Limitations On Damages

a) time limitation on damages

  • BASICS: Under 35 U.S.C. § 286, the patentee cannot recover for any infringement committed more than 6 years prior to the filing of the infringement complaint or counterclaim. For purposes of precluding application of laches to bar legal remedies during this six-year window, Sec. 286 is no different than a statute of limitations. SCA Hygiene III (U.S. 03/21/2017) (7-1) (“Laches cannot be interposed as a defense against dam­ages where the infringement occurred within the [six-year pre-suit] period prescribed by § 286”).
  • Equitable Tolling May (Or May Not) Extend Six-Year Damages Period: “a nonjurisdictional federal statute of limitations is normally subject to a ‘rebuttable presumption’ in favor of equitable tolling…. A ‘petitioner’ is ‘entitled to equitable tolling’ only if he shows ‘(1) that he has been pursuing his rights diligently, and (2) that some extraordinary circumstance stood in his way’ and prevented timely filing.” Holland (U.S. 06/14/2010); see Public Employees (U.S. 06/26/2017) (a statute of repose is not subject to equitable tolling).

b) sec. 287 marking; notice of claim; impact on damages

  • BASICS: “Patentees, and persons making, offering for sale, or selling within the United States any patented article for or under them, or importing any patented article into the United States, may give notice to the public that the same is patented, either by fixing thereon the word ‘patent’ or the abbreviation ‘pat.’, together with the number of the patent, or when, from the character of the article, this cannot be done, by fixing to it, or to the package wherein one or more of them is contained, a label containing a like notice. In the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice. Filing of an action for infringement shall constitute such notice.” 35 U.S.C. § 287(a) (emphasis added). “The marking statute serves to protect the public. [It] protects the public’s ability to exploit an unmarked product’s features without liability for damages until a patentee provides either constructive notice through marking or actual notice…. [It] ‘serves three related purposes: 1) helping to avoid innocent infringement; 2) encouraging patentees to give notice to the public that the article is patented; and 3) aiding the public to identify whether an article is patented.’” Rembrandt Wireless (Fed. Cir. 04/17/17) (vacating denial of JMOL ivo licensee’s failure to mark products covered by a patent claim, despite patent owner’s disclaimer of that claim a few days post complaint).
  • Sec. 287 Patent Marking:
    • AIA: Virtual Marking Permitted: authorizes “virtual marking”: marking on product “patent” and “address of a posting on the Internet” accessible without charge “that associates the patented article with” the patent number. 35 U.S.C. § 287(a) (AIA) {effective on 09/16/11, to pending cases}.
    • Whether Product Capable Of Being Marked Is Fact Question Governed By Rule Of Reason: Rule of reason analysis. Global Traffic (Fed. Cir. 06/04/15) (non-precedential) (aff’g jury verdict that marking packaging of a multi-component system was sufficient; “court should evaluate the specific character of the article at issue,” which is an issue of fact, not just whether space exists for patent number).
    • Marking Requirement Does Not Apply To Patent With Only Method Claims: Sec. 287’s marking requirement does not apply to patents with only method claims. Am. Med. (Fed. Cir. 10/04/93) (“The reason that the marking statute does not apply to method claims is that, ordinarily, where the patent claims are directed to only a method or process there is nothing to mark.”); ActiveVideo (Fed. Cir. 08/24/12) (even if patentee asserts apparatus claims in related patents, Sec. 287 does not apply to patent with only method claims.)
    • Marking Requirement Does Not Apply If Only Method Claims Asserted: Where a patent contains both method and non-method claims, then Sec. 287 will apply (i.e., no pre-marking/notice damages) only if the patent owner has alleged infringement of one or more of the non-method claims. Crown Packaging (Fed. Cir. 03/17/09); Am. Med. (Fed. Cir. 10/04/93) (“Where the patent contains both apparatus and method claims, however, to the extent that there is a tangible item to mark by which notice of the asserted method claims can be given, a party is obliged to do so if it intends to avail itself of the constructive notice provisions of section 287(a). In this case, both apparatus and method claims of the ‘765 patent were asserted and there was a physical device produced by the claimed method that was capable of being marked.”); Devices for Medicine (Fed. Cir. 06/24/87) (“In Bandag, and in Hanson, this court specifically noted a distinction between cases in which only method claims are asserted to have been infringed and cases like the present case, where DFM alleged infringement of all its apparatus and method claims.”); Hanson (Fed. Cir. 10/06/83) (where patent has method and non-method claims but only method claims infringed, failure to mark does not limit damages). But see Rembrandt Wireless (Fed. Cir. 04/17/17) (patent with only device and CRM claims; one claim practiced by unmarked licensed product; panel declined to decide whether that failure limited damages for infringement of that claim alone, or for all infringed claims).
    • Panel: Undecided Whether Failure To Mark As To One Practiced Claim Limits Damages As To That Claim Alone Or To All Claims In The Patent: Panel declined to decide “a novel legal issue not squarely addressed by our past decisions”: whether failure to mark patent owner’s (or licensee’s) product practicing a single claim restricts damages period for that claim alone or for entire patent. Rembrandt Wireless (Fed. Cir. 04/17/17) (patent with only device and CRM claims; one claim practiced by unmarked licensed product).
    • Once Begun, Marking Must Be Substantially Continuous: Once begun, marking must be substantially consistent and continuous to satisfy this statute. Am. Med. (Fed. Cir. 10/04/93) (“a delay between issuance of the patent and compliance with the marking provisions of section 287(a) will not prevent recovery of damages after the date that marking has begun. We caution, however, that once marking has begun, it must be substantially consistent and continuous in order for the party to avail itself of the constructive notice provisions of the statute.”). A “rule of reason” applies to substantial marking by the patent’s licensees. Maxwell (Fed. Cir. 06/11/96) (sufficient where retailer marked 95% of patent product); Funai (Fed. Cir. 09/01/10) (jury permitted to find constructive notice despite 12% of units (those sold by OEMs) not marked).
    • Later Disclaimer Of Patent Claim Does Not Retroactively Dissolve Requirement To Mark Or Avoid Consequences Of Failing To Mark: While “a disclaimer relinquishes the rights of the patent owner, we have never held that the patent owner’s disclaimer relinquishes the rights of the public.” Rembrandt Wireless (Fed. Cir. 04/17/17) (vacating denial of JMOL ivo licensee’s failure to mark products covered by a patent claim, despite patent owner’s disclaimer of that claim a few days post complaint). Cf. Facebook (PTAB 09/28/17) (expanded panel) (statutory disclaimer of financial-related claim before institution decision, removes patent from scope of CBM review).
    • Patent Owner Has Burden Of Pleading And Proving Marking: The patent owner has the burden of pleading and proving compliance with Sec. 287, by it and its licensees. Maxwell (Fed. Cir. 06/11/96); Dunlap (U.S. 03/05/1894) (“Whether his patented articles have been duly marked or not is a matter peculiarly within his own knowledge; and if they are not duly marked, the statute expressly puts upon him the burden of proving the notice to the infringers, before he can charge them in damages. By the elementary principles of pleading, therefore, the duty of alleging, and the burden of proving, either of these facts is upon the plaintiff.”); Nike (Fed. Cir. 03/12/98) (“The patentee bears the burden of proving compliance [with the marking statute] by a preponderance of evidence.”); Arctic Cat (Fed. Cir. 12/07/17) (“Section 287 is thus a limitation on damages, and not an affirmative defense.”) However, the patent owner can meet the pleading requirement simply by alleging that the accused infringer’s alleged infringement was willful. Sentry Protection (Fed. Cir. 03/11/05).
    • Patent Owner Burden Of Proof Includes Burden To Prove Unmarked Article Of Patent Owner Or Licensee, Identified By Alleged Infringer, Not Patented: “The burden of proving compliance with marking is and at all times remains on the patentee. As in this case where BRP identified fourteen unmarked Honda PWCs, which it argued fell within the patent claims, it was the patentee’s burden to establish compliance with the marking statute—that these products did not fall within the patent claims…. [A]n alleged infringer who challenges the patentee’s compliance with § 287 bears an initial burden of production to articulate the products it believes are unmarked ‘patented articles’ subject to § 287. To be clear, this is a low bar. The alleged infringer need only put the patentee on notice that he or his authorized licensees sold specific unmarked products which the alleged infringer believes practice the patent. The alleged infringer’s burden is a burden of production, not one of persuasion or proof.” Arctic Cat (Fed. Cir. 12/07/17) (vacating judgment on marking for patent owner to show whether unmarked products were patented). Contra article. (05/17/16)
    • Marking Requirement Extends To Express And Implied Licensees: “Licensees … and other authorized parties, such as [the licensee’s] manufacturers, must also comply” with substantial marking requirement. Maxwell (Fed. Cir. 06/11/96). It also extends to customers of the patent owner who receive one element of the patented combination from the patent owner with installation instructions on how to assemble the patented combination, and thus are impliedly licensed by the patent owner. Amsted (Fed. Cir. 04/18/94).
    • “Rule Of Reason” Governs Marking By Licensees: “Where third parties are involved, courts may consider ‘whether the patentee made reasonable efforts to ensure compliance with the marking requirements.’” Arctic Cat (Fed. Cir. 12/07/17).
  • Sec. 287 Notice Of Infringement:
    • Must Be Specific Charge Of Infringement To The Accused By The Patentee Or Its Agent: The notice of infringement must be a specific (but perhaps qualified) charge of infringement communicated to the accused by the patentee. But when patent correctly identifies the current assignee, notice may come from the party responsible for licensing and enforcing the patent (even though not the patent’s owner). U.S. Philips (Fed. Cir. 11/02/07). Effect of notice may extend to other models and products related to those identified in the notice. Funai (Fed. Cir. 09/01/10).
    • Charge Of Infringement May Be Qualified: Charging that a specific design of product would infringe an identified patent may suffice; it’s not required that the patent owner have discovered an actual infringement. Minks (Fed. Cir. 10/17/08). “As long as the communication from the patentee provides sufficient specificity regarding its belief that the recipient may be an infringer, the statutory requirement of actual notice is met.” Gart (Fed. Cir. 06/26/01).
  • Sec. 287 Does Not Delay Infringement Or Hypothetical Negotiation Date: A failure to mark may delay the start date for damages to accrue, but it does not change the date of first infringement. Power Integrations (Fed. Cir. 03/26/13) (“must assess damages for post-notice infringement relative to market conditions at the point in time when infringement began”). Thus, failure to mark does not change the date for the hypothetical negotiation for “reasonable royalty” purposes.
  • Pre-Notice Infringement May Be Admissible On Calculating Post-Notice Damages: “To the extent an infringer’s pre-notice infringement erodes the market price of a patented product, that price erosion is relevant in determining for each post-notice act of infringement what the patentee would have made but for the infringement.” Power Integrations (Fed. Cir. 03/26/13).
  • TIPS:

c) indirect-infringement damages limited to extent of direct infringement

  • Indirect Infringement Damages Limited To Extent Of Direct Infringement: Where sale of accused product constitutes contributory infringement, damages can be assessed only for those units that led to an actual direct infringement. Golden Blount (Fed. Cir. 02/15/06) (“There can be no cognizable lost sale on which to base a damages award under the patent laws without an act of infringement to warrant it.”). Plaintiff is entitled to damages for infringement of a method claim for only “those devices that actually performed the patented method during the relevant infringement period.” Cardiac Pacemakers (Fed. Cir. 08/19/09).
  • … Or Not (When Determining Reasonable Royalty): “We have never laid down any rigid requirement that damages in all circumstances be limited to specific instances of infringement proven with direct evidence. Such a strict requirement could create a hypothetical negotiation far-removed from what parties regularly do during real-world licensing negotiations.” But, “the damages award ought to be correlated, in some respect, to the extent the infringing method is used by consumers. This is so because this is what the parties to the hypothetical negotiation would have considered.” Lucent Tech. (Fed. Cir. 09/11/09) (rev’g lump-sum reasonable royalty award for lack of substantial evidence).
  • TIPS:

d) apportionment

  • Apportionment: Compensation For Economic Harm Caused By Infringement Of The Claimed Invention; Applies to Reasonable Royalty And? Lost Profits Recoveries: “When a patent is for an improvement, and not for an entirely new machine or contrivance, the patentee must show in what particulars his improvement has added to the usefulness of the machine or contrivance. He must separate its results distinctly from those of the other parts, so that the benefits derived from it may be distinctly seen and appreciated. … ‘The patentee … must in every case give evidence tending to separate or apportion the defendant’s profits and the patentee’s damages between the patented feature and the unpatented features, and such evidence must be reliable and tangible, and not conjectural or speculative; or he must show, by equally reliable and satisfactory evidence, that the profits and damages are to be calculated on the whole machine, for the reason that the entire value of the whole machine, as a marketable article, is properly and legally attributable to the patented feature.” Garretson (U.S. 03/24/1884) (aff’g denial of lost profits from lost sales (and denial of defendant’s profits) to patentee for failure to prove apportionment or entire market value);  Power Integrations (Fed. Cir. 09/20/18) (vacating reasonable royalty jury damages award of $139.8MM because improperly based on “entire market value” rule);  Exmark (Fed. Cir. 01/12/18) (vacating damages award; even when claim directed to entire product (mower), damages must be apportioned to the allegedly improved part: “the patent owner must apportion or separate the damages between the patented improvement and the conventional components of the multicomponent product.”); AstraZeneca (Fed. Cir. 04/07/15) (reasonable royalty sought: “When a patent covers the infringing product as a whole, and the claims recite both conventional elements and unconventional elements, the court must determine how to account for the relative value of the patentee’s invention in comparison to the value of the conventional elements recited in the claim, standing alone.”); Ericsson (Fed. Cir. 12/04/14) (reasonable royalty sought: “The essential requirement is that the ultimate reasonable royalty award must be based on the incremental value that the patented invention adds to the end product.”) “A patentee must take care to seek only those damages attributable to the infringing features.” VirnetX (Fed. Cir. 09/16/14) (vacating reasonable royalty award of $368,160,000; quoting Garretson); “The trial court must carefully tie proof of damages to the claimed invention’s footprint in the market place. See e.g., Grain Processing Corp. v. Am. Maize-Prods. Co., 185 F.3d 1341, 1350 (Fed. Cir. 1999) (‘To prevent the hypothetical from lapsing into pure speculation, this court requires sound economic proof of the nature of the market and likely outcomes with infringement factored out of the economic picture.’).” com (Fed. Cir. 02/05/10) (reasonable royalty sought); accord Uniloc (Fed. Cir. 01/04/11) (long discussion; royalty sought); but see AstraZeneca (Fed. Cir. 04/07/15) (distinguishing part of Grain Processing as being inapplicable to a reasonable royalty analysis: “The reasonable royalty analysis does not look to what would have happened absent the infringing product, but to what the parties would have agreed upon as a reasonable royalty on the sales made by the infringer.”); Rite-Hite (Fed. Cir. 06/15/95) (aff’g award of lost profits based on but-for and proximate (foreseeable) causation w/o any discussion of apportionment, to make the patent owner whole, where patent’s owner’s product not patented). See generally Bank of America (U.S. 05/01/2017) (in tort actions and statutory causes of action sounding in tort, foreseeability of the damage to the plaintiff is insufficient; “proximate cause ‘generally bars suits for alleged harm that is ‘too remote’ from the defendant’s unlawful conduct.’”) See Patently O article (Prof. Holbrook) on Westerngeco (01/15/18) (“Simply because certain damages may be foreseeable in an economic sense does not mandate that they should be recoverable as a matter of proximate cause in all circumstances.”)
  • Apportionment Required Even When Smallest Salable Unit Contains Non-Infringing FeaturesPower Integrations (Fed. Cir. 09/20/18) (vacating reasonable royalty jury damages award of $139.8MM because improperly based on “entire market value” rule; “VirnetX explained that simply identifying the smallest salable unit is not necessarily sufficient to satisfy a patentee’s obligation to apportion for multi-component products with significant unpatented features.”); Finjan (Fed. Cir. 01/10/18) (reasonable royalty sought: “[I]f the smallest salable unit—or smallest identifiable technical component— contains non-infringing features, additional apportionment is still required.”); VirnetX (Fed. Cir. 09/16/14) (jury instruction erroneous; “where the smallest salable unit is, in fact, a multi-component product containing several non-infringing features with no relation to the patented feature (as VirnetX claims it was here), the patentee must do more to estimate what portion of the value of that product is attributable to the patented technology.”)
  • Apportionment Required Even When Claim Recites Entire Combination: Exmark (Fed. Cir. 01/12/18) (vacating damages award; even when claim directed to entire product (mower), damages must be apportioned to the allegedly improved part, but can apportion in royalty rate not royalty base, and “particularly appropriate” to do so when claim directed to entire product); contra Univ. of Pitt. (Fed. Cir. 04/10/14) (non-precedential) (dependent claim added in reexamination added “beam generator” component so no need to apportion out revenues attributed to the component).
  • TIPS:

e) limits re: extraterritorial reach (foreign activities)

  • Foreign Damages Now Can Be Awarded Subject To Possible Proximate Cause Restrictions: An award of damages for patent infringement “can include lost foreign profits when the patent owner proves infringement under § 271(f)(2). WesternGeco III (U.S. 06/22/2018) (7-2) (as “the infringement” is the focus of Sec. 284, domestic export of components is the focus of Sec. 271(f)(2), damages is not a substantive element of the cause of action, and the “over­seas events were merely incidental to the infringement,” the “conduct relevant to the statutory focus in this case is domestic,” thus “we hold that WesternGeco’s damages award for lost profits was a permissible domestic application of § 284.” But, “in reaching this holding, we do not address the extent to which other doctrines, such as proximate cause, could limit or preclude damages in particular cases.”), rev’g, WesternGeco (Fed. Cir. 07/02/15) (2-1) (long dissent) (rev’g award of lost profits based on patentee’s failure to win contracts for surveying for oil in seas outside U.S., lost due to infringer’s (Sec. 271(f)(2)-infringing) export of components to foreign competitors of patent owner, as U.S. patent laws do not reach foreign uses); reinstated with new dissent WesternGeco II (Fed. Cir. 09/21/16). Possibly overruling: (1) Carnegie Mellon (Fed. Cir. 08/04/15) (Presumption against extraterritorial reach of U.S. patent laws “applies not just to identifying the conduct that will be deemed infringing but also to assessing the damages that are to be imposed for domestic liability-creating conduct.” Even where foreign-made, delivered, and sold products are “strongly enough tied to” U.S. infringing activity “as a causation matter to have been part of the hypothetical-negotiation agreement,” they cannot be part of the damages calculation: “Where a physical product is being employed to measure damages for the infringing use of patented methods, we conclude, territoriality is satisfied when and only when any one of those domestic actions [make, use, sell, or import] for that unit (e.g., sale) is proved to be present, even if others of the listed activities for that unit (e.g., making, using) take place abroad.” The damages-measuring action need not itself be an infringing action. Remanding for determination of whether chips made, delivered and used outside U.S., but custom designed inside U.S., were “sold” in U.S.); (2) Power Integrations (Fed. Cir. 03/26/13) (“the entirely extraterritorial production, use, or sale of an invention patented in the United States is an independent, intervening act that, under almost all circumstances, cuts off the chain of causation initiated by an act of domestic infringement,” even if the damages were foreseeable. Not entitled to damages from the infringer’s foreign sales even if those sales were foreseeable result of U.S. infringing activity, because Sec. 284 does “not thereby provide compensation for a defendant’s foreign exploitation of a patented invention, which is not infringement at all.”); See generally RJR Nabisco (U.S. 06/20/2016) (“a canon of statutory construction known as the presumption against extraterritoriality: Absent clearly expressed congressional intent to the contrary, federal laws will be construed to have only domestic application.” “At the first step, we ask whether the presumption against extraterritoriality has been rebutted — that is, whether the statute gives a clear, affirmative indication that it applies extraterritorially. We must ask this question regardless of whether the statute in question regulates conduct, affords relief, or merely confers jurisdiction. If the statute is not extraterritorial, then at the second step we determine whether the case involves a domestic application of the statute, and we do this by looking to the statute’s ‘focus.’ If the conduct relevant to the statute’s focus occurred in the United States, then the case involves a permissible domestic application even if other conduct occurred abroad; but if the conduct relevant to the focus occurred in a foreign country, then the case involves an impermissible extraterritorial application regardless of any other conduct that occurred in U.S. territory.”)

f) failure to mitigate damages

  • Failure To Mitigate Damages Applies In Tort Actions: Damages for a federal statutory tort presumptively governed by common law tort damages principles. Cf. Staub (U.S. 03/01/2011) (“we start from the premise that when Congress creates a federal tort it adopts the background of general tort law.”) Part of the “general theory of damages,” is that “a victim has a duty ‘to use such means as are reasonable under the circumstances to avoid or minimize the damages’ that result from violations of” a the statute. … If the victim could have avoided harm, no liability should be found against the employer who had taken reasonable care, and if damages could reasonably have been mitigated no award against a liable employer should reward a plaintiff for what her own efforts could have avoided.” Faragher (U.S. 06/26/1998) (creating partial affirmative defense for employer’s vicarious liability for a supervisor harassing an employee). E.g., failure to mark, lying in wait to allow damages to increase, failing to take a clear position on scope of claims or changing one’s position, keeping secret an already licensed supplier of the patented technology, failure to offer a FRAND license when obligated to do, etc. “It is entirely appropriate for a defendant to assert a defense of failure to mitigate damages when considering what amount of compensation is appropriate for Plaintiff, the injured party in this action. Such a defense may rarely be relevant in a patent infringement case, but it is not inappropriate.” IMX v. E-Loan, 1-09-cv-20965 (S.D. Fla. November 1, 2010, Order) (denying dismissal of this affirmative defense in a patent infringement suit). But see Romag Fasteners, Inc. v. Fossil, Inc. 29 F. Supp. 3d 85 (D. Conn. 2014) (rejecting this theory when “reasonable royalty” sought). “Under California law, ‘[a] plaintiff has a duty to mitigate damages and cannot recover losses it could have avoided through reasonable efforts.’ Thrifty-Tel, Inc. v. Bezenek, 54 Cal. Rptr. 2d 468, 474 (Ct. App. 1996) [trespass to chattels case for hacking phone system; plaintiff failed to call child’s parent].” Bank of Stockton (9th 02/14/10). Interplan Architects, Inc. v. C.L. Thomas, Inc., No. 4:08-cv-03181, 2010 U.S. Dist. LEXIS 114306, at *147-48 (S.D. Tex. Oct. 27, 2010) (failure to mitigate damages is recognized as a defense in a copyright infringement case). Highly likely needs to be pled as an affirmative defense. See also Microsoft (9th Cir. 07/30/15) (awarding expenses incurred taking reasonable mitigation efforts to minimize damages from a breach of contract); see generally SCA Hygiene III (U.S. 03/21/2017) (7-1) (“‘[p]atent law is governed by the same common-law principles, methods of statutory inter­pretation, and procedural rules as other areas of civil litigation.’”); Mentor Graphics (Fed. Cir. 03/16/17) (“Compensatory damages are a staple across most every area of law. And compensatory damages under the patent statute, which calls for damages adequate to compensate the plaintiff for its loss due to the defendant’s infringement, should be treated no differently than the compensatory damages in other fields of law.”), rehearing denied (Fed. Cir. 09/01/17) (10-2).
  • Reasons To Assert Failure To Mitigate In Addition To Laches: It’s law not equity so goes to jury not judge. Jury instruction describing plaintiff’s “duty” can have positive impact. With laches, even if prove delay + prejudice the judge still weighs the equities. With failure to mitigate damages in the case, chances are better that judge will allow jury to hear laches for an advisory verdict. Substantial differences between their elements. Increased damages for prolonged infringement is not considered economic prejudice for laches. Failure to mitigate damages does not require showing of “prejudice” per se. Failure to mitigate damages is broader than delay. E.g., here’s an Ill. Model jury instruction: “In fixing the amount of money which will reasonably and fairly compensate the plaintiff, you are to consider that a person whose [property] [business] is damaged must exercise ordinary care to minimize existing damages and to prevent further damage. Damages proximately caused by a failure to exercise such care cannot be recovered.”

g) “benefit rule” in mitigation of damages

  • “Benefit Rule” Applies In Tort Actions: “Where the defendant’s tortious conduct has caused harm to the plaintiff or to his property and in so doing has conferred upon the plaintiff a special benefit to the interest which was harmed, the value of the benefit conferred is considered in mitigation of damages, where this is equitable.” RESTATEMENT (SECOND) OF TORTS 920 (1979); accord Lee v. Lee, 47 S.W.3d 767, 777 (Tex. App.—Houston [14th Dist.] 2001, pet. denied).