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Y O U N G L A W Y E R S J O U R N A L
CBA RECORD
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ity to exploit demand; and
• Amount of profit that the patentee
would have made absent the infringe-
ment.
Panduit
Factors 1 and 2 are often ana-
lyzed in combination with one another to
determine if the factors are met. Demand
for the patented product or service can
be demonstrated in a number of ways,
but most commonly it is shown through
the historical sales or use of the patented
technology.
The absence of acceptable noninfring-
ing substitutes is a more complex and
often technical analysis. The patent holder
should be able to demonstrate that the pur-
chasers and/or users of the patented prod-
uct or service did not consider other avail-
able products or technologies as acceptable
alternatives. Damages experts often rely
on technical experts and company rep-
resentatives for an understanding of the
patented technology and the acceptable
noninfringing alternatives available in the
patentee’s industry. However, even when
acceptable noninfringing substitutes exist
in the market, the Federal Circuit indicated
in
State Industries v. Mor-Flo Industries
that
a patentee may still be able to claim lost
profits. To do so, a damages expert often
constructs a theoretical “but for” world in
order to: (1) determine what the market
for the infringing product or service might
have looked like had the infringement not
occurred; and (2) quantify the additional
sales the patent holder would have made.
The graph at the right illustrates an example
of how a patentee’s market share may be
adjusted to allocate for an infringer’s sales.
The third
Panduit
Factor requires that
the patentee demonstrate that it had the
manufacturing and marketing capacity
to make the sales that it claims were lost
as a result of the alleged infringement. If
sufficient capacity was not available to the
patentee at the time of infringement, the
patentee may instead show that it could
have achieved the lost sales by increasing
capacity if necessary. If the manufacturing
and marketing capacity was unavailable
at the time of infringement, the damages
expert should conduct a thorough analysis
of the time and expenses associated with
the additional manufacturing and market-
ing efforts necessary to produce and sell the
patentee’s claimed lost sales. Additional
manufacturing costs may include labor
costs for adding additional shifts, rental,
property, plant, or equipment expenses.
Additional marketing costs may include
adding sales representatives, managers, or
customer service agents. Any such costs
that the patent holder would incur in order
to achieve the necessary capacity should
be deducted before making a lost profits
conclusion.
The fourth
Panduit
Factor requires that
the amount of lost profits be quantifiable to
a reasonable degree of certainty. Lost profits
are typically calculated by determining the
revenue that would have been generated
from the additional sales the patentee
would have made (but for the infringe-
ment) and subtracting the incremental
costs the patentee would have incurred to
make and sell those units.
Reasonable Royalty Damages
Section 284 states that damages for patent
infringement should be “in no event less
than a reasonable royalty for the use made
of the invention by the infringer.” 35
U.S.C. § 284. While reasonable royalties
are commonly thought of as a “backup”
methodology to calculate damages for sales
that the patentee could not have made,
the “in no event less than” language in
the statute is important. In other words,
if reasonable royalty damages are higher
than lost profits damages, the reasonable
royalty damages should be applied. This
scenario could arise when the patentee
sells its products for a loss or makes lower
incremental profit on a per unit basis than
a reasonable royalty that could be charged
to the defendant.
The District Court’s opinion in
Georgia-
Pacific Corp. v. United States Plywood
Corp.
, 318 F. Supp. 1116, 1120 (S.D.N.Y.
1970), mod. and aff’d, 446 F.2d 295 (2d
Cir. 1971), cert. denied, 404 U.S. 870