Brief Fact Summary. Panduit (Plaintiff) appealed a damages award of 2Â½% royalty given for infringement of its electrical duct patent.
Synopsis of Rule of Law. A patent owner must receive adequate damages from the infringer to compensate for the infringement.
Issue. Must a patent owner receive adequate damages from the infringer to compensate for the infringement?
Held. (Markey, C.J.)Â Yes.Â A patent owner must receive adequate damages from the infringer to compensate for the infringement.Â The question is:Â had the infringer not infringed, what would the patentee have made?Â To obtain lost sales, a patent owner must prove: (1) a demand for the patented product, (2) absence of acceptable substitutes that do not infringe, (3) capability to take advantage of the demand, and (4) the amount of profit he would have made.Â Plaintiff established elements 1 and 3, and the court erred in holding Plaintiff did not establish element 2.Â However, Plaintiff was missing evidence on its fixed costs, therefore element 4 was not satisfied.Â The district court’s denial of lost sales is affirmed.Â When lost profits cannot be proven, as in this case, the patent owner is entitled to a reasonable royalty.Â A reasonable royalty is an amount that a person desiring to make and sell the product would be willing to pay as a royalty and yet be able to make a profit.Â The special master made several mistakes in coming up with this figure.Â The following factors should have been considered: (1) the lack of acceptable non-infringing substitutes, (2) Plaintiff’s unvarying policy of not licensing the patent, (3) the future business and profit Plaintiff would expect to lose by licensing a competitor, and (4) the fact that the infringed patent gave the whole market to Plaintiff.Â Reversed and remanded.
Discussion. The four-part test of Panduit has been referred to by its acronym, the DAMP test.Â However, it is not the exclusive test for determining whether lost profits should be awarded.Â Lost profits may also be inferred from lost revenues in situations where the patent holder and the infringer are the only entities supplying the product.Â Since lost profits were not available in this case, Plaintiff also sought a reasonable royalty, which is not unusual.Â Although typically a reasonable royalty is less than lost profits, it is not always the case.