Nov. 22, 2005 Jack Ko 1

Awarding Lost Profits for Awarding Lost Profits for “Unpatented” Products: “Unpatented” Products:

Rite-Hite and Other CasesRite-Hite and Other Cases

ByBy

Jack KoJack Ko

Nov. 22, 2005 Jack Ko 2

OutlineOutline

Relevant Statutory ProvisionsRelevant Statutory ProvisionsSupreme Ct. Cases on Lost Supreme Ct. Cases on Lost ProfitsProfitsRite-HiteRite-Hite: a paradigm shift?: a paradigm shift?Subsequent Cases ApplyingSubsequent Cases Applying Rite-HiteRite-Hite

Nov. 22, 2005 Jack Ko 3

Awarding Lost Profits for Awarding Lost Profits for “Unpatented” Products“Unpatented” Products

Rite-Hite v. KelleyRite-Hite v. Kelley (Fed. Cir. 1995) (Fed. Cir. 1995)

(en banc: (en banc: LourieLourie)) King Instrument King Instrument (Fed. Cir. 1995) (Nies, Newman, (Fed. Cir. 1995) (Nies, Newman,

RaderRader)) Juicy Whip Juicy Whip (Fed. Cir. 2004) (Newman, Linn, (Fed. Cir. 2004) (Newman, Linn, LourieLourie) )

Nov. 22, 2005 Jack Ko 4

Relevant Statutory Relevant Statutory ProvisionsProvisions

The Patent Act: 35 U.S.C. § 284 (2005) The Patent Act: 35 U.S.C. § 284 (2005) ((enacted 1952, amended 1999)enacted 1952, amended 1999)

§ 284. Damages§ 284. Damages

Upon finding for the claimant Upon finding for the claimant

the court shall award the claimant the court shall award the claimant

-- damages adequatedamages adequate to compensateto compensate for for the the infringement, infringement,

- - but in no event less than abut in no event less than a reasonable reasonable royaltyroyalty

for the use made of the invention by the for the use made of the invention by the infringer, infringer,

together with interest and costs as fixed by the together with interest and costs as fixed by the court.court.

Nov. 22, 2005 Jack Ko 5

Relevant Supreme Ct. Relevant Supreme Ct. DecisionsDecisions

Aro Manuf. Co., Aro Manuf. Co., 377 U.S. 476 (1964): 377 U.S. 476 (1964):

""had the Infringer not infringed, had the Infringer not infringed, what would what would the Patent Holder-the Patent Holder-Licensee have made?Licensee have made?""

General Motors v. DevexGeneral Motors v. Devex, 461 U.S. 648 , 461 U.S. 648 (1983): (1983):

""full compensation for ‘any full compensation for ‘any damages’ [the damages’ [the PO] suffered as a PO] suffered as a result of the result of the infringementinfringement."."

Nov. 22, 2005 Jack Ko 6

Panduit Test (DAMMP Panduit Test (DAMMP Factors)Factors)

Panduit Corp. v. Stahlin Bros., Panduit Corp. v. Stahlin Bros., 575 F.2d 1152 575 F.2d 1152 (6th Cir. 1978, (6th Cir. 1978, MarkeyMarkey J., sitting by designation) J., sitting by designation) ::

• • DDemand for the patented product;emand for the patented product;

• • AAbsence of acceptable noninfringing bsence of acceptable noninfringing substitutes;substitutes;

• • MManufacturing and anufacturing and MMarketing arketing capability;capability;

• • PProfit that would have been made.rofit that would have been made.

Nov. 22, 2005 Jack Ko 7

Rite-Hite: Summary of Rite-Hite: Summary of Facts Facts

  Rite-Hite (PO)Rite-Hite (PO) Kelley Kelley

(AI)(AI)

ProductProduct MDL-55MDL-55 ADL-100ADL-100 Dock Dock LevelerLeveler

Truk Truk StopStop

Patent Patent Issued Issued or or InfringInfringeded

‘‘847 847 patent-in-patent-in-suitsuit

Patented; Patented; not patent-not patent-in-suitin-suit

Not Not patentedpatented

Infringed Infringed ‘847 ‘847 patentpatent

Product Product IntroIntro

August, August, 19811981

April, 1980April, 1980    June, 1982June, 1982

TypeType ManualManual ElectricElectric    ElectricElectric

Sales Sales (per (per Dist. Dist. Ct.)Ct.)

-80-80 -3243-3243 -1692-1692 38523852

Nov. 22, 2005 Jack Ko 8

Rite-Hite: Judges’ Rite-Hite: Judges’ Positions Positions

IssueIssue MajorityMajority DissentsDissentsLost ProfitsLost Profits on ADL-100on ADL-100

88 ( (LOURIELOURIE, , RICH, MICHEL, RICH, MICHEL, PLAGER, PLAGER, CLEVENGER, CLEVENGER, SCHALL, SCHALL, NEWMAN, and NEWMAN, and

RADER)RADER)

44 ( (NIESNIES, , ARCHER, SMITH, ARCHER, SMITH, and MAYER)and MAYER)

No Lost No Lost ProfitsProfits on on Dock Dock LevelersLevelers

1010 22 ( (NEWMANNEWMAN, , and RADER) and RADER)

Nov. 22, 2005 Jack Ko 9

Patent-in-suit (‘847 Patent-in-suit (‘847 Patent)Patent)

Releasable Locking Releasable Locking DeviceDevice : :

ADL-100

MDL-55

Nov. 22, 2005 Jack Ko 10

Rite-Hite: Parties’ Rite-Hite: Parties’ ArgumentsArguments

Kelley ArguesKelley Argues : :

““patentee must prove that, ‘but for’ the patentee must prove that, ‘but for’ the infringement, it would have sold infringement, it would have sold a product covered by a product covered by the patent in suitthe patent in suit to the customers who bought from to the customers who bought from

the infringerthe infringer.” .” Rite-Hite ArguesRite-Hite Argues : :

““the only restriction on an award of actual lost the only restriction on an award of actual lost profits damages for patent infringement is proof of profits damages for patent infringement is proof of causation-in-factcausation-in-fact.”.”

““The [PO] is The [PO] is entitled to all the profitsentitled to all the profits it would it would have made on any of its products ‘but for’ the have made on any of its products ‘but for’ the infringement.” infringement.”

Nov. 22, 2005 Jack Ko 11

Rite-Hite: MajorityRite-Hite: Majority

Interpreting §Interpreting § 284284 : “the balance : “the balance betweenbetween

- - full compensationfull compensation, which is the , which is the meaning that the Supreme Court has meaning that the Supreme Court has attributed to the statute, and attributed to the statute, and

- the - the reasonable limitsreasonable limits of liability of liability encompassed by general principles of encompassed by general principles of law law can best be viewed in terms of can best be viewed in terms of reasonable, objective foreseeabilityreasonable, objective foreseeability.”.”New TestNew Test “but for” + “but for” + “foreseeability”“foreseeability”

Nov. 22, 2005 Jack Ko 12

Rite-Hite: Lost ProfitsRite-Hite: Lost Profits

Majority Interpreting §Majority Interpreting § 284284 : :

““Whether a patentee sells its Whether a patentee sells its patented invention ispatented invention is not not crucial crucial in determining lost in determining lost profits damages.”profits damages.”

Lost profits on ADL-100 Lost profits on ADL-100 affirmedaffirmed

Nov. 22, 2005 Jack Ko 13

Rite-Hite: Foreseeable?Rite-Hite: Foreseeable?

Was lost profits for the ADL-100 Was lost profits for the ADL-100 reasonably foreseeablereasonably foreseeable?? Who’s right?Who’s right? Majority or Nies? Majority or Nies?

OR

Nov. 22, 2005 Jack Ko 14

Who’s Right on LP for Who’s Right on LP for ADL-100: Majority or ADL-100: Majority or

Nies?Nies?Majority:Majority: Nies:Nies:

-CohenCohen-YatesYates-EdsengaEdsenga-MurshakMurshak-ClearyCleary

-OlinOlin-FrostickFrostick-KolbKolb-ShuiShui-PearsonPearson

Nov. 22, 2005 Jack Ko 15

Rite-Hite: Convoyed SalesRite-Hite: Convoyed Sales

Entire Market ValueEntire Market Value Rule Rule : : ““entire value of the whole machineentire value of the whole machine, as a , as a marketable article, was ‘properly and legally marketable article, was ‘properly and legally attributable’ to the attributable’ to the patented featurepatented feature””

Physically separate Physically separate unpatentedunpatented components components normally soldnormally sold with the with the patented componentspatented components

- single assembly- single assembly

- parts of a complete machine- parts of a complete machine

- a- a functional unitfunctional unit. .

Nov. 22, 2005 Jack Ko 16

Rite-Hite: Functional Rite-Hite: Functional Unit?Unit?

Majority:Majority:““merely sold … for merely sold … for convenience and business convenience and business advantageadvantage””

Newman:Newman: ““customer or Kelley required that they be sold customer or Kelley required that they be sold togethertogether; and … they are ; and … they are used togetherused together””

Who’s right?Who’s right? Majority or Newman? Majority or Newman?

OR

Nov. 22, 2005 Jack Ko 17

Who’s Right on LP for Who’s Right on LP for Dock Levelers: Majority or Dock Levelers: Majority or

Newman?Newman?Majority:Majority: NewmaNewma

n:n:-CohenCohen-YatesYates-EdsengaEdsenga-MurshakMurshak-ClearyCleary

-OlinOlin-FrostickFrostick-KolbKolb-ShuiShui-PearsonPearson

Nov. 22, 2005 Jack Ko 18

Fed. Cir. Cases After Rite-Fed. Cir. Cases After Rite-HiteHite

CaseCase YeaYearr

OpiniOpinion byon by

AppellAppellate ate

OutcoOutcomeme

Relevant Relevant IssueIssue

King King InstrumInstrum

entent

19919955

RaderRader Aff’d; LP Aff’d; LP awardedawarded

Product Product not not

covered by covered by patent-in-patent-in-

suit suit

JuicyJuicy WhipWhip

20020044

LourieLourie Rev’d; Rev’d; LP LP

awardedawarded

Convoyed Convoyed Sales Sales

Nov. 22, 2005 Jack Ko 19

Rader’s Hypo in King Rader’s Hypo in King InstrumentInstrument

PO:PO: AI:AI:-Claim 1:Claim 1: ABC + ABC + Q1Q1-Claim 2:Claim 2: ABC + ABC + Q2Q2-Claim 3:Claim 3: ABC + ABC + Q3Q3

-Literally Literally infringed Claims infringed Claims 2 and 3, which 2 and 3, which do not have any do not have any products.products. Markets Markets

product covered product covered by Claim 1by Claim 1

No lost profits No lost profits available?available?

Nov. 22, 2005 Jack Ko 20

Characterizing Rader’s Characterizing Rader’s HypoHypo

FavorableFavorable::

CriticalCritical::-Cohen:Cohen: Captain Captain

KirkKirk-Yates:Yates: ChessmasterChessmaster-Murshak:Murshak: BrillianceBrilliance-Pearson:Pearson: X-ray X-ray VisionVision-Shui:Shui: King King SolomanSoloman-Frostick:Frostick: Sky is Sky is not fallingnot falling

-Olin:Olin: Little Bo Little Bo PeepPeep-Edsenga:Edsenga: Mr. Mr. MagooMagoo-Kolb:Kolb: DisingenuousDisingenuous-Cleary:Cleary: Give me Give me a breaka break

Nov. 22, 2005 Jack Ko 21

Juicy Whip: Patent-in-suit Juicy Whip: Patent-in-suit (‘405 Patent)(‘405 Patent)

Post-mix beverage dispenser with an Post-mix beverage dispenser with an associated simulated visual display of beverageassociated simulated visual display of beverage ::

Nov. 22, 2005 Jack Ko 22

SummarySummary

Rite-Hite Rite-Hite is still the controlling is still the controlling Fed. Cir. decision on awarding Fed. Cir. decision on awarding lost profitslost profitsPO: possibility of getting lost PO: possibility of getting lost profits on “unpatented” productsprofits on “unpatented” productsAI: can’t successfully argue for AI: can’t successfully argue for reasonable royalty if there’s a reasonable royalty if there’s a lost-profits hooklost-profits hook