Calico Brand, Inc. v. Ameritek Imports, Inc., No. 2008-1324, -1341, slip op. (Fed. Cir. July 18, 2013).
In Calico Brand, the Federal Circuit applied well-established case law to overturn a lost profits award when proof of “but for” causation was lacking. Relying on Rite-Hite, BIC Leisure, and Ericsson, the court vacated a lost profits award because Plaintiff failed to prove the requisite causal nexus between the patented feature and consumer demand. This opinion may presage a stricter construction of “basis for consumer demand” in lost profits cases. (See LaserDynamics).
Plaintiff sued Defendant for patent infringement. Defendant conceded infringement, and the court granted Plaintiff’s motion to find the patents valid. Id. at 7-8. After a trial on damages, the jury returned a verdict for both lost profit and reasonable royalty damages. Id. at 7-8. The district court denied Defendant’s motion for JMOL or for a new trial on damages. Id. at 2. Defendant then appealed, arguing the jury’s lost profits award should have been overturned. Id.
The Federal Circuit agreed with Defendant, vacating the award of lost profits and instructing the district court to enter judgment for reasonable royalty damages. Id. at 3.
The district court ruled twice on Plaintiff’s theory of lost profits – once on a motion for summary judgment and again on the motion for JMOL. Id. at 13. Applying the Panduit four-step test for causation in fact, the Federal Circuit concluded the district court improperly permitted the jury to consider lost profit damages:
- Customer Demand – Per the first Panduit factor, evidence presented at trial was insufficient to establish consumer demand under Rite-Hite (lost profits must be tied to the intrinsic value of the patented feature), BIC Leisure and Ericsson (a causal relationship must exist between the infringement and lost profits). Demand for the entire apparatus is generally not interchangeable with demand for a patented component of a larger device. (Uniloc, Lucent). Id. at 14-15.
Plaintiff never explored the commercial benefits of the patented safety feature. Also, while the record lacked evidence that the patented feature “drove customer demand,” there was evidence “that the most salient driver of customer demand seemed to be the utility lighter’s price.” Id. at 15.
- Acceptable Non-infringing Alternatives – The district court made no findings regarding the second Panduit factor – a requirement of no acceptable non-infringing alternatives. Id. at 15. It did, however, refer to a general line of cases allowing substitution of market share for proof of the absence of acceptable substitutes. Id. at 15.
Plaintiff’s failure to establish that its lost sales were a direct result of the infringement and not due to sales of non-infringing lighters precluded an award of lost profits. Id. at 16. Even though Plaintiff and Defendant competed in the same market, the market was crowded, and there was no reasonable basis to conclude Plaintiff would have made additional sales “but for” Defendant’s infringement. Id. Unrebutted testimony that Defendant was able to seamlessly switch to a non-infringing alternative product was evidence of acceptable non-infringing alternatives. Id. at 16-17.
Defendant agreed during the oral argument that a reasonable royalty of 3 cents per infringing unit should be applied. Id. at 17. The Federal Circuit thus vacated the lost profits award and reinstated the reasonable royalty award based on that amount. Id.