What Are Patent Infringement Damages?

Courts award patent infringement damages to patent holders who can prove that another person or company made, used, or sold a product covered by the patent without the holder's permission. If the court rules in favor of the patent holder, it will decide how much money he will get in damages. The smallest reward paid is typically a reasonable royalty. However, because of the Patent Act, plaintiffs can also recover damages that aren't always available in other cases.

Why Are Patent Infringement Damages Important?

In today's high-tech world, companies aggressively guard their products. One way to do that is by applying for patents to protect their ideas. This prevents other companies from stealing these ideas and making money from them. Since patents are so important to business, courts will severely punish those found infringing on them. In fact, some patent infringement damage awards have reached the billion-dollar level.

How Are Patent Infringement Damages Estimated?

If a jury doesn't decide the award for damages, the court will. The court can bring in experts to help decide on the damages. There are two basic ways the court can decide how much to award: reasonable royalty and lost profits.

Determining Reasonable Royalty

Reasonable royalty is the lowest award the plaintiff can get. If plaintiffs can't prove lost profits, they try for reasonable royalty. Damages are calculated by multiplying the royalty base by the royalty rate. Courts will usually use the 15 Georgia-Pacific factors to decide a reasonable royalty. These factors can be grouped into these categories.

Factors 1-3, Prior Relevant Licenses

1. Royalties received by the patent holder for licensing the patent.

2. Rates paid for patents similar to the one in the case.

3. How exclusive or restrictive the license is.

Factors 4-7, Value of Exclusivity of Product to Patent Holder

4. Whether the patent holder has previously licensed patents to others.

5. Whether the plaintiff and defendant are competitors in the same line of business.

6. How the patented product affected sales of other non-patented products.

7. How long the patent would last.

Factors 8-10, Value of Product

8. The popularity and profits of the patented product.

9. The advantages the patented product had over older products.

10. The benefits to people who use the patented product.

Factors 11-13, Value of Use of Product to Defendant

11. How much the defendant used the patented product.

12. How much profit comes from the patented product.

13. How much of the profit of the defendant's product is because of the patented product.

Factors 14-15, Negotiation That Could Have Happened

14. The testimony of qualified experts.

15. The amount the plaintiff and defendant might have agreed upon before the infringement.

Determining Lost Profits Damages

Lost profits damages are the preferred option because they usually offer a larger reward than reasonable royalty. To win lost profits, the plaintiff has to prove he lost money because of the patent infringement.  Courts will call this a "but for" causation, because patent owners must show that without the infringement, more profits were possible.

 However, lost profits are hard to prove. To prove them, plaintiffs can show:

  • Lost sales: This is the most common type of lost profit damages. This shows that the plaintiff didn't make as much money because of the patent infringement.
  • Future lost profits: These losses, sometimes also called projected lost profits, are those that the plaintiff thinks will happen because of the infringement. Since future lost profits are usually a guess, they're very hard to prove.
  • Unpatented items: Plaintiffs can seek lost profits damages on unpatented items if the product has multiple functions, yet the patent only covers one feature.
  • Price erosion: This happens when the plaintiff has to offer discounts or lower prices to compete with the defendant's product.
  • Damage to reputation: If the plaintiff can prove that the defendant's product is low quality and thus causes harm to the plaintiff's product, he can seek these damages.
  • Other losses: The plaintiff can also try to prove losses in other areas of his business, such as a lower stock price.

The Panduit Test

Courts will start with the Panduit test to see if profits were lost because of the infringement. Here, the plaintiff has to show:

  • Demand for the patented product;
  • No unpatented products that could work as a substitute;
  • The ability to benefit from the demand;
  • The profit that would have been made.

Other Patent Infringement Damages 

Along with the usual royalties, other types of patent infringement damages available to plaintiffs can include:

  • Profits: Sometimes, the plaintiff can get the profits that the defendant would have made from selling the patent.
  • Treble damages: These damages are worth triple the amount of the loss caused by the patent infringement. For example, if the infringement caused $20,000 in losses, treble damages would award the patent holder $60,000.
  • Punitive damages: These are only awarded if the plaintiff can prove the defendant knowingly violated the patent. Sometimes punitive damages are part of the treble damages. In this case, it's called "enhanced damages."
  • Costs: In some cases, the defendant might have to pay other costs, such as interest rates that go with the patent, court costs, and attorney fees.
  • Injunctions: Although injunctions are not a form of damages, courts can tell the defendant to stop making or selling the product that uses the patent. The defendant might have to give up the product to authorities. In serious cases, like white-collar crime, criminal charges are also possible.

Rewarding for Indirect Damages

Indirect damages are those that might not be directly caused by the violation, yet are still connected to the patent infringement. One example of indirect damages is a patent that covers a device with many features. Even though the infringement might only violate one feature, the plaintiff can still try to recover losses from the entire device. When the court considers this argument, it looks at the entire market value of a device.

Design Versus Utility Patent Infringement Damages

While there are several different types of patents, the most common are:

  • Design patent: Issued for new and original designs in a product.
  • Utility patent: Issued for new machines, processes, or ways to manufacture products.

Design patents protect the look of a product, while utility patents protect the way the product works. After the Dobson v. Dornan case in 1886, it became hard to prove design patent cases because it's difficult to say whether the design is what sells the product. After that, applications for design patents dropped because they were seen as useless.

That's when Congress created Title 35, Section 289 of the U.S. Code. Among other things, this law gives plaintiffs the defendant's entire profits on the sale of the infringed product. This law only applies to design patents. In cases of utility patent infringement, damages are only lost profits caused by the infringement.

A recent case between Apple and Samsung could change the future of design infringement cases. A court ruled that Samsung did infringe on some of Apple's design patents. An appeals court will now decide how to calculate what Samsung owes Apple.

The Supreme Court on Patent Infringement Damages

The Supreme Court has heard different cases on patent infringement damages. In Halo Electronics, Inc. v. Pulse Electronics, Inc., the court ruled that enhanced damages are appropriate when a defendant deliberately infringes on a patent. The court also lowered the burden of proof from clear evidence to preponderance of evidence. With this ruling, the court hopes to properly punish those who purposely try to infringe on patents.

Do Other Countries Award Patent Infringement Damages?

While patent infringement laws only apply to making or importing into the United States a product covered by the patent, other countries do award for patent infringement damages. For example, in Norway, if the infringement was not on purpose, damages are typically based on profits or a fair licensing fee. However, if the infringement was willful, then plaintiffs can seek:

  • damages equal to double the value of the licensing fee;
  • damages equal to the profits that the defendant made.

Limitations on Damages

While patent infringement damages can reach high numbers, there are limits to just how high those figures can go. Plaintiffs can't receive damages for more than six years before the patent infringement complaint was filed. Also, plaintiffs can't get multiple recoveries for the same infringement.

Patent Infringement Damages for Plaintiffs

If you're the plaintiff in a patent-infringement case, avoid assumptions. Support your claims with evidence. Use facts in every step of analysis in your case. Finally, even though the Georgia-Pacific factors are basic, they're still very good at calculating royalties.

Patent Infringement Damages for Defendants

If you're the defendant in a patent-infringement case, you must make sure the plaintiff proves every claim with facts. Point out any assumptions and any insufficient data. Finally, show that the plaintiff didn't consider every Georgia-Pacific factor or didn't use the right factors for the case.

The laws covering patent-infringement damages are very complex. Courts use many factors to decide how much to award plaintiffs in successful patent-infringement cases. If you need assistance to understand these laws or processes, you can post your legal need here and get free custom quotes from the top 5% of UpCounsel lawyers with an average of 14 years of experience.