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Micro Chemical v. Lextron

January 29, 2003

Decision icon Decision

Last Month at the Federal Circuit - February 2003

In Micro Chemical, Inc. v. Lextron, Inc., No. 02- 1121 (Fed. Cir. Jan. 27, 2003), the Federal Circuit reversed the district court’s judgment that lost profits were not available, vacated the reasonable royalty award, and denied the patentee’s request for a new judge on remand.

Micro Chemical, Inc. (“Micro Chemical”) sued Lextron, Inc. (“Lextron”) over fourteen years ago for infringing U.S. Patent No. 4,733,971, which relates to systems using weight to measure and dispense microingredients, such as medicines and nutritional supplements, added to livestock and poultry feed. Both parties provide these systems to feedlots for free, expecting that each feedlot will, in turn, purchase its microingredients from whichever company provided the equipment. Two prior appeals to the Federal Circuit discussed validity and infringement—this appeal discussed damages. In particular, the lower court determined that Micro Chemical was not entitled to lost profits, because it could not prove “butfor” causation using either the Panduit test or the two-market supplier test.

More specifically, the district court ruled that Micro Chemical could not prove two of the four Panduit factors—the absence of noninfringing substitutes and demand for the patented product. With respect to the alleged absence of noninfringing substitutes, the Court explained that a substitute, even though not on sale during the infringement, may affect the damages calculation only if the material and know-how of the substitute were readily available. In this case, the substitute, which took Lextron over thirteen hundred hours to design and test, was not readily available. Not only did it require specially manufactured parts not maintained in inventory, but Lextron also hired consultants to ensure its efficacy.

With respect to the lack of demand, the Court clarified that demand existed for Micro Chemical’s machines, even though they were provided gratis. Indeed, the machines had commercial advantages over other microingredient dispensers, and each company profited, at least indirectly, from their placement with feedlots.

Before explaining Micro Chemical’s entitlement to use the two-market supplier test, the Federal Circuit clarified that this test essentially collapses two of the Panduit factors into an inquiry into the relevant market and the number of suppliers. The Federal Circuit concluded that the district court had erred in not defining the relevant market as the market for machines that dispense microingredients by weight. Because the Court ruled that Micro Chemical would be allowed to prove lost profits on remand, it also vacated the reasonable royalty award.

Lastly, the Federal Circuit denied Micro Chemical’s motion for a different judge on remand. Using Tenth Circuit law, the Court found neither that the judge held a personal bias nor that reassignment would be in the best interests of justice. The mere fact that the Federal Circuit had twice reversed portions of the district court’s previous rulings was insufficient to show any favoritism toward Lextron or antagonism toward Micro Chemical.