CBA Record

Y O U N G L A W Y E R S J O U R N A L

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

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

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.

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