Nov. 22, 2005 Jack Ko 1 Awarding Lost Profits for “Unpatented” Products: Rite-Hite and Other Cases By Jack Ko

Nov. 22, 2005 Jack Ko 2Outline Relevant Statutory Provisions Relevant Statutory Provisions Supreme Ct. Cases on Lost Profits Supreme Ct. Cases on Lost Profits Rite-Hite: a paradigm shift? Rite-Hite: a paradigm shift? Subsequent Cases Applying Rite-Hite Subsequent Cases Applying Rite-Hite

Nov. 22, 2005 Jack Ko 3 Awarding Lost Profits for “Unpatented” Products Rite-Hite v. Kelley (Fed. Cir. 1995) (en banc: Lourie) Rite-Hite v. Kelley (Fed. Cir. 1995) (en banc: Lourie) King Instrument (Fed. Cir. 1995) (Nies, Newman, Rader) King Instrument (Fed. Cir. 1995) (Nies, Newman, Rader) Juicy Whip (Fed. Cir. 2004) (Newman, Linn, Lourie) Juicy Whip (Fed. Cir. 2004) (Newman, Linn, Lourie)

Nov. 22, 2005 Jack Ko 4 Relevant Statutory Provisions The Patent Act: 35 U.S.C. § 284 (2005) (enacted 1952, amended 1999) § 284. Damages Upon finding for the claimant the court shall award the claimant - damages adequate to compensate for the infringement, - but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.

Nov. 22, 2005 Jack Ko 5 Relevant Supreme Ct. Decisions Aro Manuf. Co., 377 U.S. 476 (1964): Aro Manuf. Co., 377 U.S. 476 (1964): "had the Infringer not infringed, what would the Patent Holder-Licensee have made?" General Motors v. Devex, 461 U.S. 648 (1983): General Motors v. Devex, 461 U.S. 648 (1983): "full compensation for ‘any damages’ [the PO] suffered as a result of the infringement."

Nov. 22, 2005 Jack Ko 6 Panduit Test (DAMMP Factors) Panduit Corp. v. Stahlin Bros., 575 F.2d 1152 (6th Cir. 1978, Markey J., sitting by designation) : Panduit Corp. v. Stahlin Bros., 575 F.2d 1152 (6th Cir. 1978, Markey J., sitting by designation) : Demand for the patented product; Demand for the patented product; Absence of acceptable noninfringing substitutes; Absence of acceptable noninfringing substitutes; Manufacturing and Marketing capability; Manufacturing and Marketing capability; Profit that would have been made. Profit that would have been made.

Nov. 22, 2005 Jack Ko 7 Rite-Hite: Summary of Facts Rite-Hite (PO) Kelley (AI) ProductMDL-55ADL-100 Dock Leveler Truk Stop Patent Issued or Infringed ‘847 patent-in- suit Patented; not patent-in-suit Not patented Infringed ‘847 patent Product Intro August, 1981 April, 1980 June, 1982 TypeManualElectric Electric Sales (per Dist. Ct.)

Nov. 22, 2005 Jack Ko 8 Rite-Hite: Judges’ Positions IssueMajorityDissents Lost Profits on ADL (LOURIE, RICH, MICHEL, PLAGER, CLEVENGER, SCHALL, NEWMAN, and RADER) 4 (NIES, ARCHER, SMITH, and MAYER) No Lost Profits on Dock Levelers 10 2 (NEWMAN, and RADER)

Nov. 22, 2005 Jack Ko 9 Patent-in-suit (‘847 Patent) Releasable Locking Device : Releasable Locking Device : ADL-100 MDL-55

Nov. 22, 2005 Jack Ko 10 Rite-Hite: Parties’ Arguments Kelley Argues : Kelley Argues : “ patentee must prove that, ‘but for’ the infringement, it would have sold a product covered by the patent in suit to the customers who bought from the infringer.” Rite-Hite Argues : Rite-Hite Argues : “the only restriction on an award of actual lost profits damages for patent infringement is proof of causation-in-fact.” “The [PO] is entitled to all the profits it would have made on any of its products ‘but for’ the infringement.”

Nov. 22, 2005 Jack Ko 11 Rite-Hite: Majority Interpreting § 284 : “the balance between Interpreting § 284 : “the balance between - full compensation, which is the meaning that the Supreme Court has attributed to the statute, and - the reasonable limits of liability encompassed by general principles of law can best be viewed in terms of reasonable, objective foreseeability.” New Test  “but for” + “foreseeability” New Test  “but for” + “foreseeability”

Nov. 22, 2005 Jack Ko 12 Rite-Hite: Lost Profits Majority Interpreting § 284 : Majority Interpreting § 284 : “Whether a patentee sells its patented invention is not crucial in determining lost profits damages.”  Lost profits on ADL-100 affirmed

Nov. 22, 2005 Jack Ko 13 Rite-Hite: Foreseeable? Was lost profits for the ADL-100 reasonably foreseeable? Was lost profits for the ADL-100 reasonably foreseeable? Who’s right? Majority or Nies? Who’s right? Majority or Nies? OR

Nov. 22, 2005 Jack Ko 14 Who’s Right on LP for ADL-100: Majority or Nies? Majority:Nies: -Cohen -Yates -Edsenga -Murshak -Cleary -Olin -Frostick -Kolb -Shui -Pearson

Nov. 22, 2005 Jack Ko 15 Rite-Hite: Convoyed Sales Entire Market Value Rule : Entire Market Value Rule : “entire value of the whole machine, as a marketable article, was ‘properly and legally attributable’ to the patented feature” Physically separate unpatented components normally sold with the patented components Physically separate unpatented components normally sold with the patented components - single assembly - parts of a complete machine - a functional unit.

Nov. 22, 2005 Jack Ko 16 Rite-Hite: Functional Unit? Majority: Majority: “merely sold … for convenience and business advantage” Newman: Newman: “customer or Kelley required that they be sold together; and … they are used together” Who’s right? Majority or Newman? Who’s right? Majority or Newman? OR

Nov. 22, 2005 Jack Ko 17 Who’s Right on LP for Dock Levelers: Majority or Newman? Majority:Newman: -Cohen -Yates -Edsenga -Murshak -Cleary -Olin -Frostick -Kolb -Shui -Pearson

Nov. 22, 2005 Jack Ko 18 Fed. Cir. Cases After Rite-Hite CaseYear Opinion by Appellate Outcome Relevant Issue King Instrument 1995Rader Aff’d; LP awarded Product not covered by patent-in-suit Juicy Whip 2004Lourie Rev’d; LP awarded Convoyed Sales

Nov. 22, 2005 Jack Ko 19 Rader’s Hypo in King Instrument PO:AI: -Claim 1: ABC + Q1 -Claim 2: ABC + Q2 -Claim 3: ABC + Q3 -Literally infringed Claims 2 and 3, which do not have any products.  Markets product covered by Claim 1  No lost profits available?

Nov. 22, 2005 Jack Ko 20 Characterizing Rader’s Hypo Favorable:Critical: -Cohen: Captain Kirk -Yates: Chessmaster -Murshak: Brilliance -Pearson: X-ray Vision -Shui: King Soloman -Frostick: Sky is not falling -Olin: Little Bo Peep -Edsenga: Mr. Magoo -Kolb: Disingenuous -Cleary: Give me a break

Nov. 22, 2005 Jack Ko 21 Juicy Whip: Patent-in-suit (‘405 Patent) Post-mix beverage dispenser with an associated simulated visual display of beverage : Post-mix beverage dispenser with an associated simulated visual display of beverage :

Nov. 22, 2005 Jack Ko 22Summary Rite-Hite is still the controlling Fed. Cir. decision on awarding lost profits Rite-Hite is still the controlling Fed. Cir. decision on awarding lost profits PO: possibility of getting lost profits on “unpatented” products PO: possibility of getting lost profits on “unpatented” products AI: can’t successfully argue for reasonable royalty if there’s a lost-profits hook AI: can’t successfully argue for reasonable royalty if there’s a lost-profits hook