Continuing our discussion from last week, we received a few follow-up questions on whether patent litigation is really worth the trouble and what can be potentially recovered. In short, the amount of damages you can recover for patent infringement is outlined by statute. Here is a cursory discussion of the different types of damages that are available in such a case:

Compensatory damages

35 U.S.C.A. § 284 provides: “Upon finding for the claimant the court shall award the claimant damages 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.”

The major, underlying theory of damages in patent litigation is to deny the infringer the fruits of his illegal act, AND to restore to the patent owner the benefits which he would have derived from his monopoly had he not been denied the infringing sales. Another way to think about this is the distinction between “damages” and “profits.” Profits refers to what an infringer makes. Damages refers to what a patent owner lost by the infringement. A patent owner’s monetary award equals the amount adequate to compensate him for the infringement (usually, for the patent owner’s lost profits), but in no event less than a reasonable or established royalty.

Measured by patent owner’s lost profits

For a patent owner to recover lost profits, he must demonstrate that “but for” the infringement, he would have made the sales that the infringer made. To recover under the lost profits approach, the patent owner must prove two things:

  • The patent owner would have made the sale of the product but for the infringement (which is an inquiry made based on the demand for the patented product in the market, the patent owner’s ability to meet this demand, and the absence of acceptable substitutes); and
  • Computation on the loss of profits by proper evidence.

Unlike copyright or trademark infringement, patent infringement does not provide for an accounting for an infringer’s profits (except in the case of a design patent). However, the infringer’s profits may properly be considered, for comparison purposes with the patent owner’s proof of his lost profits, in estimating the patent owner’s damages.

Lost profits may be in the form of diverted sales, eroded prices, or increased expenses. It should be noted that an infringer’s foreign sales are not included in this calculation because protection only extends to infringement in the United States.

Measured by a reasonable royalty

In the event a patent owner cannot prove the above, his damages are limited to a “reasonable royalty.” A reasonable royalty is generally the amount at which a person desiring to manufacture and sell a patented product would be willing to pay as a royalty to the patent owner. The factors considered in this analysis are called the Georgia-Pacific factors (from Georgia-Pacific Corp v. United States Plywood Corp.):

  • The royalties received by the patent owner for the licensing of the subject patent.
  • The rates paid by the licensee for the use of other patents comparable to the subject patent.
  • The nature and scope of the license, as exclusive or non-exclusive.
  • 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.
  • The commercial relationship between the licensor and licensee.
  • 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.
  • The duration of the patent and the term of the license.
  • The established profitability of the product made under the patent; its commercial success; and its current popularity.
  • 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.
  • 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.
  • The extent to which the infringer has made use of the invention; and any evidence probative of the value of that use.
  • 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.
  • 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.
  • The opinion testimony of qualified experts.
  • The amount that a licensor (such as the patent owner) 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.

Indirect damages

Generally, indirect or consequential damages (such as lost supply sales) are not recoverable.

Interest on damages award

35 U.S.C.A. § 284 provides as follows regarding interest: “Upon finding for the claimant the court shall award the claimant damages … together with interest and costs as fixed by the court.”

Both pre-judgment and post-judgment interest are included.

Exemplary (or, punitive) damages

35 U.S.C.A. § 284 provides as follows regarding exemplary damages: “When the damages are not found by a jury, the court shall assess them. In either event, the court may increase the damages up to three times the amount found or assessed.”

A patent owner can win exemplary damages, up to and including three times the actual damages, where the infringer has knowingly, deliberately, intentionally, willfully, or wantonly infringed the patent. While “willful infringement” is a nebulous fact inquiry, the primary question is whether the infringer, acting in good faith, had reason to believe that it had the right to act in the infringing manner. The In re Seagate Technology test is comprised of two parts:

  • Did the infringer act despite an objectively high likelihood that his actions would constitute infringement of a valid patent? (Note, the infringer’s actual state of mind is irrelevant).
  • Was this risk either known or so obvious that it should’ve been known to the infringer?

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