FOR MEDICAL DEVICE PATENT OWNERS — MORE LATITUDE IN CALCULATING INFRINGEMENT DAMAGES

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The past couple of years has brought more court decisions that seem to have limited what medical device patent owners might recover in patent infringement damages. Maybe the tide is turning back — even if it is a little.

We start with the patent statute that says the patent owner is entitled to damages adequate to compensate for the infringement, but in no event less than a reasonably royalty.”

In Aqua Shield v. Inter Pool Cover, plaintiff owned a patent to a cover for pools or that created sun rooms. The district court awarded plaintiff $10K (yes, that’s correct) for damages but no enhanced damages for willful infringement.

The district court calculated damages by first looking at the infringer’s net profits on infringing sales. Then, based on a hypothetical negotiation that occurred before infringement started, the court found that defendant would have been willing to pay a royalty of five percent of the net profits.

The Federal Circuit explained that a traditional methodology for determining the market value for use of an invention has been the hypothetical negotiation between the patent owner and infringer. But, according to the Federal Circuit, while the infringer’s net profit can be relevant to the inquiry, it is only in “an indirect and limited way.” The heart of the inquiry is into “anticipated profits.”

They further explained that the “core economic question is what the infringer, in a hypothetical pre-infringement negotiation under hypothetical conditions, would have anticipated the profit-making potential of use of the patented technology to be, compared to using non-infringing alternatives.” The Federal Circuit further explained that it is error to consider net profits earned during infringement as a “royalty cap.”

COMMENT:
What this might mean for medical device patent owners is that their lack of efficiency, if any, in marketing and selling a patented product will not necessarily limit what they might recover in patent infringement damages. This not to say that inefficiency is being encouraged. But inefficiency cannot be used as an automatic penalty to receive “adequate compensation” for infringement.

© Michael A. Shimokaji 2015

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