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Patent Infringement Damages: A Brief Summary
Federal Circuit Bar Journal
2000
DeFranco, Denise W.
Article
Authored by Denise W. DeFranco
Introduction
The patent statute provides that the damage award in a patent infringement action must be "adequate to compensate
for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer,
together with interest and costs as fixed by the court."
1
Courts have construed this statutory phrase as requiring an
award of lost profits, or other compensatory damages, where the patentee can prove, and elects to prove, such
damages. However, where the patentee cannot prove, or elects not to prove, such damages, the statute provides for an
award of a reasonable royalty.
2
Therefore, even where the patentee has not shown any harm caused by the
infringement, the patentee is still entitled to the award of a reasonable royalty.
Sections I and II of this paper review the case law regarding the award of lost profits and reasonable royalties,
respectively. Section III addresses two statutory limitations imposed on damages. Finally, Sections IV and V briefly
address enhancement of damages and other awards.
I. Lost Profits
A. "But For" Causation and the Panduit Test
Lost profits or other compensatory damages are not always available to the patent holder. The patentee will be
awarded lost profits only if it can show causation in fact, establishing that but for the infringement, the patentee would
have made additional profits.
3
Although any type ofevidence can be used to establish "but for" causation, the Sixth Circuit, in Panduit Corp. v. Stahlin
Bros. Fibre Works, Inc.,
4
established what has become the classic test for determining "but for" causation.
5
Under
Panduit, lost profits may be awarded where the patentee establishes: (1) there is demand for the patented product; (2)
there are no non-infringing substitutes; (3) the patentee had the manufacturing and marketing capability to exploit the
demand; and (4) the amount of profit the patentee would have made absent the infringing conduct.
6
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When a patent holder exploits its patent by making, using, or selling the patented product, the patent holder can usually
satisfy the Panduit "but for" test.
7
This is because the patentee can prove lost sales of its patented product or a reduced
profit margin on actual sales as evidence of the causal relationship between its losses and the infringing conduct.
However, where a patentee's sales of a patented product increased during the infringement period and the patentee
asserts damages based on a theory that its sales would have increased more rapidly "but for" the infringement, the
patentee's lost profits damages may be constrained by an absence of proof that the patentee had production capacity to
make both the product that it actually produced in the historical world plus the product the patentee argues it would have
sold in the "but for" world.
8
Repeatedly, Federal Circuit case law is still unclear as to whether or not the patentee must make the patented product
in order to be entitled to an award of lost profits.
9
As a matter of logic, a patentee should be able to recover lost profits if
sales of one of its existing products, which is not the subject of a patent-in-suit, were adversely affected by an infringer's
sales ofproducts that are covered by a patent-in-suit.
10
Proof of damages is most easily established where the patentee and the infringer compete in a two-supplier market.
11
In such a case, there is clearly a demand for the patented product because the infringer sells the patented product. In
addition, there are no non-infringing substitutes because there are no other competitors in the market, and the patentee
has existing facilities which could meet, or which could be expanded to meet, the demand. In such a situation, it follows
that "but for" the infringement, the patentee would have made the sales otherwise made by the infringer.
12
Indeed, even where there are several participants in the market, a market share analysis can be used to determine the
appropriate measure of a lost profits award. For example, in State Industries, Inc. v. Mor-Flo Industries, Inc.,
13
the
patentee's product competed with several products in the market, some of which were infringing substitutes.
14
Despite
the patentee's failure to satisfy the second requirement of Panduitthe absence of non-infringing substitutesthe
court nonetheless awarded lost profits because the patentee's market share remained relatively stable at 40%. The
district court inferred that "but for" the infringement, the patentee would have made 40% of the infringer's sales.
15
The
Federal Circuit held that so long as the patentee had the "sufficient marketing and manufacturing capabilities to meet
its market share of the demand," such an inference was eminently reasonable.
16
State Industries notwithstanding, the Panduit requirement that there be an "absence of non-infringing substitutes"
typically means only that there are no other products on the market that compete with the patented product such that if
the infringer were not in the market, all of the infringer's sales would have been made by the patentee.
17
In such cases,
the patentee is usually entitled to an award of lost profits.
18
Not all competing products, however, are "acceptable" non-
infringing substitutes. In order to be an acceptable noninfringing substitute, the competing product must have "all the
beneficial characteristics of the patented device."
19
In Grain Processing Corp. v. American Maize-Products Co.,
20
the court held that even where a non-infringing alternative
is not actually sold, it can be considered "available" so as to preclude or limit an award of lost profits.
21
In Grain
Processing, the accused infringer sold an infringing product and had developed a non-infringing alternative product.
However, the accused infringer had chosen not to market the alternative product because it was slightly more expensive
to manufacture. The patentee argued that a non-marketed product could not be considered an available, non-infringing
substitute. The Federal Circuit disagreed. The court explained that in determining whether an award of lost profits is
appropriate, one must "take into account any alternative available to the infringer."
22
Where such an alternative is not on
the market, the factfinder may infer that it was not available during the period of infringement.
23
However, the infringer
may overcome such an inference by proving that the substitute was available during the period for which the patentee
seeks damages.
24
The court held that the non-marketed alternative in Grain Processing was available to the infringer
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because the infringer had developed the technology to manufacture the alternative, and although the alternative was
more expensive, it was not prohibitively more expensive.
25
B. Compensable Losses
After a determination is made that the patentee is entitled to an award of lost profits, the court must determine the
amount of lost profits to which the patentee is entitled.
1. Patented Product
Clearly, the patentee can recover lost profits on its sales of the patented product where those lost sales are
established to a reasonable probability. Where the injury stems from such diverted sales, the appropriate
remedy is determined by estimating what the patentee's profits would have been from its patented product
absent the infringing conduct.
26
One common method for determining the amount of lost profits is the so-called incremental income approach.
This approach takes into account the fact that, for any particular level of incremental sales some costs are
variable and some are fixed. The fixed costs do not change with increased volume, while the variable costs do
change. Lost profits are the difference between the incremental revenue that the patentee would have obtained if
it had sold its product in lieu of the infringer's sales, and the incremental,
27
or variable, costs attributable to that
incremental sales volume.
2. Unpatented Products
In Rite-Hite Corp. v. Kelley Co.,
28
the Federal Circuit made clear that the patentee can also recover lost sales of
products not covered by the patent so long as those lost sales "w[ere] or should have been reasonably
foreseeable by an infringing competitor in the relevant market."
29
In that case, the patentee sold two products in
the same market: a less expensive and a more expensive product. The less expensive product was covered by
the asserted patent. The more expensive product was not. The infringing product was designed to compete with
the patentee's more expensive, non-patented product.
30
The district court found that "but for" the infringement,
the patentee would have sold 80 more units of the less expensive, patented product and 3,243 more units of its
more expensive, non-patented product. Because both of these products competed in the same market and
because the lost sales of each should have been reasonably foreseeable to the infringer, the Federal Circuit
affirmed the award of lost profits on both products.
31
3. Unpatented Components and the Entire Market Value Rule
Where a patented component is sold as part of a larger product that includes unpatented components, the
Federal Circuit has made clear that the patentee can recover damages based on the entire market value of the
whole product so long as the patented feature is the basis of the consumer demand for the whole product.
32
In
State Industries, for example, the asserted patent covered a method for insulating water heaters with foam. The
court affirmed an award of lost profits based on sales of the water heater as a whole under the entire market
value rule and refused to limit the award to the foam insulating component of the heater.
33
The en banc Federal Circuit in Rite-Hite delineated the outer limits of the applicability of the entire market value
rule.
34
Rite-Hite asserted that it was entitled to recover lost profits on a product ("Convoyed Product") that it
always sold together with the patented product under the entire market value rule. The court held that Rite-Hite
was not entitled to such a recovery because under the entire market value rule,
the unpatented components must function together with the patented component in some manner so as
to produce a desired end product or result. All the components together must be analogous to
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components of a single assembly or be parts of a complete machine, or they must constitute a functional
unit.
35
In Rite-Hite, the Convoyed Product was, in fact, a separate product. Although it was often sold with the patented
product as a matter of marketing convenience, there was no showing that the Convoyed Product functioned with
the patented product or that the Convoyed Product was part of a single assembly with the patented product.
36
4. Price Erosion
In addition to lost profits on lost sales, a patentee may also claim that it was harmed by price erosion caused by
the infringement. Under a price erosion theory, the patentee alleges that the presence of the infringing product
produced price competition that effectively reduced the patentee's price for, and its resulting net profit from, sales
of the patentee's product. Where price erosion is asserted, the burden is on the patentee to prove that it would
have been able to sell its patented product at a higher price "but for" the infringing conduct.
37
Most typically, price
erosion claims arise where the infringer sells the infringing product at such a reduced price that the patentee is
forced to discount its prices in order to compete in the market. A patentee may even prove that the infringing
sales forced the patentee to forego a planned price increase, and the court may compute the damage award as
if the patentee had raised its prices.
38
Note, however, that it is conceptually difficult for a plaintiff to pursue lost profits on lost sales and a price erosion
theory in the same case. If the infringer's conduct held down prices in the relevant market, it may be difficult for
the patentee to prove that it would have made all of the sales that it actually made, and all of the infringer's actual
sales at prices that would have materially exceeded the prices that existed at the time when these sales were
actually made.
5. Future Lost Profits
The effects of price erosion during the life of a patent can extend beyond the period of the infringement. In such
situations, the court may award lost profits to the patentee on its future sales.
39
Similarly, the award offuture lost
profits might arise under the so called "accelerated reentry theory." The accelerated reentry theory, first identified
in BIC Leisure Products, Inc. v. Windsurfing International, Inc.,
40
allows the patentee to recover damages for the
head start that the infringer achieved by entering the market prior to the expiration of the patent.
41
6. Lost Profits for Pre-infringement Conduct
Lost profit damages are not limited to sales lost by the patentee after the infringing product is placed on the
market. Where the infringer announces a future product and the announcement actually affects the patentee's
profits prior to the first sale of the infringing product, the patentee may be entitled to recover damages for those
lost sales.
42
II. Reasonable Royalty
To the extent the patentee cannot establish "but for" causation for an award of lost profits, the patentee is entitled to a
reasonable royalty award. Thus, a damages award may be split berween lost profits and a reasonable royalty. For
example, lost profits may include lost sales for which the patentee had manufacturing capacity while a reasonable
royalty may be based on additional sales which exceeded the patentee's manufacturing capacity. Similarly, lost profits
may be split with a reasonable royalty based on a market share analysis. For example, in State Industries, the court
awarded lost profits on the 40% of the infringer's sales that the court held the patentee would have made "but for" the
infringement as well as a reasonable royalty on the remaining 60% of the infringer's sales that the court found would
have been made by other market participants.
43
Of course, where the patentee cannot prove entitlement to any lost
profits, for example where the patentee is a university or research instirute, a reasonable royalty on all of the infringer's
sales is appropriate.
44
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A reasonable royalty is the amount that a hypothetical licensee would be willing to pay the patentee for a license to
make, use, or sell the patented product while still earning a reasonable profit on that product.
45
The factfinder
determines a reasonable royalty by imagining a hypothetical negotiation between a willing licensor and willing licensee
on the eve of the infringement.
46
The Federal Circuit has confessed that "[d]etermining a fair and reasonable royalty is
often ... a difficult judicial chore, seeming often to involve more the talents of a conjurer than those of a judge."
47
In Georgia-Pacific Corp. v. United States Plywood Corp.,
48
the U.S. District Court for the Southern District of New York
summarized various factors that might be considered in a hypothetical negotiation analysis:
1. The royalties received by the patentee for the licensing of the patent in suit, proving or tending to prove an
established royalty.
2. The rates paid by the licensee for the use of other patents comparable to the patent in suit.
3. The nature and scope of the license, as exclusive or non-exclusive; or as restricted or non-restricted in terms
of territory or with respect to whom the manufactured product may be sold.
4. The licensor's established policy and marketing program to maintain his patent monopoly by not licensing
others to use the invention or by granting licenses under special conditions designed to preserve that monopoly.
5. The commercial relationship between the licensor and licensee, such as, whether they are competitors in the
same territory in the same line of business; or whether they are the inventor and promotor.
6. The effect of selling the patented specialty in promoting sales of other products of the licensee; the existing
value of the invention to the licensor as a generator of sales of his non-patented items; and the extent of such
derivative or convoyed sales.
7. The duration of the patent and the term of the license.
8. The established profitability of the product made under the patent; its commercial success; and its current
popularity.
9. The utility and advantages of the patent property over the old modes or devices, if any, that had been used for
working out similar results.
10. The nature of the patented invention; the character of the commercial embodiment of it as owned and
produced by the licensor; and the benefits to those who have used the invention.
11. The extent to which the infringer has made use of the invention; and any evidence probative of the value of
that use.
12. The portion of the profit or of the selling price that may be customary in the particular business or in
comparable businesses to allow for the use of the invention or analogous inventions.
13. The portion of the realizable profit that should be credited to the invention as distinguished from non-
patented elements, the manufacturing process, business risks, or significant features or improvements added
by the infringer.
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14. The opinion testimony of qualified experts.
15. The amount that a licensor (such as the patentee) and a licensee (such as the infringer) would have agreed
upon (at the time the infringement began) if both had been reasonably and voluntarily trying to reach an
agreement; that is, the amount which a prudent licenseewho desired, as a business proposition, to obtain a
license to manufacture and sell a particular article embodying the patented inventionwould have been willing
to pay as a royalry and yet be able to make a reasonable profit and which amount would have been acceptable
by a prudent patentee who was willing to grant a license.
49
Of course, no single factor is determinative, and the facts of each case will drive the determination of a reasonable
royalty. The case law has established, nonetheless, a few guiding principles that should be considered in any
reasonable royalty analysis.
First, the best measure of a reasonable royalty is an established royalty rate in the industry.
50
That does not mean,
however, that the reasonable royalty rate must be set at the established rate. Where, for example, the patentee can
show that widespread infringement made the established royalty rate artificially low, the court may award a reasonable
royalty that is higher than the established rate.
51
Alternatively, the established rate may be artificially high in the sense
that it may have been established in a license agreement that transferred rights in addition to a non-exclusive patent
license.
52
Our experience is that a reasonable royalty expert identifies one or more licenses entered into by the
patentee, the infringer, or both, and then argues for an adjustment of the royalty rate stated in those licenses based on
alleged differences between the actual licenses and the hypothetical license. The infringer's expert asserts, for
example, that the actual license was exclusive and included trade secret and other non-patented technology, while the
hypothetical license is a bare non-exclusive license. The patentee's expert points to the infringer's expected profit
margin and urges that, in the hypothetical negotiation, the patentee could hold out for a percentage royalty that would be
only modestly less than the infringer's anticipated percentage profit because in the absence of a license the infringer
would make no profit at all on the infringing product.
Second, the hypothetical negotiation takes place at the time the infringement began.
53
The implication of this rule is that
the infringer's sunk costsits development and other costs incurred prior to the moment of market entryare not a part
of the infringer's anticipated profits. Rather, the infringer's projected future profits are a factor in the hypothetical
negotiation. Because it is the infringer's anticipated, rather than its actual, profit that is theoretically relevant, the
reasonable royalty award, expressed as a percent of sales, may be higher than the infringer's actual historical profit
margin on the infringing sales.
54
Third, the patentee need not prove any actual harm to be entitled to a reasonable royalty.
55
The Federal Circuit has
stated that the statutory guarantee of "[nothingJ less than a reasonable royalty"
56
was created "not to provide a simple
accounting method, but to set a floor below which the courts are not authorized to go."
57
Finally, the royalty amount
awarded need not be totally accurate, but must approximate an amount adequate to compensate the patentee for use
the infringer makes of the patent.
58
III. Limitations on Damages
A. The Six Year Limitation
The patent statute imposes only two limitations on the patentee's entitlement to damages. First, the statute provides
that "no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or
counterclaim for infringement in the action."
59
Although this section operates like a statute of limitations, it is not a true
statute of limitations because it does not limit the right to bring suit in the first instance. It simply limits the period during
which damages may be recovered.
60
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B. The Notice Limitation
The second limitation on damages relates to notice. Section 287 of the patent statute provides that a patentee, or its
licensee, "may give notice to the public that the ... [patented article is] patented, either by fixing thereon the word 'patent'
or the abbreviation 'pat.', together with the number of the patent."
61
In the event of a failure to mark, damages may not be
recovered "except on proof that the infringer was notified of the infringement and continued to infringe thereafter."
62
The
statute also provides that "[f]iling of an action for infringement shall constitute such notice."
63
Hence, "[a patentee] is
entitled to damages from the time when it either began marking its product in compliance with this [marking statute] ...
or when it actually notified the accused infringer of its infringement"
64
by filing suit or otherwise. This statutory section
serves three purposes: (1) it helps to avoid innocent infringement; (2) it encourages patentees to give notice to the
public that an article is patented; and (3) it aids the public in identifying patented articles.
65
1. Actual notice
Actual notice is provided when the accused infringer "is notified, with specificity, that the patent holder believes
that the recipient of the notice may be an infringer."
66
Actual notice is given when the recipient is: (1) informed of
the existence of the patent; (2) informed of the activity that is believed to be infringing; and (3) the notice is
accompanied by a request to abate the infringing activity.
67
Hence, actual notice usually comes in the form of a
cease and desist letter.
68
2. Constructive notice
To provide constructive notice, the patentee must show that it, or its licensee, "consistently marked substantially
all" of its patented products pursuant to 287.
69
The question is whether the patentee's actions were sufficient
to provide notice to the public, not whether the infringer actually knew about the patentee's patent.
70
Process and method patents do not fall under the marking statute because "there is nothing to mark."
71
However, if a patent contains both a product and a method claim, and if the product is actually sold, though not
marked, the patentee is precluded from recovering damages for infringement of either the product or the method
claims until actual notice is given.
72
IV. Willfulness and Enhancement of Damages
The patent statute also provides that "the court may increase the damages up to three times the amount found or
assessed."
73
Yet, whether the damage award is in the form of lost profits or reasonable royalties, courts have
discretionary authority to enhance the damage award by as much as three times. Courts have traditionally exercised
this discretionary authority where the infringement is found, by clear and convincing evidence, to be willful.
74
Such a
finding, however, does not mandate enhancement of damages, much less an automatic trebling of the damage
award.
75
An ample body of case law addresses the factors to be considered in determining whether enhancement of
damages is appropriate. Yet, because that case law addresses the infringer's culpabilitythe degree to which it
intentionally or recklessly infringedas distinguished from the patentee's injury, it is not addressed in this summary of
the law of damages.
V. Other Awards
A. Attorney Fees
Section 285 of the patent statute authorizes the award of attorney fees to the prevailing party in exceptional cases.
76
Exceptional cases within the meaning of 285 include cases involving willful infringement, inequitable conduct before
the Patent and Trademark Office, misconduct during litigation, and vexatious or unjustified litigation or frivolous suit.
77
Section 285 also allows the prevailing party in an exceptional case to recover fees for experts and consultants.
78
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Although the court's authority is discretionary, the Federal Circuit reviews such awards closely because of their penal
nature.
79
Also, even where an award of attorneys fees is appropriate, the Federal Circuit has not been hesitant to take a
hard look at the amount of the award. For example, in Beckman Instruments, Inc. v. LKB Produkter AB,
80
the Federal
Circuit vacated an award and remanded to the district court for a redetermination of the appropriate amount of attorney
fees.
81
The Federal Circuit suggested that on remand the district court should consider both that the litigation
misconduct upon which the award was based began well after the lawsuit was filed and that the prevailing party
prevailed on only two of the five asserted claims.
82
B. Pre- and Post-Judgment Interest
The patent statute provides that the damage award must be "adequate to compensate for the infringement, but in no
event less than a reasonable royalty ... together with interest and costs as fixed by the court."
83
In 1983, the United States
Supreme Court construed this provision to mean that "prejudgment interest should be awarded under 284 absent
some justification for withholding such an award."
84
The Court explained that an award of prejudgment interest is
necessary to ensure that the patent owner is placed in as good a position as he would have been had the infringer not
infringed.
85
Thus, damages "consist not only of the value of the royalty payments, but also of the foregone use of the
money."
86
The Court noted, however, that although there is a presumption in favor of an award of prejudgment interest,
the court always retains discretion to deny it.
87
For example, where a patentee caused undue delay in prosecuting the
lawsuit, the court might exercise its discretion to deny an award of prejudgment interest.
88
Generally, prejudgment interest should be awarded with respect to the time periods between the plaintiffs injury and the
date of judgment.
89
Of course, the factfinder has discretion to select the prejudgment interest rate. For example, the rate
may be set at the statutory interest rate, the prime rate, or at the actual rate paid by the patentee during the relevant time
period.
90
It may also be a function of the infringer's borrowing cost, because the rate at which the infringer borrowed
money reflects both the time value of money during the infringement period and the collection risk associated with the
patentee's lending of its money to the infringer.
While the factfinder has a degree of discretion with respect to prejudgment interest, the court has no discretion with
respect to post-judgment interest. The award of post-judgment interest must be calculated at the statutory treasury bill
rate.
91
C. Costs
The award of costs in patent infringement litigation is governed, as in other cases, by Rule 54(d)(1) of the Federal Rules
of Civil Procedure.
92
Pursuant to Rule 54(d)(1), costs must be awarded to the prevailing party as a matter ofcourse,
unless the court directs otherwise.
93
By statute, courts have discretion to award costs for: (1) clerk and marshal fees; (2)
court reporter fees; (3) printing and witness fees; (4) copying fees; (5) docket fees; and (6) compensation for court-
appointed experts, interpreters, and special interpretation services.
94
The Federal Circuit broadly construes the types of
costs that can be awarded under 1920.
95
Conclusion
The patent statute allows for significant awards upon a finding of infringement. If trial cannot be avoided by settlement,
dispositive motion, or otherwise, trial counsel must pay substantial attention to the damages issue from the earliest
stage of the case. Too often, the damages issue arises as an afterthought when discovery is well advanced. Usually,
that is a mistake.
Endnotes
1
35 U.S.C. 284 para. 1 (1994).
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2
A reasonable royalty is the royalty that the infringer would have paid on the infringing sales if the infringer had obtained
a license from the patentee immediately prior to the infringement.
3
King Instrument Corp. v. Perego, 65 F.3d 941, 952, 36 U.S.P.Q.2d 1129, 1137 (Fed. Cir. 1995); see also Lam, Inc. v.
Johns-Manville Corp., 718 F.2d 1056, 1065, 219 U.S.P.Q. 670, 675 (Fed. Cir. 1983) (patentee must prove "but for"
causation to a reasonable probability).
4
575 F.2d 1152, 197 U.S.P.Q. 726 (6th Cir. 1978).
5
The Federal Circuit adopted the Panduit test in State Industries, Inc. v. Mor-Flo Industries, Inc., 883 F.2d 1573, 1577,
12 U.S.P.Q.2d 1026, 1028 (Fed. Cir. 1989).
6
Panduit, 575 F.2d at 1156, 197 U.S.P.Q. at 730; see also BIC Leisure Prods., Inc. v. Windsurfing Int'l, Inc., 1 F.3d 1214,
1218, 27 U.S.P.Q.2d 1671, 1674 (Fed. Cir. 1993) (stating that the Panduit four-step test is "an acceptable, though not an
exclusive" test for determining "but for" causation).
7
See State Indus., 883 F.2d at 1578, 12 U.S.P.Q.2d at 1029.
8
See Polaroid Corp. v. Eastman Kodak Co., 16 U.S.P.Q.2d 1481, 1509-11 (D. Mass. 1990).
9
Compare King Imtrument, 65 F.3d at 947, 36 U.S.P.Q.2d at 1133 (squarely rejecting infringer's argument that the
patentee was not entitled to lost profits because the patentee did not make or sell the patented device), with Hebert v.
Lisle Corp., 99 F.3d 1109, 1119, 40 U.S.P.Q.2d 1611,1618 (Fed. Cir. 1996) ("When the patentee does not seek to make
and sell the patented invention, lost profits are not an appropriate measure of damages.").
10
See infra Part I.B.2.
11
BIC Leisure Prods., Inc. v. Windsurfing Int'l, Inc., 687 F. Supp. 134, 136, 219 U.S.P.Q.2d 1152, 1153 (S.D.N.Y. 1988) ("
[T]he existence of a two-supplier market makes the patentee's burden of proving causation easier.").
12
See, e.g., Lam, 718 F.2d at 1065, 219 U.S.P.Q. at 675 (allowing an inference in a two-supplier market that "but for" the
infringement, the patentee would have made the infringer's sales). It is a separate question whether the patentee would
have made all of the infringer's sales. If, for example, the infringing product was sold at a price below the patentee's
price, the patentee may not be able to prove that it would have made all of the infringer's sales at the patentee's higher
price. Similarly, the infringer may be able to show that its activityits advertising, sales force, non-infringing product
features, or pricingcreated demand in the two-supplier market that would not have existed if the infringer had not sold
the infringing product.
13
883 F.2d at 1573, 12 U.S.P.Q.2d at 1026.
14
Id. at 1576, 12 U.S.P.Q.2d at 1028.
15
Id.
16
Id at 1579, 12 U.S.P.Q.2d at 1030. The authors have successfully used the following approach: assume that the
patentee makes 50% of all sales in a market, that the infringer makes 25% of sales, and that a non-infringing third parry
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makes the remaining 25% of sales. In such a market, the patentee makes 66.6% of all non-infringing sales. Therefore,
the patentee may assert that it would have enjoyed 66.6% of the infringer's sales, "but for" the infringement.
17
See Zygo Corp. v. Wyko Corp., 79 F.3d 1563, 1571, 38 U.S.P.Q.2d 1281, 1287 (Fed. Cir. 1996).
18
See id.
19
TWM Mfg. Co. v. Dura Corp., 789 F.2d 895, 901, 229 U.S.P.Q. 525, 529 (Fed. Cir. 1986).
20
185 F.3d 1341, 51 U.S.P.Q.2d 1556 (Fed. Cir. 1999).
21
Id. at 1351, 51 U.S.P.Q.2d at 1563.
22
Id.
23
Id. at 1353, 51 U.S.P.Q.2d at 1565.
24
Id.
25
Id. at 1354, 51 U.S.P.Q.2d at 1565. Query the effect of this holding where an infringer proves that it could have
invented around the relevant patent, but did not. Suppose, for example, that by altering the infringing product in a
technically feasible way that would not have affected its functionality, the infringer could have avoided infringement.
26
See, e.g., King Instrument Corp. v. Otari Corp., 767 F.2d 853, 864, 226 U.S.P.Q. 402, 410 (Fed. Cir. 1985) (calculating
lost profits by applying patentee's profit margin to the revenue it would have obtained if it had sold the same number of
units as the infringer sold).
27
Incremental costs include both classic variable costsmaterials and manufacturing laborand classic overhead
coststhe cost of hiring additional sales and administrative staff to handle increased sales. See, e.g., Polaroid Corp. v.
Eastman Kodak Co., 16 U.S.P.Q.2d 1481, 1525-32 (D. Mass. 1990). Costs that are fixed in some circumstances may
be variable in others. Thus, if the patentee's incremental sales would have been only 5% of its actual historical costs,
the patentee's incremental costs may be small (materials and manufacturing labor). By contrast, if incremental sales
would increase the patentee's sales by 50%, incremental costs might well have included the cost of building a new
production facility.
28
56 F.3d 1538, 35 U.S.P.Q.2d 1065 (Fed. Cir. 1995) (en banc).
29
Id. at 1546, 35 U.S.P.Q.2d at 1070.
30
The patentee's more expensive product was covered by a separate patent, but that patent was not asserted in the
Rite-Hite case. Id. at 1543, 35 U.S.P.Q.2d at 1067.
31
Id. at 1548-49, 35 U.S.P.Q.2d at 1072; see also Minco, Inc. v. Combustion Eng'g, Inc., 95 F.3d 1109, 1118-19, 40
U.S.P.Q.2d 1001, 1007-08 (Fed. Cir. 1996).
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32
State Indus., Inc. v. Mar-Flo Indus., Inc., 883 F.2d 1573, 1580, 12 U.S.P.Q.2d 1026, 1031 (Fed. Cir. 1989).
33
Id.
34
Rite-Hite, 56 F.3d at 1549-51, 35 U.S.P.Q.2d at 1072-74.
35
Id. at 1550, 35 U.S.P.Q.2d at 1073.
36
Id. at 1550-51, 35 U.S.P.Q.2d at 1073-74.
37
See T.A. Pelsue Co. v. Grand Enters., Inc., 782 F. Supp. 1476, 1498, 25 U.S.P.Q.2d 1001, 1016 (D. Colo. 1991)
(finding that sale of infringing product below cost forced patentee to reduce prices and profit); Kalman v. Berlyn Corp., 9
U.S.P.Q.2d 1191, 1198-99 (D. Mass. 1988) (allowing inference that patentee would have charged higher price where
infringer was the only competitor), aff'd in pertinent part, rev 'd in part, and remanded, 914 F.2d 1473, 16 U.S.P.Q.2d
1093 (Fed. Cir. 1990); see also TWM Mfg. Co. v. Dura Corp., 789 F.2d 895, 902, 229 U.S.P.Q. 525, 529 (Fed. Cir. 1986)
(affirming damage award based on price erosion). But see Minco, 95 F.3d at 1120, 40 U.S.P.Q.2d at 1009 (denying lost
profits based on price erosion because several economic factors caused the price decrease which occurred during the
infringement period).
38
Micro, 761 F. Supp. at 1430, 19 U.S.P.Q.2d at 1010 (citing Kalman, 914 F.2d at 1485, 16 U.S.P.Q.2d at 1102; TWM
Mfg., 789 F.2d at 902, 229 U.S.P.Q. at 529).
39
See, e.g., BIC Leisure Prods., Inc. v. Windsurfing Int'l, Inc., 687 F. Supp. 134, 137-38, 9 U.S.P.Q.2d 1152, 1154
(S.D.N.Y. 1988) (allowing the patentee to present evidence on the future lost profits theory "due to depressed ... prices
generally").
40
Id.
41
Id.; see also Amsted Indus., Inc. v. Nat'l Castings, Inc., 16 U.S.P.Q.2d 1737, 1754 (N.D. Ill. 1990)(permitting the
patentee to present evidence under the accelerated reentry theory regarding lost profit damages arising from the
accused infringer's post-expiration sales). See generally Lam, Inc. v. Johns-Manville Corp., 718 F.2d 1056, 1068, 219
U.S.P.Q. 670, 677-78 (Fed. Cir. 1983) (allowing lost profit damages based on the difference between pre- and post-
infringement growth rate of the patentee's sales).
42
See, e.g., Brooktree Corp. v. Advanced Micro Devices, Inc., 977 F.2d 1555, 1580-81, 24 U.S.P.Q.2d 1401, 1419 (Fed.
Cir. 1992).
43
State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1576, 12 U.S.P.Q.2d 1026, 1028 (Fed. Cir. 1989); see also
TWM Mfg. Co. v. Dura Corp., 789 F.2d 895, 898, 229 U.S.P.Q. 525, 526 (Fed. Cir. 1986) (affirming award of lost profits for
certain years and a reasonable royalty for other years).
44
See, e.g., Stickle v. Heublein, Inc., 716 F.2d 1550, 1561, 219 U.S.P.Q. 377, 385 (Fed. Cir. 1983) (quoting Bandag, Inc.
v. Gerrard Tire Co., 704 F.2d 1578, 1583, 217 U.S.P.Q. 977, 981 (Fed. Cir. 1983)).
45
Trans-World Mfg. Corp. v. Al Nyman & Sons, Inc., 750 F.2d 1552, 1568, 224 U.S.P.Q. 259, 269 (Fed. Cir. 1984)
(quoting Goodyear Tire & Rubber Co. v. Overman Cushion Tire Co., 95 F.2d 978, 984, 37 U.S.P.Q. 479, 484 (6th Cir.
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1938)).
46
Fromson v. W. Litho Plate & Supply Co., 853 F.2d 1568, 1574, 7 U.S.P.Q.2d 1606, 1612 (Fed. Cir. 1988).
47
Id.
48
318 F. Supp. 1116, 166 U.S.P.Q. 235 (S.D.N.Y. 1970).
49
Id. at 1120, 166 U.S.P.Q. at 238. The Federal Circuit recognized the Georgia-Pacific factors as a "comprehensive list
of relevant factors in determining a reasonable royalty." Unisplay v. Am. Elec. Sign Co., 69 F.3d 512, 517 n.7, 36
U.S.P.Q.2d 1540, 1544 n.7 (Fed. Cir. 1995).
50
Nickson Indus., Inc. v. Rol Mfg. Co., 847 F.2d 795, 798, 6 U.S.P.Q.2d 1878, 1879 (Fed. Cir. 1988) (citing Hanson v.
Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1078, 219 U.S.P.Q. 679, 682 (Fed. Cir. 1983)).
51
See, e.g., id. at 798, 6 U.S.P.Q.2d at 1880 (citing Trio Process Corp. v. L. Goldstein's Sons, Inc., 533 F.2d 126, 129-30,
189 U.S.P.Q. 561, 563-64 (3d Cir. 1976)).
52
See, e.g., Bandag, 704 F.2d at 1583, 217 U.S.P.Q. at 981 (remanding for a redetermination of an appropriate royalty
because the established rate relied upon by the district court was set in a franchise agreement).
53
Wang Labs., Inc. v. Toshiba Corp., 993 F.2d 858, 869, 26 U.S.P.Q.2d 1767, 1777 (Fed. Cir. 1993); TWM Mfg., 789 F.2d
at 899, 229 U.S.P.Q. at 529.
54
State Indus., 883 F.2d at 1580, 12 U.S.P.Q.2d at 1031; see also Radio Steel & Mfg. Co. v. MTD Prods., Inc., 788 F.2d
1554, 1557, 229 U.S.P.Q. 431, 433 (Fed. Cir. 1986) (holding that a court may award a reasonable royalty that is higher
than infringer's profit).
55
See, e.g., Stickle, 716 F.2d at 1561, 219 U.S.P.Q. at 385 (awarding a reasonable royalty where the patentee did not
compete in the market for the patented product).
56
Del Mar Avionics, Inc. v. Quinton Instrument Co., 836 F.2d 1320, 1326, 5 U.S.P.Q.2d 1255, 1260 (Fed. Cir. 1987)
(citing Seattle Box Co. v. Indus. Crating & Packing, Inc., 756 F.2d 1574, 1581, 225 U.S.P.Q. 357, 363 (Fed. Cir. 1985)).
57
Id.; see also 35 U.S.C. 284 (1994).
58
See Fromson, 853 F.2d at 1574, 7 U.S.P.Q.2d at 1612.
59
35 U.S.C. 286 para. 1 (1994).
60
But see generally A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020, 1028-32, 22 U.S.P.Q.2d 1321,
1325-28 (Fed. Cir. 1992) (en banc) (summarizing the equitable defenses of laches and estoppel which may serve to
bar suit and/or limit the period for recovery).
61
35 U.S.C. 287(a) (1994).
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62
Id.
63
Id.
64
Maxwell v. J. Baker, Inc., 86 F.3d 1098, 1111, 39 U.S.P.Q.2d 1001, 1010 (Fed. Cir. 1996) (quoting Am. Med. Sys., Inc.
v. Med. Eng'g Corp., 6 F.3d 1523, 1537, 28 U.S.P.Q.2d 1321, 1331 (Fed. Cir. 1993)).
65
Nike, Inc. v. Wal-Mart Stores, Inc., 138 F.3d 1437, 1443, 46 U.S.P.Q.2d 1001, 1006 (Fed. Cir. 1998), cert. denied, 120
S. Ct. 363 (1999).
66
SRI Int'l, Inc. v. Advanced Tech. Labs., Inc., 127 F.3d 1462, 1470, 44 U.S.P.Q.2d 1422, 1428 (Fed. Cir. 1997).
67
Id.
68
Note, however, that if a cease and desist letter does not cause the infringement to stop, the failure to bring suit
reasonably promptly thereafter may result in a loss of rights by the patentee. See A.C. Aukerman, 960 F.2d at 1032, 22
U.S.P.Q.2d at 1328.
69
Id. (citing Am. Med. Sys., 6 F.3d at 1538, 28 U.S.P.Q.2d at 1332).
70
See Nike, 138 F.3d at 1446, 46 U.S.P.Q.2d at 1009.
71
Loral Fairchild Corp. v. Victor Co. of Japan, 906 F. Supp. 813, 816 (E.D.N.Y. 1995) (citing Bandag, Inc. v. Gerrard Tire
Co., 704 F.2d 1578, 1581, 217 U.S.P.Q. 977, 979 (Fed. Cir. 1983)).
72
See Am. Med. Sys., 6 F.3d at 1538-39, 28 U.S.P.Q.2d at 1332.
73
35 U.S.C. 284 para. 2 (1994).
74
Read Corp. v. Portec, Inc., 970 F.2d 816, 826, 23 U.S.P.Q.2d 1426, 1435 (Fed. Cir. 1992) (citing Great N. Corp. v.
Davis Core & Pad Co., 782 F.2d 159, 166, 228 U.S.P.Q. 356, 360 (Fed. Cir. 1986)).
75
Id. (citing Modine Mfg. Co. v. Allen Group, Inc., 917 F.2d 538, 543, 16 U.S.P.Q.2d 1622, 1625 (Fed. Cir. 1996)).
76
35 U.S.C. 285 (1984).
77
See, e.g., Mahukar v. C.R. Bard, Inc., 79 F.3d 1572, 1580, 38 U.S.P.Q.2d 1288, 1292 (Fed. Cir. 1996) ("Bad faith
litigation, willful infringement, or inequitable conduct are among the circumstances which may make a case
exceptional.").
78
See, e.g., Beckman Instruments, Inc. v. LKB Produkter AB, 892 F.2d 1547, 1554, 13 U.S.P.Q.2d 1301, 1307 (Fed. Cir.
1989); Mathis v. Spears, 857 F.2d 749, 758-59, 8 U.S.P.Q.2d 1551, 1558-59 (Fed. Cir. 1988).
79
See, e.g., Reactive Metals & Alloys Corp. v. ESM, Inc., 769 F.2d 1578, 1585, 226 U.S.P.Q. 821, 826 (Fed. Cir. 1985)
(reversing award of attorney fees because the court's finding of exceptional circumstances was clearly erroneous).
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80
892 F.2d 1547, 13 U.S.P.Q.2d 1301 (Fed. Cir. 1989).
81
Id. at 1552-54, 13 U.S.P.Q.2d at 1306-07.
82
Id. at 1553, 13 U.S.P.Q.2d at 1306.
83
35 U.S.C. 284 para. 1 (1994) (emphasis added).
84
Gen. Motors Corp. v. Devex Corp., 461 U.S. 648, 657, 217 U.S.P.Q. 1185, 1189 (1983).
85
Id. at 655, 217 U.S.P.Q. at 1188.
86
Id. at 656, 217 U.S.P.Q. at 1188.
87
Id. at 656-57, 217 U.S.P.Q. at 1189.
88
Id. at 657, 217 U.S.P.Q. at 1189.
89
See Nickson Indus., Inc. v. Rol Mfg. Co., 847 F.2d 795, 801, 6 U.S.P.Q.2d 1878, 1882 (Fed. Cir. 1988) (remanding for
an award of prejudgment interest running to the date of judgment or an explanation why the term should be otherwise
limited).
90
Lam, Inc. v.Johns-Manville Corp., 718 F.2d 1056, 1066, 219 U.S.P.Q. 670, 676 (Fed. Cir. 1983).
91
28 U.S.C. 1961 (1994).
92
FED. R. CIV. P. 54(d)(1).
93
See Manildra Milling Corp. v. Ogilvie Mills, Inc., 76 F.3d 1178, 1183, 37 U.S.P.Q.2d 1707, 1711-12 (Fed. Cir. 1996).
94
28 U.S.C. 1920 (1994).
95
See, e.g., Chore-Time Equip., Inc. v. Cumberland Corp., 713 F.2d 774, 782, 218 U.S.P.Q. 673, 678 (Fed. Cir. 1983)
(affirming award of costs for translation of prior art document).
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