CONCLUSION
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`Seagen’s motion should be granted in full. Defendants do not argue that supplemental
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`damages and an ongoing royalty through the life of the patent are inappropriate. Seagen has
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`shown that a modest increase from the jury’s implied rate of 8% to 10–12% is appropriate and
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`warranted to compensate Seagen for giving up its right to exclude.
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`Case 2:20-cv-00337-JRG Document 485 Filed 11/10/22 Page 7 of 8 PageID #: 21350
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`Dated: October 7, 2022
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`By: /s/ Michael A. Jacobs
`Michael A. Jacobs
`MJacobs@mofo.com
`Matthew A. Chivvis
`MChivvis@mofo.com
`MORRISON & FOERSTER LLP
`425 Market Street
`San Francisco, CA 94105
`Telephone: 415.268.7000
`Facsimile: 415.268.7522
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`Bryan Wilson
`BWilson@mofo.com
`MORRISON & FOERSTER LLP
`755 Page Mill Road
`Palo Alto, California 94304-1018
`Telephone: 650.813.5600
`Facsimile: 650.494.0792
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`Melissa R. Smith
`Texas State Bar No. 24001351
`melissa@gillamsmithlaw.com
`GILLAM & SMITH, LLP
`303 South Washington Avenue
`Marshall, Texas 75670
`Telephone: 903.934.8450
`Facsimile: 903.934.9257
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`Of Counsel:
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`T. John Ward, Jr.
`Texas State Bar No. 00794818
`jw@wsfirm.com
`Wesley Hill
`Texas State Bar No. 24032294
`wh@wsfirm.com
`Charles Everingham IV
`Texas State Bar No. 00787447
`ce@wsfirm.com
`Andrea L. Fair
`Texas State Bar No. 24078488
`andrea@wsfirm.com
`WARD, SMITH & HILL, PLLC
`1507 Bill Owens Parkway
`Longview, Texas 75604
`Telephone: 903.757.6400
`Facsimile: 903.757.2323
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`Attorneys for Plaintiff Seagen Inc.
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`CERTIFICATE OF SERVICE
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`The undersigned hereby certifies that counsel of record who are deemed to have
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`consented to electronic services are being served with a copy of this document via the Court’s
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`CM/ECF system per Local Rule CV-5(a)(3) on this the 7th day of October, 2022.
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`/s/ Melissa R. Smith
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