SAN ANTONIO – A district court judge has ruled that ICON Health & Fitness infringed on a Chinese patent related to an elliptical exercise machine and awarded Nautilus Inc. $1.8 million in damages, plus attorney’s fees.

In the case of Nautilus Inc. v. ICON Health and Fitness Inc., the judge ruled that Nautilus Inc.’s motion for summary judgment was granted, ICON Health and Fitness Inc.’s motion for summary judgment was denied, and all other motions were denied as moot in a Jan. 19 memorandum opinion.

According to the opinion, Nautilus and ICON entered into a patent licensing agreement (contract) in 2004. According to the terms of the contract, ICON received a non-exclusive license to certain Nautilus patents in exchange for its agreement to pay to Nautilus a 5 percent royalty on the gross sales of all products (defined by the contract) manufactured and sold by ICON that used the licensed patents. The licensed patents pertained to the parts for and the manner of constructing ‘front-end’ ellipticals. Some of the patents were American patents and others were foreign patents. On Jan. 25, 2015, all of the patents licensed under the agreement had expired except for Nautilus' Chinese patent. 

Under the terms of the contract, ICON only had to pay royalties on the sale of "'Products' (with a capital 'p)," the opinion states. The definition of "Products" in the contract is limited, by definition, to "‘the intangible legal rights and interests that exist’" in Nautilus' patents, the opinion states. 

As the court’s opinion states, “Because these legal rights can only be determined with reference to the underlying substantive patent law that creates those rights, determining what is and is not a "Product" on which ICON must pay royalties requires reference to that underlying patent law.” 

Nautilus claims that the products are covered by Nautilus' Chinese patent, which was issued under and is governed by Chinese law. Nautilus claims the court must apply Chinese law to determine whether ICON's products infringe on the Chinese patent. Doing so, the court concluded that “ICON's products elliptical component parts and assembly instructions that are fabricated and packaged, but not finally assembled, in China infringe on the Chinese patent. Therefore, ICON's products are "Products" on the sales of which ICON must pay royalties to Nautilus.”  

The parties agree that between Jan. 25, 2015, (when the U.S. patents expired), and Jan. 25, 2016, (when the Chinese patent expired), ICON manufactured the parts of its ellipticals and packaged those parts, together with assembly instructions, in China. Some of these unassembled ellipticals were sold to customers in the United States and other countries in which Nautilus held no valid patents. Customers in the U.S. assembled the ellipticals themselves. 

According to the court’s order, “While the parties agree on these facts, the parties disagree as to the application of the contract as it relates to the sale of the unassembled ellipticals.”

Nautilus admits that ICON already paid Nautilus $964,899.17 in royalties for the ICON products at issue in this case.

The court concluded that the total amount of damages in this case is at least $1,782,508 - the remaining unpaid royalties Nautilus is owed. The court awarded judgment in favor of Nautilus in that amount. Since the contract states that “the prevailing party shall be entitled to reasonable attorney's fees, experts' fees, costs and necessary disbursements," the court ruled that Nautilus may file a separate motion for attorney's fees.  

The judgment was rendered by the Honorable Royce Lamberth of the San Antonio Division of the Western District of Texas.

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