Patent Infringement Damages
When the exclusive rights of a federally protected invention are violated, the owner of those rights may be eligible for patent infringement damages. These monetary awards are meant to reimburse patent owners for any potential loss they face due to patent infringement.
In some situations, damages may be small and thus not worthy of filing of patent lawsuit. A patent cease and desist letter is often successful at stopping infringement in its tracks. If you’ve suffered serious damage due to these violations – or the potential for such an outcome exists – litigation may be your best recourse.
Can I Sue Over My Invention?
Before an inventor can receive any patent infringement damages, you need to go through the patent registration process. By registering your creation with the U.S. Patent and Trademark Office (USPTO), you’re providing public notice of your rights while securing the ability to receive damages related to infringement. If you fail to do this, competitors will likely be able to capitalize on your hard work without any consequences. You may have trade secret protection in some situations, but the following requirements must be met:
- There must be economic value derived from maintaining a trade secret.
- The creation must not be readily known or easily ascertainable.
- Reasonable efforts must be made to keep the creation a secret.
Patentable items might also qualify as trade secrets, and this will provide the opportunity to receive compensation even when not registered with the USPTO.
Types of Patent Infringement Damages
When a third party commits patent infringement against your invention, there are several potential avenues of financial compensation. These can include attorney fees and court costs, but the most common are reasonable royalties and lost profits.
Reasonable Royalties
This is the most common form of patent infringement damages. Once an individual or entity is found to have infringed upon another’s patent, the court will decide a license’s fair market value. This is typically done by creating a ‘legal fiction’ where it’s assumed the plaintiff and defendant both willingly entered into a licensing agreement prior to use.
When envisioning this fictional agreement, the court focuses on the time the infringement began. This process is highly evidence-based, and experts will often be brought in to testify. The court will typically calculate the license of a single item’s fair market value and then multiply that calculation by how many items the defendant infringed (e.g. Cost of invention license: $100 x 500 units sold = $50,000).
Lost Profits
Courts may also grant an award based on actual profits lost. This ruling is difficult to obtain due to elevated evidentiary standards, but in most cases, it results in significantly higher compensation. Plaintiffs must show a direct relation between business losses and the infringement of an item. This is sometimes difficult since defendants can claim your invention wasn’t the sole factor considered by consumers in the sale.
Imagine a situation where your invention was the one thing that differentiated your product from a competitor’s. Because of this distinction, consumers often choose your products instead of the alternative. If your competition starts seeing more sales after adding your invention to their own goods, you may have a strong case that those profits should be yours.
Design Patent Infringement Damages
The plaintiff in design patent infringements cases is also eligible for either reasonable royalties or lost profits damages. When looking at the loss of profits, a variety of market factors can make difficult to prove that certain losses were directly attributable to the infringement.
The law recognizes that development costs cut into the patentee’s profits – thus leading to a lesser potential for profit. An infringer isn’t burdened with these costs, so it’s possible that they’ll make higher profits while also entering the market at a lower price.
Willful Damages
Not every instance of patent infringement is malicious or intentional in nature. If the court believes that a violation was deliberate, however, the infringer could face willful damages. Patent holders once had to prove that objective recklessness occurred in order to receive enhanced damages. Thanks to a Supreme Court decision, though, this is no longer the case. As long as it’s shown that an infringer’s actions were subjectively willing, the patent holder may be eligible for enhanced damages. This allows them to collect three times the normal damages amount.
Proving that willful patent infringement occurred also increases the likelihood that the defendant will have to pay court costs and attorney fees. Additionally, actual knowledge of infringement isn’t even necessary to prove willful intent. Many corporations have pursued a policy of ‘willful blindness.’ They actively opt to not search the patent database so courts cannot later say their infringement was willful. Recent court decisions have changed this, however, so that failing to review patents as a practice can be seen as intentional infringement and thus eligible for willful damages.
Patent Infringement Damages Calculation
When it comes to reasonable royalties and lost profits court awards, utilizing an appropriate patent infringement damages calculation is necessary. There is no required guideline that judges must use to calculate these damages, but there are standards that are widely used. The following are some of the most important and relied upon.
Hypothetical Negotiation
When reasonable royalties are being calculated, courts may use the hypothetical negotiation standard. This stems from the ‘legal fiction’ that a defendant and plaintiff entered into a licensing agreement prior to infringement taking place. There were 15 factors laid out in Georgia-Pacific Corp. v. United States Plywood Corp. that are currently in use:
- Established royalties as shown by prior patent licenses.
- Cost of other licenses of comparable patents paid by licensee.
- The nature and scope of license (e.g. Restrictions? Exclusiveness?).
- The policy and marketing currently used by the patent holder and the level of monopoly it maintains due to its licensing practices.
- What’s the commercial relationship between the parties? Are they competitors?
- Sales of non-patented items based on the value of the patented item. Considered for both parties.
- Patent duration and license term.
- The commercial success, current popularity and established profitability of products featuring the patent.
- Advantages and utility showcased by the patented property regarding older inventions that achieve similar results.
- The invention’s nature, commercial character and benefits received by users.
- To what extent has the invention been used by the infringer. Is there evidence of value gained from that use?
- Portion of selling price or profit that’s customary for the business in question or similar brands.
- What portion of the profit is credited to the patent rather than non-patented features? Were there business risks, manufacturing costs or significant improvements/features the infringer added?
- Expert testimony.
- Had an agreement been reached voluntarily and reasonably, what amount would the parties have agreed on?
Once a royalty rate percentage is decided based upon these factors, the court will multiply this dollar amount by the number of infringing sales. This constitutes a reasonable royalty.
Analytical Approach
Another method for calculating patent damages is the analytical approach. The court will look at evidence to discover the projected profits of the infringer when infringing actions began. They’ll also take into account potential costs and expenses that may affect profitability. After this, a decision is made on the percentage of profit that’s attributable to the patented technology.
Panduit Factors
Other methods are used for calculating lost profits. The Federal Circuit has previously used the Panduit Factors in determining these court awards. By establishing the following factors, a plaintiff can receive compensation based on an actual loss of profits:
- What’s the demand for the patented product?
- Proof of absence of acceptable alternatives that aren’t infringing.
- Marketing and manufacturing capability existed to take advantage of the demand.
- What is the profit that would’ve been earned?
Damages Prior to Registration
In most cases, patent infringement damages can only be collected after a patent has registered. Thanks to the 1999 amendments to the Patent Act, however, some remedies have become available prior to the issuance of a patent.
If it can be proven that (1) the infringing party had “actual notice” of a published application and (2) the eventual issued patent is “substantially identical” to the published application, the owner could receive reasonable royalties. This applies to any infringement that occurs between publication and issuance of the patent.
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If you have any questions about patent infringement damages, or need assistance with a patent infringement matter, please contact us today for a consultation.
