Alternative Damages Theories in Patent Cases
A company may suspect that one of its biggest competitors is infringing one of its patents. The company may investigate and determine that the competitor does clearly infringe and that the patent is very likely to withstand any validity challenges. But then the company must unfortunately always ask—is it even worth going after the competitor? After all, today even a simple patent infringement lawsuit can cost millions of dollars to litigate.
When companies try to answer that question, however, they often only focus on the competitor’s sales of the infringing product, their own lost profits or lost market share, or, if nothing else, the value of an injunction. That is because the most common type of damages award in a patent case is a straightforward royalty based on sales of infringing products sold. For example, recent patent cases making headlines include the $48.5 million in damages awarded to Enzo Biochem (6 percent reasonable royalty rate on infringing sales) or the $115 million in damages awarded to Syntrix Systems (also a 6 percent reasonable royalty rate). In these types of cases, if the infringer is selling tens of millions of dollars per year of infringing product, the decision to enforce the patent can be an easy one.
But what can a company do if a competitor is simply giving away infringing product for free or for minimal cost as a loss-leader for other products? What if the competitor is only using the patented invention to improve the efficiency of its manufacturing process, but does not actually sell a product covered by the patent? In these situations there is no straightforward royalty or lost profit calculation. Is the company holding the patent powerless?
The answer is no. There are in fact alternative damages theories that have been applied by the courts over the years. It is important, however, that the patent-holding company know that these options exist, and to discuss their applicability with patent counsel.
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Christopher Scharff is a shareholder/equity partner at McAndrews, Held, and Malloy in Chicago, IL. His practice includes intellectual property, antitrust, and unfair competition litigation. He can be reached at CSCHARFF@mcandrews-ip.com.
Originally published in Today’s General Counsel.