Continuing our discussion from last week, we received a few follow-up questions on whether patent litigation is really worth the trouble and what can be potentially recovered. In short, the amount of damages you can recover for patent infringement is outlined by statute. Here is a cursory discussion of the different types of damages that are available in such a case:
Compensatory damages
35 U.S.C.A. § 284 provides: “Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.”
The major, underlying theory of damages in patent litigation is to deny the infringer the fruits of his illegal act, AND to restore to the patent owner the benefits which he would have derived from his monopoly had he not been denied the infringing sales. Another way to think about this is the distinction between “damages” and “profits.” Profits refers to what an infringer makes. Damages refers to what a patent owner lost by the infringement. A patent owner’s monetary award equals the amount adequate to compensate him for the infringement (usually, for the patent owner’s lost profits), but in no event less than a reasonable or established royalty.
Measured by patent owner’s lost profits
For a patent owner to recover lost profits, he must demonstrate that “but for” the infringement, he would have made the sales that the infringer made. To recover under the lost profits approach, the patent owner must prove two things:
Unlike copyright or trademark infringement, patent infringement does not provide for an accounting for an infringer’s profits (except in the case of a design patent). However, the infringer’s profits may properly be considered, for comparison purposes with the patent owner’s proof of his lost profits, in estimating the patent owner’s damages.
Lost profits may be in the form of diverted sales, eroded prices, or increased expenses. It should be noted that an infringer’s foreign sales are not included in this calculation because protection only extends to infringement in the United States.
Measured by a reasonable royalty
In the event a patent owner cannot prove the above, his damages are limited to a “reasonable royalty.” A reasonable royalty is generally the amount at which a person desiring to manufacture and sell a patented product would be willing to pay as a royalty to the patent owner. The factors considered in this analysis are called the Georgia-Pacific factors (from Georgia-Pacific Corp v. United States Plywood Corp.):
Indirect damages
Generally, indirect or consequential damages (such as lost supply sales) are not recoverable.
Interest on damages award
35 U.S.C.A. § 284 provides as follows regarding interest: “Upon finding for the claimant the court shall award the claimant damages … together with interest and costs as fixed by the court.”
Both pre-judgment and post-judgment interest are included.
Exemplary (or, punitive) damages
35 U.S.C.A. § 284 provides as follows regarding exemplary damages: “When the damages are not found by a jury, the court shall assess them. In either event, the court may increase the damages up to three times the amount found or assessed.”
A patent owner can win exemplary damages, up to and including three times the actual damages, where the infringer has knowingly, deliberately, intentionally, willfully, or wantonly infringed the patent. While “willful infringement” is a nebulous fact inquiry, the primary question is whether the infringer, acting in good faith, had reason to believe that it had the right to act in the infringing manner. The In re Seagate Technology test is comprised of two parts: