The case is Inventist Inc. v. Ninebot Inc. (USA), nonprecedential opinion (released last Friday) by Judge Dyk, joined by Judges Hughes and Stark. The patent in suit (the ’250 patent) “discloses an electrically powered self-balancing unicycle” (p.2). The patentee alleged that two generations of defendant’s products infringed. The district court, construing the claims, concluded that the first generation infringed as a matter of law (and the defendant “does not challenge this ruling on appeal, p.4 n.2), but that the second generation did not. The case went to trial on damages, and a jury awarded $835,220 in lost profits and $29,593 as a reasonable royalty. Both parties appeal certain aspects of the lower court’s judgment. The Federal Circuit affirms the finding that the defendant’s second generation product did not infringe, but vacates the damages award; given the subject matter of this blog, I will focus on the latter.
As for damages, the defendant argues, first, that it is entitled to a new trial “because the evidence was insufficient to establish marking of Inventist’s products in compliance with 35 U.S.C. § 287(a)” (pp. 8-9); but the Federal Circuit concludes that it lacks jurisdiction to consider this argument, because the defendant “did not amend its notice of appeal to include the district court’s later ruling on the new trial motion” (p.9). Similarly, the defendant argues that “the lost profits award cannot be sustained because “the district court’s acceptance of Inventist’s flawed lost profit theory was unsupported by the evidence and contrary to well established law,” but the appellate court says it can’t consider this issue either because the defendant “did not file a [Federal Rule of Civil Procedure] Rule 50(b) motion after the verdict, nor did it file a motion for new trial on this ground” (p.10). However, the defendant did preserve its third damages argument, that “the district court improperly excluded evidence of noninfringing substitutes” (id.), and the Federal Circuit agrees:
The district court excluded “any proposed evidence” of “[n]on-infringing substitutes not on sale during period of infringement” and did not instruct the jury about the second Panduit factor [absence of acceptable noninfringing substitutes]. . . . Under our precedent in Grain Processing Corp. v. American Maize-Products Co., 185 F.3d 1341, 1349 (Fed. Cir. 1999), the noninfringing substitutes need not be on sale. Evidence of “available alternatives—including but not limited to products on the market”—may be used “to preclude lost profits damages.” Id. We held that under Panduit, “[t]he ‘but for’ inquiry . . . requires a reconstruction of the market, as it would have developed absent the infringing product, to determine what the patentee would . . . have made.” Id. at 1350 (internal quotation marks omitted; second omission in original). This means that just as a patentee engages in a “hypothetical enterprise” to construct its lost profits model, “alternative actions the infringer foreseeably would have undertaken had he not infringed” must also be taken into account. Id.at 1350–51. Thus, “an available technology not on the market during the infringement can constitute a noninfringing alternative.” Id. at 1351 (citing Slimfold Mfg. Co. v. Kinkead Indus., Inc., 932 F.2d 1453 (Fed. Cir. 1991)) . . . . We agree with Ninebot that the district court erred in applying the wrong legal standard. Indeed, Inventist conceded at oral argument that the district court applied the wrong legal standard. . . .
However, Inventist contends that under the correct standard, Ninebot did not show that its proposed noninfringing substitute could be readily commercialized, as required by Grain Processing. In its summary judgment motion, Ninebot argued that first-generation models could be modified to become noninfringing through a “simple design change, namely removing the pads from the lateral side cover,” and referred the Court to its later unicycle models. . . . In the first joint pretrial statement, Ninebot offered several witnesses who would testify:
[P]urpose of protruding pad was just a battery cover. Cost of wheel cover was minimal. About $20.00–30.00 US.
. . . . Contrary to Inventist, no more detailed offer of proof was required. . . . . This evidence, if credited by a jury, could have been sufficient to establish the existence of noninfringing substitutes, which would have defeated the lost profits claim, and Ninebot is entitled to a new trial (pp. 11-12).
The decision doesn’t indicate how many units the defendant sold or what the plaintiff's profit margin would have been on the lost sales--and I haven't looked into the underlying record--but if the trier of fact credits the defendant’s evidence, one might imagine that the lost profits awards could be substantially reduced on appeal.
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