In recent years, a number of retailers have been sued for patent infringement based on their distribution of allegedly infringing products. While there are no recent cases in which a retailer has been found liable for patent infringement on this basis, the upswing in this trend serves as a reminder to retailers of their potential exposure to claims of patent infringement with respect to the products they carry.
A patentee has a claim against a retailer distributing goods that infringe its patent, notwithstanding that the retailer did not design or manufacture the allegedly infringing goods. In valuing its claim, the patentee may either a) claim damages against the retailer, with damages representing the patentee’s loss as a result of the distribution of the infringing goods, or b) request an accounting of the retailers’ profits from the distribution of the infringing goods and claim restitution of this amount. This latter “accounting of profits” is an equitable remedy which is commonly claimed but not automatically awarded in successful patent infringement actions.
In both cases, it is open to the patentee to claim damages, or an accounting of profits, that takes into account the losses (or profits) from other products which are sold along with the infringing product. Thus, if a patentee has a patent that covers doorstops, and retailers sell infringing doorstops together with doormats, it may be possible for the patentee to claim losses (or profits) in relation to the doormats as well. Proof of such losses may be challenging.
A retailer’s profits may be small relative to the damages suffered by the patentee, particularly if the patentee sells a competing product relating to the patent at issue. The retailer is therefore potentially liable to pay damages totalling the lost profits that the patentee can prove at trial.
Protection for Retailers
The retailer may have recourse against its supplier or the manufacturer of an infringing product where it incurs losses as a result of distributing the infringing product. It would generally take this recourse by way of a third party claim against the supplier or manufacturer.
However, retailers may also protect themselves from risks related to distributors’ patent liability by entering into agreements with their suppliers and manufacturers that specifically address the consequences flowing from a claim for patent infringement. Potential terms include:
- An indemnity provided by the supplier/manufacturer for any losses arising from a claim for patent infringement related to the relevant products;
- An agreement by the supplier/manufacturer that it will pay the retailer’s legal fees in relation to all aspects of the retailer’s defence; and
- An agreement by the supplier/manufacturer that, in the case of such a claim, the retailer would select and instruct its counsel of choice.
Such provisions may assist in protecting retailers from the risks associated with patent infringement before a claim arises. They place the incentive to avoid patent infringement on suppliers and manufacturers, who are better placed to assess the patent landscape and modify their products accordingly.