SDNY Awards 1.82% Ongoing Royalty on Nintendo 3DS Wholesale Sales: Tomita Tech. USA, LL v. Nintendo Co., Ltd.

Authored by Lewis V. Popovski, Peter L. Giunta, and Ajita Shukla

On December 11, 2013, District Judge Jed S. Rakoff set an ongoing quarterly royalty rate of 1.82% of wholesale of defendant Nintendo’s 3DS to be paid to Tomita. Following a March 2013 jury verdict awarding over $30 million in damages for the 3DS infringing Tomita’s stereoscopic technology patent, the court awarded remittitur to Nintendo for half of the damages award, lowering the damages to about $15 million. In its August remittitur opinion, the court found that the jury failed to consider i) that the 3DS was not itself profitable and weighed heavily the unrelated profits that Nintendo earns on 3DS games that do not utilize the technology covered by the ’664 patent; ii) that the patented stereoscopic technology was ancillary to the core functionality of the 3DS; and iii) that consumer reception for the stereoscopic features was mixed.

The remaining damages issue, decided here, was whether to award an ongoing royalty rate to be paid for future sales, and if so, what it should be. The court set the ongoing royalty rate at 1.82% of wholesale sales—two-thirds of the 2.73% of sales that the jury’s original damages award reflected. The 1.82% was based on the court’s earlier determination that there was no basis to completely reject the jury’s award, even though the full award was intrinsically excessive. The court awarded the royalty based on a percentage of sales, as opposed to a fixed dollar amount per unit sold, and reasoned that a percentage was appropriate to avoid unearned windfalls from price fluctuations. It also based the royalty on a percentage of wholesale sales, which it deemed appropriate because of rapid technology advancement and its effect on prices.

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