While the pendulum has clearly swung in favor of limiting recovery of patent infringement damages, most notably in patent cases where non-practicing entities seek reasonable royalty damages, lost profits damages are not among the casualties.
United States District Court Judge William Alsup (ND Cal) is a notoriously hard grader when it comes to determining whether to allow patent infringement damage studies to go to the jury. He nonetheless allowed expert studies calculating lost profits on the infringer’s sales to go to the jury in his Order in Plantronics v. Aliph, 3:09-cv-1714 (ND Cal). His analysis confirms that, notwithstanding current trends favoring aggressive judicial gatekeeping over expert damage studies in patent cases, lost profits are recoverable so long as they are supported by an appropriate market reconstruction theory.
Quick note: this post focuses on patent cases between competing operating companies separate and apart from patent cases brought by non-practicing entities (NPEs) sometimes called “trolls.” While in NPE cases there are compelling policies favoring aggressive use of the entire market value rule and related apportionment rules to limit reasonable royalty damages, these same policies are nowhere near as strong in competitor patent litigation.
At least three highlights of the lost profit rulings in Plantronics:
- Reasonable royalty apportionment rules don’t apply to lost profits
- You can use the patent owner’s market share in the reconstructed market to calculate lost profits
- You can recover lost profits under a market share theory even if there are acceptable, non-infringing substitutes
So let’s break this down.