Overview

Upon a finding that a patent is both valid and infringed, a patentee is entitled to damages adequate to compensate for the infringement. Lost profits reflect a pecuniary loss from infringement.

The two methods by which damages are usually calculated under § 284 are assessment of actual damages (the profits the patentee lost due to the infringement) or, if actual damages cannot be ascertained, determination of a reasonable royalty.

— Trell v. Marlee Electronics Corp., 912 F. 2d 1443, 1445 (Fed.Cir. 1990).

The court requires “sound economic proof” of both the nature of the market and the but-for outcome absent infringement.

Reconstructing the market, by definition a hypothetical enterprise, requires the patentee to project economic results that did not occur. To prevent the hypothetical from lapsing into pure speculation, this court requires sound economic proof of the nature of the market and likely outcomes with infringement factored out of the economic picture.

— Grain Processing Corp. v. American Maize-Products, 185 F. 3d 1341, 1350 (Fed. Cir. 1999).

The jury considers the amount of lost profits only if the patentee can first show lost profits are available. Availability is a question of law for the court rather than the jury.

[T]he availability of lost profits is a question of law for the court, not the jury. Poly-Am., 383 F.3d at 1311. Only after the court has decided, as a matter of law, that lost profits are available does the jury then get to determine the amount of those lost profits.

— Wechsler v. Macke Intern. Trade, Inc., 486 F. 3d 1286, 1293 (Fed. Cir. 2007).

When lost profits are available, the patentee bears the burden of proving the amount of lost profit.

The finding of the amount of damages for patent infringement is a question of fact on which the patent owner bears the burden of proof.

— Leisure Products v. Windsurfing Intern., 1 F. 3d 1214, 1218 (Fed. Cir. 1993).

The amount of lost profit should account for alternative actions an infringer foreseeably would have taken in the but-for world.

By the same token, a fair and accurate reconstruction of the "but for" market also must take into account, where relevant, alternative actions the infringer foreseeably would have undertaken had he not infringed.

— Grain Processing Corp. v. American Maize-Products, 185 F. 3d 1341, 1350–51 (Fed. Cir. 1999).

A damages award may be split between lost profits as actual damages and a reasonable royalty on the remainder of sales.

A patentee receives a reasonable royalty for any of the infringer's sales not included in the lost profit calculation.

— Crystal Semiconductor v. Tritech Microelectronics, 246 F. 3d 1336, 1354 (Fed. Cir. 2001).

Availability of Lost Profits

Lost profits damages are available when the patentee can prove it would have earned additional profit but-for infringement.

To recover lost profits damages, the patentee must show a reasonable probability that, but for the infringement, it would have made the sales that were made by the infringer.

— Rite-Hite Corp. v. Kelley Co., Inc., 56 F. 3d 1538, 1545 (Fed. Cir. 1995).

It is not enough to show that lost profits exist. There must be a causal nexus between the infringing activity and lost profits.

To recover lost profits as opposed to royalties, a patent owner must prove a causal relation between the infringement and its loss of profits. The patent owner must show that but for the infringement, it would have made the infringer's sales.

— BIC Leisure Prods., Inc. v. Windsurfing Int'l, Inc., 1 F.3d 1214, 1218 (Fed.Cir.1993).

The patentee need not establish this nexus with absolute certainty–a reasonable probability is enough.

A patentee need not negate every possibility that the purchaser might not have purchased a product other than its own, absent the infringement. Id. The patentee need only show that there was a reasonable probability that the sales would have been made but for the infringement.

— Rite-Hite Corp. v. Kelley Co., Inc., 56 F. 3d 1538, 1545 (Fed. Cir. 1995).

A patent owner may succeed in establishing lost profits in cases where the patentee’s product does not practice the patented invention.

[A] patent owner who has suffered lost profits is entitled to lost profits damages regardless of whether the patent owner has made, used, or sold the patented device.

— King Instruments Corp. v. Perego, 65 F. 3d 941, 947 (Fed. Cir. 1995).

Lost profits are typically only available when a patentee sells something.

To be entitled to lost profits, we have long recognized that the lost profits must come from the lost sales of a product or service the patentee itself was selling.

— Warsaw Orthopedic, Inc. v. NuVasive, Inc., 778 F. 3d 1365, 1376 (Fed. Cir. 2015).

Lost profits may be available when the patent owner did not sell a product, but planned to sell something in the future.

Normally, if the patentee is not selling a product, by definition there can be no lost profits." Rite-Hite, 56 F.3d at 1548. The only exception is where the patentee has the ability to manufacture and market a product, but for some legitimate reason does not.

— Hebert v. Lisle Corp., 99 F.3d 1109, 1120 (Fed. Cir.1996).

The burden for establishing causation when the patentee did not sell a product is “commensurately heavy.”

Even in these situations, though, the burden on a patentee who has not begun to manufacture the patented product is commensurately heavy.

— Hebert v. Lisle Corp., 99 F.3d 1109, 1120 (Fed. Cir.1996).

One way to prove entitlement to lost profits is with the Panduit test.

When the patentee establishes the reasonableness of this inference, e.g., by satisfying the Panduit test, it has sustained the burden of proving entitlement to lost profits due to the infringing sales.

— Rite-Hite Corp. v. Kelley Co., Inc., 56 F. 3d 1538, 1545 (Fed. Cir. 1995).

There may be other ways to establish entitlement that do not involve Panduit.

Panduit is not the sine qua non for proving but for causation. If there are other ways to show that the infringement in fact caused the patentee's lost profits, there is no reason why another test should not be acceptable.

— Rite-Hite Corp. v. Kelley Co., Inc., 56 F. 3d 1538, 1548 (Fed. Cir. 1995).

Amount of Lost Profits

The amount of lost profit reflects the difference between what actually occurred and would have taken place absent infringement.

Within this framework, trial courts, with this court's approval, consistently permit patentees to present market reconstruction theories showing all of the ways in which they would have been better off in the but for world, and accordingly to recover lost profits in a wide variety of forms.

— Grain Processing Corp. v. American Maize-Products, 185 F. 3d 1341, 1350 (Fed. Cir. 1999).

Difficulty in calculating lost profits is not a reason for limiting compensation to a reasonable royalty.

The requirement to determine actual damages is not diminished by difficulty of determination. [...] The trial court is required to approximate, if necessary, the amount to which the patent owner is entitled.

— Del Mar Avionics, Inc. v. Quinton Instrument Co., 836 F. 2d 1320, 1327 (Fed. Cir. 1987).

The infringer bears the burden of risk arising out of uncertainty as to the amount of lost profits.

Although the exact amount of lost profits cannot be precisely fixed, fundamental principles of justice require us to throw the risk of any uncertainty upon the wrongdoer instead of upon the injured party.

— Yarway Corp. v. Eur-Control USA, Inc., 775 F. 2d 268, 276 (Fed. Cir. 1985).

A damages analysis should focus on profits that are incremental to additional sales. For example, fixed costs are generally excluded in determining profit the amount of profit lost.

The approach recognizes that it does not cost as much to produce unit N + 1 if the first N (or fewer) units produced already have paid the fixed costs. Thus fixed costs—those costs which do not vary with increases in production, such as management salaries, property taxes, and insurance—are excluded when determining profits.

— Paper Converting Machine v. Magna-Graphics, 745 F. 2d 11, 22 (Fed. Cir. 1984).

Evidence on incremental profit may come from either patentee or the infringer.

However, evidence of an infringer's profits may be relevant to the amount of patentee's damages in certain circumstances. Here, where the patentee can establish that he would have made the sales of the patented products, but for the fact that the infringer made them, the infringer's profits were properly looked at for comparison purposes with the patentee's proof of his lost profits.

— Kori Corp. v. Wilco Marsh Buggies & Draglines, 761 F. 2d 649, 655 (Fed. Cir. 1985).

Assuming lost profits are available, lost profits damages may include loss from a variety of factors including: diverted sales, lost sales of unpatented goods, lost sales on components that have a functional relationship with the patented product, price erosion due to infringing sales, price erosion due to marketing activities, increased marginal costs, future lost sales, increased promotional expenses, future depressed prices, and for accelerated market re-entry. See, e.g., Grain Processing Corp. v. American Maize-Products, 185 F. 3d 1341, 1350 (Fed. Cir. 1999).