Alternative Damage Theories in Patent Cases

Infringers often make use of a patent-holder’s rights in ways that yield no straightforward royalty or lost profit calculation. Infringers may give away an infringing product for free or minimal cost, for example, as a loss-leader for other products. 

The patent holder nevertheless can assert damages theories that the courts have applied over the years. The patent statute does not tie royalty rates to an infringer’s sales or profits. The Court of Appeals for the Federal Circuit has long held that even if the infringer is making no profit directly attributable to the infringement, the patent holder may still be improperly benefitting by infringing the patent, and it must compensate the patent holder accordingly.

In 2003, in Micro Chem. Inc. v. Lextron, Inc., the Federal Circuit heard an appeal involving an infringing product that was given away by the defendant to its customers for free or, with a substantial loss, as a loss leader. The court affirmed the jury’s $1.5 million damage award, and it pointed out that the well-recognized Georgia Pacific factors for determining a patent royalty include consideration of “the effect of selling the patented specialty in promoting sales of other products of the [infringer],” even if the patented product is not sold at all.

Any company that is investigating patent infringement by a competitor, or for that matter a company that has concerns about its own exposure to patent liability, should consider use-based patent damages rather than just a traditional sales-based royalty.