Panduit
The Panduit test was first laid out in the seminal case Panduit Corp. v. Stahlin Bros. Fibre Works, Inc.
Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 197 USPQ 726 (6th Cir.1978), articulated a four-factor test that has since been accepted as a useful, but non-exclusive, way for a patentee to prove entitlement to lost profits damages.
— Rite-Hite Corp. v. Kelley Co., Inc., 56 F. 3d 1538, 1545 (Fed. Cir. 1995).
The Panduit test is a four-part test.
[Under Panduit,] a patent owner must prove: (1) demand for the patented product, (2) absence of acceptable noninfringing substitutes, (3) his manufacturing and marketing capability to exploit the demand, and (4) the amount of the profit he would have made.
— Panduit Corp. v. Stahlin Bros. Fibre Works, 575 F. 2d 1152, 1156 (Fed. Cir. 1978).
The Panduit test makes the implicit assumption that patentee and infringer sell products that are substitutes in a competitive market.
The Panduit test, however, operates under an inherent assumption, not appropriate in this case, that the patent owner and the infringer sell products sufficiently similar to compete against each other in the same market segment. If the patentee's and the infringer's products are not substitutes in a competitive market, Panduit's first two factors do not meet the but for test — a prerequisite for lost profits.
— BIC Leisure Products v. Windsurfing Intern., 1 F. 3d 1214, 1218 (Fed. Cir. 1993).
Once a patentee establishes but for causation under Panduit, the burden shifts to the infringer to show that lost profits should not be available on some or all of the patentee’s lost sales.
The burden then shifts to the infringer to show that the inference is unreasonable for some or all of the lost sales.
— Rite-Hite Corp. v. Kelley Co., Inc., 56 F. 3d 1538, 1545 (Fed. Cir. 1995).
Demand For The Patented Product
The first prong of the Panduit test asks whether there is demand for the patented product. Evidence of infringing sales may suffice.
[Assuming the patent owner and infringer sell competing products], evidence of sales of the infringing product may suffice to show Panduit's first factor
— BIC Leisure Products v. Windsurfing Intern., 1 F. 3d 1214, 1218–1219 (Fed. Cir. 1993).
Establishing demand for the patented product does not require the patentee to show demand for the claimed technology.
As we have held, the focus on particular features corresponding to individual claim limitations is unnecessary when considering whether demand exists for a patented product under the first Panduit factor.
— DePuy Spine, Inc. v. Medtronic Sofamor Danek, Inc., 567 F. 3d 1314, 1331 (Fed. Cir. 2009).
Demand need not be for a particular embodiment of the patented invention.
The Panduit factors do not require showing demand for a particular embodiment of the patented functionality.
— Versata Software, Inc. v. SAP America, Inc., 717 F. 3d 1255, 1265 (Fed. Cir. 2013).
Demand for the patented product may be established using the patentee’s sales or the infringer’s sales.
The first Panduit factor — demand for the patented product — presupposes that demand for the infringer's and patent owner's products is interchangeable. Under this assumption, evidence of sales of the infringing product may suffice to show Panduit's first factor.
— BIC Leisure Products v. Windsurfing Intern., 1 F. 3d 1214, 1219 (Fed. Cir. 1993).
Demand may arise from demand for a product that competes with the infringing product.
the demand in question in the first Panduit factor is not limited to demand for the patented products. Rather, demand may also arise from a product that directly competes with the infringing device.
— Presidio Components v. American Technical Ceramics, 702 F. 3d 1351, 1360 (Fed. Cir. 2012).
Demand reflects the marketplace during the damages period.
SAP argues that Versata could not present evidence of demand during the damages period (which started in 2003) because Versata did not sell Pricer to anyone. [...] Here, the record supports the jury's finding of demand for the patented functionality in a but for world.
— Versata Software, Inc. v. SAP America, Inc., 717 F. 3d 1255, 1264–65 (Fed. Cir. 2013).
There is no steadfast requirement on the level of demand necessary to establish the first Panduit factor.
[T]he Panduit factors place no qualitative requirement on the level of demand necessary to show lost profits.
— Versata Software, Inc. v. SAP America, Inc., 717 F. 3d 1255, 1265 (Fed. Cir. 2013).
Available Noninfringing Substitutes
The second Panduit factor asks whether non-infringing substitutes are available in the marketplace. The second Panduit factor generally ensures that the patentee would not lose sales to a non-infringing third party in a but-for world.
Establishment of this factor tends to prove that the patentee would not have lost the sales to a non-infringing third party rather than to the infringer.
— Rite-Hite Corp. v. Kelley Co., Inc., 56 F. 3d 1538, 1548 (Fed. Cir. 1995).
It may help to eliminate alternatives that would not be deemed acceptable by the customers who purchased the accused products.
Panduit's second factor, properly applied, ensures that any proffered alternative competes in the same market for the same customers as the infringer's product.
— BIC Leisure Products v. Windsurfing Intern., 1 F. 3d 1214, 1219 (Fed. Cir. 1993).
Similarly, the second Panduit factor may help to ensure a nexus exists between demand for the accused products and the claimed invention.
Rather, the elimination or substitution of particular features corresponding to one or more claim limitations goes to the availability of acceptable noninfringing substitutes under the second Panduit factor, to which we now turn.
— DePuy Spine, Inc. v. Medtronic Sofamor Danek, Inc., 567 F. 3d 1314, 1331 (Fed. Cir. 2009).
A patentee may establish the absence of available, non-infringing alternatives generally in the relevant marketplace, or they may establish it specifically for customers that purchased the infringing products.
Thus, to prove that there are no acceptable noninfringing substitutes, the patent owner must show either that (1) the purchasers in the marketplace generally were willing to buy the patented product for its advantages, or (2) the specific purchasers of the infringing product purchased on that basis.
— Standard Havens Prods., Inc. v. Gencor Indus., Inc., 953 F.2d 1360, 1373 (Fed.Cir. 1991).
Substitutability is a function of customer demand.
Consumer demand defines the relevant market and relative substitutability among products therein.
— Grain Processing Corp. v. American Maize-Products, 185 F. 3d 1341, 1355 (Fed. Cir. 1999).
Substitutes can be economic or technological.
Troxel's opinion that there were no non-infringing technological substitutes cannot be read to mean that there were no economic substitutes. To do so, Troxel's opinion would need to be able to support a reasonable inference that no economic substitution existed.
— IGT v. Alliance Gaming Corporation, 702 F. 3d 1338, 1347–1348 (Fed. Cir. 2012).
A competing product is not necessarily a substitute under Panduit’s second condition.
Mere existence of a competing device does not make that device an acceptable substitute.
— TWM Mfg. Co., Inc. v. Dura Corp., 789 F. 2d 895, 901 (Fed. Cir. 1986).
Price and product characteristics may play a role in an analysis of substitute products.
To be deemed acceptable, the alleged acceptable noninfringing substitute must not have a disparately higher price than or possess characteristics significantly different from the patented product.
— Kaufman Co., Inc. v. Lantech, Inc., 926 F. 2d 1136, 1142 (Fed. Cir. 1991).
An analysis of substitutability may also consider whether a product has the advantages of the patented product.
if purchasers are motivated to purchase because of particular features available only from the patented product, products without such features — even if otherwise competing in the marketplace — would not be acceptable noninfringing substitutes.
— Standard Havens Products v. Gencor Industries, 953 F. 2d 1360, 1373 (Fed. Cir. 1991).
A substitute may exist and yet not be available. For example, a product sold by the patentee may not be available under Panduit.
Such a substitute was not an "acceptable, non-infringing substitute" within the meaning of Panduit because, being patented by Rite-Hite, it was not available to customers except from Rite-Hite.
— Rite-Hite Corp. v. Kelley Co., Inc., 56 F. 3d 1538, 1548 (Fed. Cir. 1995).
An alternative infringing product may not be available, even when sales of that product are licensed.
The voluntary settlement of litigation does not retrospectively transform an accused infringing product into a noninfringing substitute.
— Pall Corp. v. Micron Separations, Inc., 66 F. 3d 1211, 1223 (Fed. Cir. 1995).
A product may be available if it is on sale or if it can be readily commercialized.
A substitute need not be on sale at the time of infringement, but if the substitute cannot be commercialized readily, then it is not available for purposes of a lost profits determination.
— Siemens Medical Solutions v. Saint-Gobain Ceramics, 637 F. 3d 1269, 1288 (Fed. Cir. 2011).
A substitute must be available at the time of infringement.
To be available, an acceptable noninfringing substitute must have been available or on the market at the time of infringement.
— Siemens Medical Solutions v. Saint-Gobain Ceramics, 637 F. 3d 1269, 1288 (Fed. Cir. 2011).
The accounting period may also be critical in determining whether an alternative is available.
The critical time period for determining availability of an alternative is the period of infringement for which the patent owner claims damages, i.e., the accounting period.
— Grain Processing Corp. v. American Maize-Products, 185 F. 3d 1341, 1353 (Fed. Cir. 1999).
If a product was not on sale during the damages period, the infringer has the burden to overcome the inference that the product was not available.
When an alleged alternative is not on the market during the accounting period, a trial court may reasonably infer that it was not available as a noninfringing substitute at that time. Cf. Rite-Hite, 56 F.3d at 1545. The accused infringer then has the burden to overcome this inference by showing that the substitute was available during the accounting period.
— Grain Processing Corp. v. American Maize-Products, 185 F. 3d 1341, 1353 (Fed. Cir. 1999).
Evidence on availability may be drawn from a number of sources including:
market sales;
Several opinions of this court have noted that "market sales" provide significant evidence of availability as a substitute.
— Grain Processing Corp. v. American Maize-Products, 185 F. 3d 1341, 1351 (Fed. Cir. 1999).
the cost of production;
[T]he high cost of a necessary material can conceivably render a substitute unavailable[.]
— Grain Processing Corp. v. American Maize-Products, 185 F. 3d 1341, 1354 (Fed. Cir. 1999).
investments in research and development; and
Similarly, this court noted that the finding that an infringer had to design or invent around the patented technology to develop an alleged substitute weighs against a finding of availability.
— Micro Chemical, Inc. v. Lextron, Inc., 318 F. 3d 1119, 1123 (Fed. Cir. 2003).
- lack of experience.
The record shows that Lextron did not have the necessary equipment, know-how, and experience to make the Type 5 machine at the time of infringement.
— Micro Chemical, Inc. v. Lextron, Inc., 318 F. 3d 1119, 1123 (Fed. Cir. 2003).
I do not attempt to provide an exhaustive list of considerations here. The reader may refer to the cases cited in this chapter for additional examples.
Manufacturing And Marketing Ability
The third panduit factor asks whether the patentee would have possessed the capacity to meet demand in a but-for world.
The demand which a patentee must have the capacity to meet is measured by the total sales, by the patentee and the infringer, of the patented product.
— Datascope Corp. v. Smec, Inc., 879 F. 2d 820, 825 (Fed. Cir. 1989).
Capacity considerations generally focus on manufacturing and marketing ability.
[Under Panduit,] a patent owner must prove … his manufacturing and marketing capability to exploit the demand.
— Panduit Corp. v. Stahlin Bros. Fibre Works, 575 F. 2d 1152, 1156 (Fed. Cir. 1978).
Capacity to meet demand must be established during the damages period.
The evidence of later manufacturing and marketing, however, is not dispositive to the determination of whether the patentee had the ability to do so during the period of infringement.
— Wechsler v. Macke Intern. Trade, Inc., 486 F. 3d 1286, 1293 (Fed. Cir. 2007).
Evidence of later manufacturing may be probative on the question of capability during the time of infringement.
Later manufacturing and marketing ... is dispositive o]nly if it is indicative of the ability to manufacture and market the patented device during the period of infringement is it relevant.
— Wechsler v. Macke Intern. Trade, Inc., 486 F. 3d 1286, 1293 (Fed. Cir. 2007).