Damages May Be Awarded for Lost Sales Occurring After Patent Expiration

Authored by Laith Abu-Taleb, D. Brian Kacedon, and John C. Paul

Abstract

A Michigan court recently rejected an accused infringer’s motions seeking to foreclose recovery of post-expiration and future damages, ruling that post-expiration lost-profit damages are available under Supreme Court precedent and that the question of future patent damages, despite being inherently speculative, should go to the jury.

In Kimble v. Marvel Entm't, LLC (2015), the Supreme Court approved of royalties paid after patent expiration for infringing sales occurring before expiration. But it disapproved of royalties for post-expiration infringing sales. A recent patent-infringement case provides an additional complexity. In Magna Electronics v. TRW Automotive Holdings,¹ infringement that occurred before patent expiration was alleged to cause damages (loss of sales) after patent expiration. A question arose as to whether lost-profit damages after expiration, due to infringing activity before expiration, can be awarded, despite the Supreme Court's holding in Kimble disapproving of royalties on infringing sales occurring after patent expiration.

The U.S. District Court for the Western District of Michigan found that Kimble does not prohibit recovery of post-expiration lost-profit damages. The court further determined that the question of future patent damages, despite being inherently speculative, should go to the jury.

Background

Magna sought patent-infringement damages related to sales of TRW's products from 2013 to 2023, including lost-profit and reasonable-royalty damages. Specifically, Magna alleged damages under an "accelerated market entry" theory. This theory of damages relates to lost sales as a result of an infringer's entry into the market at a level accelerated by its earlier infringement. As such, Magna sought damages post-expiration of the patent-at-issue.

TRW argued that damages should only encompass sales that had already occurred and should not include post-expiration damages. TRW based its position on the Supreme Court's decision in Brulotte v. Thys Co. (1964), which held that post-expiration running royalties are not recoverable. On the other hand, Magna argued that the recent Supreme Court decision in Kimble, while upholding Brulotte, did not prohibit the recovery of all damages after the expiration of a patent, nor did it speak to lost-profit damages at all. In addition, both parties agreed that with respect to a hypothetical negotiation to calculate royalty damages, the parties could have agreed to enter into a lump sum royalty paid before patent expiration rather than a running royalty.

The Magna Decision

The court rejected TRW's attempt to foreclose recovery of post-expiration damages. In particular, the court agreed with Magna that Kimble does not bar a claim for post-expiration lost-profit damages, particularly under Magna's accelerated market entry theory of damages, which the court found was explicitly authorized by Federal Circuit case law. Perhaps foreshadowing Magna's chance of success under this theory, however, the court noted Magna faced "a steep climb" because it would be required to differentiate between damages stemming from typical lost profits versus those caused by TRW's enhanced position at a level accelerated by its earlier infringement.

The court also rejected TRW's argument to summarily foreclose recovery of future damages on the ground that they are speculative. According to the court, a small degree of speculation is inherent to any theory of lost profits, and the reliability of Magna's estimates of future sales was a question properly reserved for the jury.

Strategy and Conclusion

This case shows that compensation for patent infringement may not necessarily be limited to sales activity occurring only before patent expiration. Rather it may be awarded for damages due to sales activity occurring after patent expiration under a lost profits theory.

Endnotes

¹ The Magna decision can be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2016/MagnaElectronicsvTRWAutomotiveHoldings-wdmich-12-cv-654_13-cv-324.pdf.