Patent Infringement Damages

In the event that a defendant is found liable for infringing one or more patent claims the patent owner is entitled to request various remedies, some of which are routinely granted and others of which are rather rare. Below are the various potential remedies.

Lost Profits

To obtain as damages the profits on sales the patent owner would have made absent the infringement (i.e., the sales made by the infringer) 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.

Reasonable Royalty

When actual damages in the form of lost profits cannot be proved the patent owner is entitled to receive a reasonable royalty as payment for infringement by the defendant. From a conceptual starting point, a reasonable royalty is an amount which a person, desiring to manufacture and sell a patented article, as a business proposition, would be willing to pay as a royalty and yet be able to make and sell the patented article, in the market, at a reasonable profit.

The setting of a reasonable royalty after infringement, however, cannot be treated as the equivalent of ordinary, arms-length negotiations among a truly willing patent owner and potential licensee. If the setting of a reasonable royalty after the fact did not take into account the distressed nature presented by forced litigation it would make an election to infringe a handy means for competitors to impose a compulsory license upon every patent owner. In fact, except for the limited risk that the patent owner might meet the heavy burden of proving the four elements required for recovery of lost profits, the infringer would have nothing to lose and everything to gain if he could count on paying only the normal, routine royalty non-infringers might have paid. The amount of a reasonable royalty after infringement turns on the facts of each case, as best they may be determined. Among the relevant facts are:

1. The royalties received by the patentee for the licensing of the patent in suit, proving or tending to prove an established royalty.

2. The rates paid by the licensee for the use of other patents comparable to the patent in suit.

3. The nature and scope of the license, as exclusive or non-xclusive; or as restricted or non-restricted in terms of territory or with respect to whom the manufactured product may be sold.

4. The licensor’s established policy and marketing program to maintain his patent monopoly by not licensing others to use the invention or by granting licenses under special conditions designed to preserve that monopoly.

5. The commercial relationship between the licensor and licensee, such as, whether they are competitors in the same territory in the same line of business; or whether they are inventor and promotor.

6. The effect of selling the patented specialty in promoting sales of other products of the licensee; the existing value of the invention to the licensor as a generator of sales of his non-patented items; and the extent of such derivative or convoyed sales.

7. The duration of the patent and the term of the license.

8. The established profitability of the product made under the patent; its commercial success; and its current popularity.

9. The utility and advantages of the patent property over the old modes or devices, if any, that had been used for working out similar results.

10. The nature of the patented invention; the character of the commercial embodiment of it as owned and produced by the licensor; and the benefits to those who have used the invention.

11. The extent to which the infringer has made use of the invention; and any evidence probative of the value of that use.

12. The portion of the profit or of the selling price that may be customary in the particular business or in comparable businesses to allow for the use of the invention or analogous inventions.

13. The portion of the realizable profit that should be credited to the invention as distinguished from non-patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer.

14. The opinion testimony of qualified experts.

15. The amount that a licensor (such as the patentee) and a licensee (such as the infringer) would have agreed upon (at the time the infringement began) if both had been reasonably and voluntarily trying to reach an agreement; that is, the amount which a prudent licensee — who desired, as a business proposition, to obtain a license to manufacture and sell a particular article embodying the patented invention — would have been willing to pay as a royalty and yet be able to make a reasonable profit and which amount would have been acceptable by a prudent patentee who was willing to grant a license.

These 15 factors have become known as the Georgia-Pacific factors. They were first set out in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970) by Judge Tenney of the Southern District of New York. Although it is rare for the United States Court of Appeals for the Federal Circuit to defer to any court, let alone a district court, time and time again the Federal Circuit endorses these factors as the appropriate factors to consider in making a determination regarding the appropriateness of any award of reasonable royalties.

Enhanced Damages

Under the patent laws, in appropriate cases the damages may be trebled. In the situation where there has been a finding of infringement and the patent owner has requested treble damages the district court must first determine whether willful infringement was proven at trial. Once a finding of willfulness or bad faith has been made, the district court judge has the discretion to enhance damages, up to three times the amount of actual damages awarded to the prevailing party. It is important to realize that this decision whether or not to award enhanced damages is within the discretion of the district court. However, once the jury has found willful infringement, and the court has held that substantial evidence supports such a finding of willfulnees, the district court is bound by the jury’s finding of willfulness and may not reweigh the evidence on the topic.

A finding of willful infringement does not mandate that damages be enhanced, much less mandate treble damages. With respect to the multiplier used, the amount of the enhancement must bear some relationship to the level of culpability of the conduct. With respect to whether enhanced damages are appropriate, in deciding to grant enhancement the district court must consider the egregiousness of the defendant’s conduct based on all facts and circumstances. Furthermore, the court must consider mitigating factors.

Prejudgment Interest

Often, an award of prejudgment interest is necessary to ensure that the plaintiff is placed in the same position as he would have been in if the defendant had entered into a reasonable royalty agreement. In light of that purpose, prejudgment interest should ordinarily be awarded, absent some justification for withholding such an award. For example, it may be appropriate to limit prejudgment interest, or perhaps even deny it altogether, where the patent owner has been responsible for undue delay in prosecuting the lawsuit.

Assuming prejudgment interest is allowable and awarded, as is virtually always the case, it should be calculated from the date of infringement to the date of judgment.

The rate of prejudgment interest and the issue of whether the interest awarded should be simple or compounded are matters left mostly to the discretion of the district court. In exercising this discretion the district court focuses on the underlying purpose of prejudgment interest, which is to fully compensate the patent owner for infringement. Nevertheless, it is important to remember that prejudgment interest can only be applied to the actual damage portion of a damage award, as opposed to any enhancement or attorneys fees portion.

Returning to the rate at which prejudgment interest is calculated, the district court has the discretion to determine whether to use the prime rate, the prime rate plus a percentage, the U.S. Treasury rate, state statutory rate, corporate bond rate, or any other rate the court deems appropriate under the circumstances. The court may not, however, deny prejudgment interest merely because the calculation of the interest would be difficult. The numerous possibilities these cases present for awarding and calculating prejudgment interest leave fertile ground from which arguments of the parties may grow.

Given the fact that prejudgment interest is virtually always awarded, and further given the fact that the district court has such great discretion, patent owners who are victorious in litigation would be better served to make a strong case for a favorable interest rate rather than merely choose any rate.

Postjudgment Interest

While the district court has great discretion with respect to prejudgment interest, there is not much discretion associated with the awarding of postjudgment interest. Purusan to 28 U.S.C. § 1961, postjudgment interest is to be paid in every civil action in the federal courts. This postjudgment interest is to be calculated from the date of the entry of the judgment, at a rate equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the date of the judgment. This postjudgment interest is computed daily to the date of payment and is compounded annually.

Attorneys Fees

The patent statute states that the court in exceptional cases, may award reasonable attorney fees to the prevailing party. As a general rule, attorneys fees may be justified by any valid basis for awarding enhanced damages. However, conduct which a court may deem “exceptional” and a basis for awarding attorneys fees may not qualify for an award of enhanced damages. Similarly, where damages are enhanced a district court may decline to award attorneys fees.

Whether attorneys fees should be awarded requires a two-step inquiry. First, the district court must decide whether there is clear and convincing evidence that the case is exceptional. Second, the court must decide whether to award attorney fees to the prevailing party.

Even exceptional cases do not always mandate an award of attorney fees in all circumstances. The United States Court of Appeals for the Federal Circuit has acknowledged that ther are many factors which can impact upon a decision regarding whether an award of attorney fees is warranted in a particular case. The types of conduct that could support a showing of exceptional circumstances resulting in the award of attorneys fees include, but are not limited to, willful infringement, inequitable conduct before the Patent and Trademark Office, litigation misconduct, and vexatious or unjustified litigation or frivolous suit.

Obtaining attorneys fees in any patent litigation is rare. Furthermore, in order to obtain attorneys fees it is necessary to litigate the matter to a conclusion. Given the increased role of alternative dispute resolution in patent litigation the percentage of cases that are fully litigated to a conclusion is continuously dropping.