To Recover Lost Profits for Infringing Sales, Patented Feature Should Drive Customer Demand and Products Should Be Substitutes

Authored by D. Brian Kacedon and John C. Paul

Abstract

A California court recently rejected a patent owner's attempt to recover the profits it lost from infringing sales because it did not establish that the patented feature drove customer demand and did not address significant differences in pricing and product features between its own and the accused products, which the court found foreclosed the assumption that the products could be sold as substitutes for each other.

Patent owners are entitled to at least a reasonable royalty from infringers, but in some instances may recover lost profits—the amount of money the patent owner lost because of the infringement. A patent owner who seeks lost profits must demonstrate that the infringement caused the lost profits.

Recently, a court in California rejected a lost-profits theory because the patent owner did not establish that the patented feature drove customer demand and did not demonstrate that it would have made the accused's sales, despite substantial differences in product features and pricing between the accused and patentee's products.

Background

Good Technology Corporation¹ and MobileIron, Inc. both sell technologies used for managing data on mobile devices. Good sued MobileIron, alleging infringement of four of its patents by 103 separate MobileIron products. Good sought damages in the form of a reasonable royalty, as well as lost profits. Good's damages expert, Mr. Weinstein, proposed that 100 percent of MobileIron's sales of accused products should be awarded to Good as lost profits, because, according to Good, no noninfringing alternatives exist. Thus, Mr. Weinstein calculated Good's lost profits by multiplying Good's average selling price for its patented products by the number of accused units MobileIron sold. Good moved the court for summary judgment on Good's lost-profits damages theory, arguing that no reasonable jury could award Good the lost profits damages that it sought.

The Decision

The court agreed with MobileIron, rejecting Good's lost-profits theory.

First, the court found that Good failed to show that the patented feature constituted the basis for customer demand. Pointing to prior cases, the court explained that it is not enough that the patented feature is valuable or even essential to using the product; rather, it must be the primary reason customers purchase the product. According to the court, not only did Good fail to show that the patented feature drives customer demand, but undisputed evidence revealed that features having nothing to do with the patented technology drive demand for MobileIron's accused products.

Next, the court faulted Good for assuming that it would have made MobileIron's sales at Good's higher pricing, if MobileIron were not in the market. Good priced its products between 194% to 819% higher than MobileIron. And MobileIron presented customer testimony that pricing was a "key concern" in product choice. In fact, Good's own SEC filings referenced pricing as a factor in driving demand. Thus, the court concluded that it was "untenable" for Good and its expert to suggest that consumers would have regarded Good's patented products as substitutable with MobileIron's accused products.

Finally, the court found that substantial dissimilarities between MobileIron's accused products and Good's patented products further undermined Good's theory that customers would have purchased Good's products if MobileIron were not in the market. Customer testimony established that Good's products featured a "significant and differentiating characteristic" compared to MobileIron's accused products. And Good's expert conceded that if customers did not prefer Good's approach, his lost profits computations would be affected. Because Good assumed that it would have captured 100 percent of MobileIron's sales but did not investigate or demonstrate what portion of MobileIron customers may have actually purchased Good's products, the court found Good's lost-profits theory lacked a "factual or logical basis."

Strategy and Conclusion

This case demonstrates some of the challenges in proving a lost-profits damages theory. If a patentee alleges it is entitled to 100 percent of the accused's product sales, the patentee must show that the patented feature drove customer demand. Additionally, in its lost-profits analysis, a patentee should account for significant differences in price or product features.

Endnotes

¹ The Good Technology decision can be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2015/Good Tech v. MobileIron.pdf.