On January 6, 2015, plaintiff filed suit against defendant for infringing its patents related to the design of spot-welding cap changers and magazines for automotive manufacturing. While the plaintiff does not manufacture or sell products covered by the patents-in-suit, it does license a third-party company to do so. The third-party distributor makes a flat-fee payment to plaintiff for each unit sold. Defendant moved for summary judgment on damages, arguing that plaintiff could not recover damages based on the lost profits of its distributor. Plaintiff argued that, in Mars, Inc. v. Coin Acceptors, Inc., the Federal Circuit left open the possibility that plaintiffs may recover lost profits under a theory that a seller’s profits would “inexorably flow” to the plaintiff. 527 F.3d 1359 (Fed. Cir. 2008).
In Mars, the Federal Circuit rejected the patentee’s argument that a subsidiary’s profits flowed inexorably to the patentee and that the patentee should be able to recover the lost profits that the subsidiary would have made absent infringement. In that case, however, the patentee did not identify any evidence that it received profit or revenue from the subsidiary, other than license royalty payments. Thus, the Federal Circuit declined to decide whether a parent company can recover lost profits of a subsidiary whose profits actually flow inexorably up to the parent.
Despite other district courts applying the “inexorable flow” theory, the district court here took a strict approach, declining to allow plaintiff to seek damages based on lost profits because the plaintiff did not sell the product and the inexorable flow theory was not yet “binding Federal Circuit precedent.” The district court relied on post-Mars cases where the Federal Circuit reiterated that a patent owner cannot recover lost profits from a related company, where, as here, the patent owner does not actually sell the patented products. Accordingly, the court granted partial summary judgment, prohibiting the plaintiff from recovering damages based on the lost profits of another company.
Practice Tip: If seeking lost profits, ensure that a party with at least one exclusionary patent right is actually selling the product that will be the basis for lost profits damages—until the Federal Circuit issues binding precedent, there is no guarantee a district court will even consider whether a company’s profits inexorably flow to a defendant.
Copperhead Indus., Inc. v. Change & Dresser, Inc., No. 1:18-cv-01228-ACA (N.D. Ala. Jan. 28, 2020).