| Claimants who have successfully proved liability in | | | | awarded may be a quoted license fee by the |
| an action for patent infringement, either actual or | | | | claimant. Where there is no quote for a reference |
| anticipated, are entitled to elect their remedy. | | | | point, the measure will be the rate that a licensee |
| Successful litigants will discover that the measure | | | | who is not in the market would pay, regardless of |
| of the award for compensation may vary widely | | | | whether they might have been able to make |
| depending upon their election between damages | | | | non-infringing equivalents. |
| and an account of profits. | | | | Manufacturers of Patented Inventions |
| Comparison of the Remedies | | | | When the patent owner manufactures the |
| The variance between an account of profits and | | | | product, the patentee is entitled to lost |
| damages exists because the focus is on the | | | | manufacturing profits. |
| affairs of different parties: in one instance that of | | | | When the patent owner is a manufacturer rather |
| the claimant and the other on the defendant. | | | | than a licensor, it has often been said that the |
| Damages | | | | appropriate figure cannot be arrived at with |
| An award of damages focuses on the losses | | | | mathematical precision. It is the profit that the |
| sustained by the claimant. There is no upper limit | | | | claimant could have made that sets the baseline |
| on the measure of damages that may be | | | | for the award. Some allowance may be made for |
| awarded. Relief for patent infringement may | | | | the exertions made by the defendant, as it is |
| overlap with other areas of intellectual property; | | | | presumed that not all sales made by the |
| for instance the copyright of the claimant may | | | | defendant would have been made by the claimant |
| have also been infringed (an instance being | | | | had there been no infringement. |
| software). In calculating the sum to be paid in | | | | Heads of Damages |
| damages, a court will disregard whether the | | | | Depending on the type of case, the following |
| defendant could have avoided infringement by | | | | heads of damage have been established by |
| using substitute process and thus avoided a | | | | previous case law: |
| charge of infringement altogether. It is irrelevant. | | | | 1. Loss of profitsa. in the form of sales diverted |
| Losses not caused by the infringement are not | | | | away from the claimant by reason of the |
| recoverable. | | | | infringement;b. lost margins on sales not made |
| An Account of Profits | | | | due to the pressing need to reduce prices due to |
| On the other hand an account of profits focuses | | | | price depression caused by the infringer. |
| on the profits made by the defendant, without | | | | 2. Loss of goodwill and reputation to the claimant, |
| reference to the damage suffered by the | | | | which arguably has several dimensions; |
| claimant at the hands of the defendant. The | | | | 3. Sums representing the benefit of the use of |
| purpose of the account is to prevent the unjust | | | | the invention by defendant in the market, which is |
| enrichment of the defendant by the use of the | | | | qualified by taking the market value of the use. It |
| claimant’s invention. The claimant is treated as | | | | is damages for the unauthorised use, which |
| if they were conducting the business of the | | | | resonates as a license fee for the use and |
| defendant, and made the profits of the | | | | restitutionary damages (sometimes referred to as |
| defendant. As such, the upper most limit of an | | | | ‘gain based damages’), an area of |
| award is the sum of profits made by the | | | | damages law rarely pressed. |
| defendant caused by the infringement. In most | | | | 4. Lost profits on sales lost on goods that are |
| cases, an award of damages will equal or exceed | | | | commonly sold with the invention |
| the maximum award in an account of profits; | | | | 5. Springboard Damages: damages that are |
| however an account of profits may greatly | | | | suffered after the infringement by establishing a |
| outstrip an award of damages in the right case. | | | | market presence through infringement and early |
| When assessing an award, to say that a | | | | entry into the market. |
| defendant should have generated higher profits is | | | | 6. Diminution of value in subsidiary companies |
| immaterial: the claimant must take the defendant | | | | owned by the patent owner due to the loss of |
| as he finds them. | | | | sales by them where the profits flow through to |
| The profits must have been earned from the use | | | | the holding company. |
| of the claimant’s invention, and if the infringed | | | | 7. Depending on the nature of the patent, there |
| invention formed only part of the overall product | | | | may be losses sustained by loss of sales on |
| or process, then only that part of the profit | | | | products commonly sold with the patented |
| attributable to the patented invention is | | | | products, provided it is foreseeable and caused by |
| recoverable. This is where most difficulty is | | | | the infringement. |
| experienced in assessing the profits earned by | | | | 8. As a general rule a claimant was entitled to |
| the defendant and a number of approaches may | | | | recover for losses and expenses reasonably |
| be taken during the assessment. Courts take the | | | | incurred in mitigation. |
| view that this would be unfair upon the defendant | | | | Where the patent owner has reduced prices in a |
| for the claim to be awarded all of the profits | | | | competitive market, a court may have regard for |
| where attribution of profits is possible. | | | | the argument that the patent owner could not |
| Manufacturing processes that use the patent in | | | | have maintained their sales at current prices in |
| question as a small step in the manufacturing | | | | that environment. This is a matter that goes to |
| process provide a typical example, in that it | | | | causation of damage – the claimant is not |
| clearly cannot be said that the entire profit of the | | | | entitled to recover losses unless the defendant |
| application of the process is attributable to the | | | | caused them. |
| infringement. Where it is appropriate to apportion | | | | In the case of infringement of a product, a good |
| losses, the reference for the assessment will | | | | starting point for assessing damages is to obtain |
| involve splitting the profits between infringing and | | | | evidence of the number of infringing products |
| non-infringing parts of the process. | | | | made and in the alternatives sold, the sums |
| On the other hand, there are instances where it is | | | | received and the approximate costs incurred. This |
| appropriate for the claimant to recover all of the | | | | creates a reference point for the calculation. |
| profits of an invention, however whether this is | | | | The point needs to be made that the damages |
| so turns on the facts of the case. | | | | recovered in any particular case depends on the |
| Making the Calculations | | | | facts of the case. The general principle of |
| Damages | | | | awarding tortuous damages applies – that any |
| It is trite to say that the claimant is entitled to be | | | | losses caused by the infringement are |
| placed in the position they would have been had | | | | recoverable, whether or not the particular heads |
| the infringement not taken place in the context of | | | | appear in the list above. A defendant is said to |
| damages. The test for the measure of damages | | | | take the claimant as they find them, and thus |
| in patent cases is seen in the application of the | | | | damages outside these heads of damages which |
| ‘but for’ test, and the damage must be | | | | are peculiar to the claimant will be recoverable in |
| the natural and direct consequence of the | | | | the appropriate case. |
| defendant’s acts. Although the claimant must | | | | Making an Accounts of Profits |
| prove their loss, they are assessed liberally. | | | | Defendants are not obliged to hand over the |
| Courts recognise that monopoly rights lead to | | | | gross profit obtained by reason of the |
| higher prices or license fees, so this is the peg to | | | | infringement. In keeping with the approach that |
| which damages are assessed. | | | | the claimant is said to stand in the shoes of the |
| A court is generally prepared to imply that | | | | defendant, a court will make allowances to the |
| inference with the claimant’s monopoly will | | | | defendant for parts of the gross profit that are |
| cause damage in the ordinary course of events, | | | | attributable to proper expenses associated with |
| and the absence of a precise means to calculate | | | | making sales, such as advertising and marketing; |
| damages will not necessarily result in an award of | | | | increases in value of goods or services once sold |
| nominal damages, but a fair sum of what a | | | | or provided and additional features of the product |
| reasonable person may expect to have lost, with | | | | or service that are outside the infringing invention |
| reference to the general trade that has been | | | | (such as value added services). |
| interfered with by the defendant. | | | | In the event an infringer makes a loss in a |
| There are two ways to calculate the damages | | | | manufacturing process, the sum by which the |
| suffered by a defendant, and the method turns | | | | infringing process reduces those losses are |
| on whether the claimant manufactures the | | | | recoverable on an account. |
| patented invention or whether manufacturing of | | | | Where it is difficult to separate out the different |
| the invention is licensed to others. | | | | components of a process in order attribute a |
| The Reasonable Royalty | | | | proportion of the profits, courts may decide to |
| Where the patent owner licenses the production | | | | assign a percentage of the profits on the same |
| or use of the invention to others, the measure of | | | | percentage that the costs and expenses are |
| damages is the lost royalty profits. | | | | attributed to them by adopting an accounting |
| A court is usually inclined to award a reasonable | | | | approach. A judge will make a reasonable |
| royalty to the claimant, notionally asking: if the | | | | approximation. Account may then be taken of the |
| claimant did grant a licence to use the patent, | | | | relative importance of the relative attractions of |
| what would they reasonably be expected to | | | | different parts of an infringing product. In this way |
| obtain in the market? | | | | the courts reserve a discretion to grant a larger |
| The damages are limited to the lost license fees | | | | slice of the profits where the infringement can |
| that would have been payable by the defendant. | | | | fairly be said to play an important role in the |
| Where previous licensing fees have been agreed, | | | | profits obtained by the defendant. This approach |
| the determination of the price as it has been | | | | takes a ‘base allocated profit’ percentage |
| determined in the free market will be persuasive | | | | and then that percentage is weighted for the |
| evidence of the proper sum payable, as that is | | | | importance to the profits obtained. |
| the sum that the infringer will be presumed to be | | | | There are cases where the patented invention |
| asked to pay. The sum may be increased where | | | | has readily discernable impact on profits, either |
| standard license fees impose restrictions upon the | | | | positively or negatively. For instance, the patented |
| licensee which are not similar to the conduct of | | | | invention may reduce the costs associated with |
| the defendant when committing the infringing acts. | | | | the manufacturing process, making the process |
| Thus when a product is usually made available on | | | | more efficient. In that case a larger share of the |
| a usage only basis, and the infringer has | | | | profits would be payable to the claimant on an |
| manufactured and sold the product with | | | | empirical basis. It involves a comparison between |
| purported licenses to further develop the invention | | | | the profitability achieved when the patented |
| to its licensees, an uplift in the award payable is | | | | invention is used and on the other hand when it is |
| likely. | | | | not used. This brings consideration of efficiencies |
| Where there is no precedent of licensing by the | | | | introduced by the invention into consideration for |
| claimant, calculation of a reasonable royalty may | | | | the calculation of the slice of the profits to be |
| take into account: | | | | awarded to the claimant. |
| 1. the patent owners’ previous conduct in | | | | Making assessments of damages and accounts of |
| pricing and terms | | | | profits frequently require the involvement of |
| 2. Percentages standard in the trade | | | | forensic accountants with some knowledge of the |
| 3. cost of designing around the patent monopoly | | | | industry in which the infringement has taken place. |
| rights | | | | As a general rule, an account of profits will |
| The proper sum for the notional license fee is the | | | | probably be preferred in cases where the claimant |
| sum that a potential licensee would be willing to | | | | cannot point to any damage in their own business. |
| pay to enter the market. | | | | This will usually be the case where the margins of |
| Where there is no licensing activity, the court | | | | the defendant outstrip the profits that of the |
| may use this notional license fee to calculate | | | | claimant. |
| damages. Evidence of the quantum to be | | | | |