Vol. 11, No. 1, Pg. 46. Developments in Patent Infringement Damages.

AuthorBy Craig N. Killen

South Carolina Lawyer

1999.

Vol. 11, No. 1, Pg. 46.

Developments in Patent Infringement Damages

46DEVELOPMENTS IN PATENT INFRINGEMENT DAMAGESBy Craig N. KillenJury Awards Acme Computers $52 Million for Patent Infringement-Although this headline is hypothetical, most lawyers have seen similar headlines in the real world. With changes in the American economy, the wealth of a business is increasingly determined by the extent to which it can claim ownership rights in important technology.

While technology can sometimes be protected as trade secrets, the Constitution specifically enumerates the establishment of a patent system as the vehicle for "promotion of the useful arts." As made clear by recent developments in the legal landscape, patents are indeed a powerful weapon in a company's competitive arsenal. This article describes various ways that a company can be compensated for injury caused by infringement of its patents.

PATENT DAMAGES

The owner of a patent grant has the exclusive right to prevent others from making, using, selling, offering for sale or importing the patented invention during the life of the patent. 35 U.S.C. § 271. Patent infringement occurs when another party performs one of these acts without permission of the patent owner. When a patent has been infringed, the aggrieved patent owner can obtain relief by a civil action filed in federal court.

Regarding damages, the patent statute 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 in fringer, together with interest and costs as fixed by the court.

35 U.S.C. § 284. The Supreme Court has held that damages awarded in a patent case should be a close approximation of the sum necessary to fully compensate the patent owner for the infringement. General Motors Corp. v. Devex Corp., 461 U.S. 648 (1983). In other words, had the infringer not infringed, how much would the patent owner have made?

Patent damages have traditionally been thought of as falling into two broad categories: lost profit damages and reasonable royalty damages. Lost profit damages reimburse the patent owner for profits that it did not make because of the infringement. Reasonable royalty damages, on the other hand, serve to compensate a patent owner who cannot prove an entitlement to lost profits. A reasonable royalty is not an alternative to lost profits but is a "floor below which damage awards may not fall." Del Mar Avionics, Inc. v. Quinton Instrument Co., 836 F.2d 1320 (Fed. Cir. 1987).

LOST PROFITS

To recover lost profits, the patent owner must demonstrate with a "reasonable probability" that the infringer's actions caused it to suffer the particular financial loss for which compensation is sought. State Industries v. Mor-Flo Industries, 883 F.2d 1573 (Fed. Cir 1989). The most common test for proving an entitlement to lost profits was first set forth in Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir. 1978). The Panduit test requires the patent owner to prove: demand for the patented product; the absence of acceptable noninfringing substitutes; a marketing and manufacturing capability to meet the demand; and the amount of profit that the patent owner would have made.

A patent owner who meets the four-pronged Panduit test establishes a prima facie case that the profits being sought would have been made "but...

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