Settlement Prevents Contingent Payment Of Litigation Royalty

In Parental Guide of Texas, Inc. v. Thompson, Inc . (No. 05-1493; April 21, 2006), the Federal Circuit affirms the district court's grant of summary judgment that Thompson did not owe Parental Guide a contingent payment under a Release and License Agreement (“Agreement”).

During a previous lawsuit, Parental Guide and Thompson reached a settlement and entered into the Agreement. In the Agreement, Thompson was obligated to make a contingent payment of a “Litigation Royalty” if there was a favorable determination of the lawsuit. The parties defined the “Litigation Royalty” as “the lowest per unit reasonable royalty, if any, as expressly determined in the Lawsuit in accordance with the law applicable to 35 U.S.C. § 284, by the final, irrevocable, and nonappealable order in the Lawsuit.”

Because the Agreement referenced section 284, the Federal Circuit determines that the “Litigation Royalty” would be a reasonable royalty that was determined by a judge or jury. In this case, however, the parties agreed to a royalty rate in their settlement, without a judge or jury making a reasonable royalty determination. Accordingly, the Federal Circuit determines that there is no “Litigation Royalty,” and thus there can be no contingent payment.