Lost sales in foreign markets are not compensable patent damages; testimony of damages expert was improperly speculative; damages for price erosion will be measured from the time of the first infringement.

Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc. et al. No. 11-1218, -1238 (Fed. Cir. Mar. 26, 2013).

A patentee brought an action for infringement of four patents, each of which is used in electric chargers for mobile phones. The district court held that any evidence of pre-notice price erosion was inadmissible because the patentee did not comply with the marking statute. Nevertheless, a jury awarded $33.9 million in damages based on lost profits from worldwide sales of the patented product. The court remitted the damage award to approximately $6.1 million, reasoning that 18% of the infringing products sold worldwide are eventually imported into the United States.

The Federal Circuit vacated the damage award, finding that both the original and remitted award were defective.

The jury’s original award was flawed because it was based on lost sales in foreign markets. The “patent laws allow specifically ‘damages adequate to compensate for the infringement.’ . . . They do not thereby provide compensation for a defendant’s foreign exploitation of a patented invention, which is not infringement at all.” (emphasis in original). It did not matter that the patentee claimed the lost sales were a foreseeable result of infringing conduct in the United States.

Further, the patentee’s expert testimony was fatally unreliable, a deficiency that infected both the original award and the remitted award. The court found that the expert had no basis in the record for assuming that total sales of phones was equivalent to total sales of phone chargers containing the infringing feature. Because the expert’s testimony was the basis for the remittitur, the remitted damage award was vacated.

Despite the patentee’s failure to comply with the marking statute, the patentee may recover damages based on price erosion as measured against the time of the first infringement. The court acknowledged that “[w]here a patentee does not appropriately mark her products, she may not recover damages for infringement occurring before notice to the infringer.” Accordingly, the patentee may not recover damages for each pre-notice lost sale. But the court likened the case to Wang Labs., Inc. v. Toshiba Corp., 993 F.2d 858, 870 (Fed. Cir. 1993), in which the court held that a hypothetical reasonable royalty negotiation must occur when the infringement began, even if before the notice date. Continuing in this vein, the court held that a price erosion analysis “must measure price changes against infringement-free market conditions.” (emphasis in original).

A copy of the opinion can be found here.