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