Patent Remedies Class Notes: April 1, 2003 Law 677 | Patent Law | Spring 2003 Professor Wagner

04/01/032Law 677 | Spring 2003 Today’s Agenda 1.Cleanup: Experimental Use 2.Patent Remedies a)Damages: Lost Profits b)Damages: Reasonable Royalty c)Exceptional Cases & Enhanced Damages d)Injunctions

04/01/033Law 677 | Spring 2003 Experimental Use 35 U.S.C. § 271(a)...whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefore infringes the patent. Why have an experimental use exception? (In what cases would you find an exception to infringement?)

04/01/034Law 677 | Spring 2003 Experimental Use Roche v Bolar (Fed. Cir. 1984) What was the accused infringer doing?What was the accused infringer doing? Why might this argue for an experimental use exception?Why might this argue for an experimental use exception? How does the Federal Circuit define the exception? (What are the pros and cons of this approach?)How does the Federal Circuit define the exception? (What are the pros and cons of this approach?)

04/01/035Law 677 | Spring 2003 Experimental Use Congressional Response Hatch-Waxman Act (1984): key features 1.Limited experimental use exception 2.Automatic infringement in FDA approval process

04/01/036Law 677 | Spring 2003 Experimental Use Experimental Use (271(e)(1)): “reasonably related to the development and submission of information” under Food & Drug laws What if you infringe to develop a new drug or medical product, but also demonstrate the (infringing product) at shows, etc. Automatic Infringement (271(e)(2)) What is an ANDA? (Why have it?) Why make the filing of an ANDA an infringement? What is important about the automatic stay of processing by the FDA upon filing a lawsuit related to an ANDA application?

04/01/037Law 677 | Spring 2003 Patent Remedies Overview 1.Injunctions awarded as a matter of course a)Preliminary injunctions are common 2.Damage awards defined by statute (35 USC § 282) a)Lost profits due to infringement, or b)Reasonable royalty for infringing sales (if LPs can’t be proved) c)Willful infringement: may increase award up to 3x based on judge’s discretion

04/01/038Law 677 | Spring 2003 Remedies: Lost Profits General points: What do we mean by lost profits? (What is it we’re trying to do by awarding them?) How do you show lost profits? Panduit Corp. (1978) Consider why each of the following must be shown: 1.Demand 2.Absence of noninfringing substitutes 3.Capacity to meet demand 4.Profits “would have made” given 1-3

04/01/039Law 677 | Spring 2003 Remedies: Lost Profits Components of Lost Profits Calculations 1.Demand for the good a)How can you show demand? (Is this analytically correct?) 2.Absence of acceptable substitutes a)Why include this factor? b)Do similar goods provide noninfringing substitutes? Isn’t there always a substitute? (What is a substitute for my better mousetrap?) c)Does the substitute have to exist on the market? d)Can duly-licensed versions of the patented good be substitutes? e)In what circumstances might you ignore this prong altogether? (Why?) (See note 6, pp )

04/01/0310Law 677 | Spring 2003 Remedies: Lost Profits Components of Lost Profits Calculations 1.Capacity to Exploit Demand a)Why include this factor? (Does it simply mean manufacturing capacity?) 2.Profits “would have made” a)Basic formula: Profits = Revenues - Incremental Costs b)Why exclude fixed costs from this calculation? c)Who bears the burden of proof? (What if the figures are relatively uncertain -- who bears the risk of error?) d)Can you use the infringer’s costs as proof?

04/01/0311Law 677 | Spring 2003 Remedies: Lost Profits Lost Profits & Price Erosion Consider circumstances of infringement: The patentee is charging $10 per unit, sells 100 units The infringer is charging $10 per unit, sells 100 units What revenues can the patentee claim as ‘lost’? $1000 ($10 x 100)? More? Less? What would you want to know to determine this?

04/01/0312Law 677 | Spring 2003 Reasonable Royalty What do we mean by ‘a reasonable royalty’?What do we mean by ‘a reasonable royalty’? Georgia Pacific (1970) Note the array of factors relevant to a reasonable royalty oWhich of the factors seems most helpful? What is the ‘willing buyer and seller’ rule? (Is it analytically helpful?) How does the GP court apply the rule? (How does it come up with the $50/1000 feet number?)

04/01/0313Law 677 | Spring 2003 Reasonable Royalty TWM Mfg. Co. v Dura Corp. (1986) What is the “analytic method” of calculating a reasonable royalty? What information is needed to make the calculation? Is this method more analytically straightforward than the ‘hypothetical negotiation’ method? (Is it more likely to be correct?)

04/01/0314Law 677 | Spring 2003 Modern Patent Damages Rite-Hite Corp. v. Kelley (1995) Framework: RH sells three devicesFramework: RH sells three devices 1.MDL-55 (covered by the patent) 2.ADL-100 (not covered by the patent, primary product, competitor of infringing device) 3.Dock-levelers (complementary products, sold with above, not covered by patent) Questions:Questions: 1.Can RH get ‘lost profits’ on sales of ADL-100s? (Why or why not?) What is the test for when sales of goods not covered by the patent can be remedied? 2.Can RH get ‘lost profits’ on the dock-levelers it would have sold with MDL-55s and ADL-100s? What is the test here? What evidence is probative?

04/01/0315Law 677 | Spring 2003 Attorney’s Fees & Enhanced Damages Attorney’s Fees & Costs General rule: each side pays costs In “exceptional cases”, loser may be required to pay fees & costs Two “exceptional” circumstances: oWillful infringement o‘vexatious litigation’ Willful infringement: oActual notice + failure to exercise due care oHow do you show notice? oHow can you exercise ‘due care’? Enhanced Damages In cases of willful infringement, may increase damages up to 3x

04/01/0316Law 677 | Spring 2003 Next Class The Subject Matter of Patents I