This final installment of posts on the Court of Appeals for England and Wales’ decision in Lufthansa Technik AG v. Astronics Advanced Electronic Systems, [2026] EWCA Civ 964, will discuss Lord Justice Arnold’s analysis of the correct method of apportionment, the double recovery issue, and interest, and the two short concurring opinions by Lord Justices Nugee and Lewison. Familiarity with the first two posts (here and here) in the series is assumed.
On the issue of apportionment, the question is how to estimate the benefit that accrued to the defendants from their use of the patented invention. Here, the defendants “had pleaded four alternative ways of apportioning their profits: (i) patent counting, (ii) the cost of the Components, (iii) the causative effects of the Patent and other factors and (iv) by reference to the 2014 Teaming Agreement [between Lufthansa and KID Systeme, a division of Airbus],” but “their primary case in closing submissions was based on the 2014 Teaming Agreement” (para. 71). The trial judge therefore "used a royalty rate derived from the 2014 Teaming Agreement between Lufthansa and KID to determine the appropriate percentage of Astronics’ profits which were attributable to the Patent. He then applied the same percentage to Panasonic’s profits” (para. 194); further, “the judge had no alternative to the licence-based method of apportionment, because he had rejected the principal alternative method advanced by the Defendants at trial (patent counting) on procedural grounds and Lufthansa did not put forward any other method of apportionment” (para. 196). Lufthansa argues, however, that a license typically allocates the expected benefit from the use of the invention between the licensor and the licensee, whereas the disgorgement remedy should entitle the patentee to 100% of the benefit accruing to the defendant from the use of the invention. In response, Lord Justice Arnold writes that “the fact that a licence typically involves 25-50% of the expected overall economic benefits being received by the licensor is not inconsistent with using the royalty payable as a guide to the relative importance of the patent compared to other factors which contribute to the total profits generated by the licensee, particularly in the absence of any better guide” (para. 200); but while Lufthansa might have been entitled to some sort of “uplift to the royalty derived from the 2014 Teaming Agreement,” “the short answer to this is that Lufthansa did not invite the judge to apply any such uplift at trial,” and “[i]t is too late for Lufthansa to do so now” (paras. 198, 201).
There are additional arguments Lufthansa makes against the trial court’s use of the implied royalty (which it calculated at 13% of net profits), but the court rejects these in fairly brief fashion (paras. 202-09), and I won’t belabor the details here. There is one issue, however, with regard to which the Court of Appeal sides with the defendants, specifically the profits to be awarded on Astronics’ and Panasonic’s supply of “components for assembly by installers (such as Lufthansa’s competitors) or by seat manufacturers (such as Safran)" (para. 210). Astronics and Panasonic’s argument is the following (para. 211):
i) KID was, pursuant to the 1998 Teaming Agreement, Lufthansa’s exclusive licensee under the Patent within the meaning of the 1977 Act in respect of at least the acts which Astronics and Panasonic carried out in infringement of the Patent i.e. the supply of components. This depends on whether the 1998 Teaming Agreement was an exclusive licence, as Astronics and Panasonic contend, or a sole licence, as Lufthansa contends (“the Construction Issue”).
ii) As outlined above, KID subsequently asserted a claim for infringement against Astronics’ predecessor, GD [General Dynamics], on the basis that it had a “right of exclusive use”. However, it compromised that claim for good and valuable consideration (a cross-licence) in the 2003 Settlement Agreement. That compromise included KID’s right to claim profits derived from infringement from Astronics and its customers (“the Compromise Point”).
iii) Astronics and Panasonic have the benefit of that compromise because it passed to Astronics and its customers when Astronics bought AES pursuant to the 2005 Asset Purchase Agreement (“the Succession of Benefit Issue”).
iv) The profits which Lufthansa is entitled to do not include the profits due to KID that were the subject of the compromise. Lufthansa’s claim to profits must therefore be reduced to account for KID’s (compromised) share of the profits (“the Single Pot of Profits Issue”).
v) That apportionment should be achieved by allocating to KID 50% of Astronics’ and Panasonics’ profits that were derived from the infringement, for the duration of the 1998 Teaming Agreement (i.e. until 31 December 2014), and reducing the sums payable to Lufthansa accordingly (“the KID Allocation Issue”).
The judge further notes that "the logic of Astronics’ and Panasonic’s argument is that Lufthansa’s profits should be reduced by 100% of the relevant profits. Nevertheless Astronics and Panasonic offered, if successful on the other two issues, to accept 50%. During the course of argument Lufthansa accepted that offer" (para. 213). So the question then is whether, applying German contract law principles to interpret the 2003 Settlement Agreement, English law would consider the license Lufthansa granted KID under the 1998 Teaming Agreement to be an exclusive license; and if so, whether English law would therefore preclude Lufthansa from claiming any share of the profit that GD’s successors in interest were obligated to turn over the KID under the 2003 Settlement Agreement through December 31, 2014. There follows a detailed discussion of the relevant legal principles, at the conclusion of which Lord Justice Arnold finds, contrary to the trial court, that the license was exclusive. The question then “is what happens if a patent subject to an exclusive licence is infringed, and the exclusive licensee compromises its claim against the infringer. Can the patentee nevertheless claim all of the profits made by the infringer? Lufthansa contends that the answer to this question is yes, while Astronics and Panasonic contend that the answer is no. It is common ground that there is no authority which addresses this question. The answer to it depends on the proper interpretation of the statutory provisions” (para. 251). To cut to the chase, Lord Justice Arnold determines that
Although the patentee and an exclusive licensee may each sustain different losses due to an infringement, which they can each recover as damages, there is only one pot of profits derived by the infringer from the infringement. It cannot be right for both the patentee and the exclusive licensee to have an equal claim to that pot of profits . . . .
The answer to this conundrum is in my judgment provided by the concluding words of [Patents Act] section 67(2): “the profits derived from the infringement, so far as it constitutes an infringement of the rights of the exclusive licensee as such”. To the extent that the rights conferred by the patent are subject to an exclusive licence, the exclusive licensee stands in the shoes of the patentee. To that extent, it is therefore the exclusive licensee which is entitled to the profits to the exclusion of the patentee. If the exclusive licence covers a sub-set of the rights conferred by the patent, then outside the scope of exclusive licence the patentee remains entitled to the profits. In such cases the patentee and the exclusive licensee are each entitled to a share of the profits. Thus it may be necessary to apportion the profits as between the patentee and the exclusive licensee after one has apportioned the total profits between those derived from the infringement and those derived from other factors.
This approach is in my view supported by the fact that an account of profits is an equitable remedy. A court of equity would surely take into consideration the rights of both the patentee and the exclusive licensee, and would not allow the patentee to scoop all of the profits derived from the infringement (paras. 256-58).
This issue, then, is resolved in favor of Astronics and Panasonic, who will be entitled to an appropriate reduction in the profits awarded.
The final two topics addressed by Lord Justice Arnold are double recovery and interest. As noted in one of my earlier posts, there is still ongoing litigation between these parties in France and Germany, and this causes the defendants to be concerned about the prospect of double recovery. Although Lufthansa “accepts that it is not entitled to double recovery in France or Germany where an award of the same profits has already been made in these proceedings in respect of the same physical products” (para. 264), the defendants want a recital in the final order to the effect that “the sums . . . found due in the Main Judgment were ‘provisional pending the final resolution of the Account involving the parties in France and Germany’. The purpose of this is to enable the Defendants to ask the English court to reduce the award of profits to Lufthansa in the event that the French or German courts award Lufthansa sums which the Defendants consider involve double recovery” (para. 265). The trial court, expressing doubt over whether it had jurisdiction to make such an order, concluded that even if it did it would exercise its discretion not to do so here, because (among other things) “this should be a matter for [the French or German Courts] and not by the English Courts” (para.266). The Court of Appeal agrees:
It is up to those courts to decide whether, and if so to what extent, Lufthansa’s claims involve double recovery, and if they do involve double recovery, what to do about it. It is not the function of the English courts to mark the homework of the French and German courts once they have undertaken that exercise. That would be a gross breach of comity (para. 268).
As for interest, Astronics and Panasonic argued that the High Court lacks authority “to award pre-judgment interest prior to the date on which the patentee elects for an account of profits . . . either in equity or pursuant to section 35A(1) of the Senior Courts Act 1981” (para. 270). The court rejects these arguments, and makes the persuasive point that “the time value of money is just as relevant to an account of profits as to an award of damages” (para. 274). Astronics and Panasonic also contest the judge’s decision to award interest by reference to the U.S. Prime Rate (specifically, Prime + 2%), as opposed to the Euribor rate; but the court rejects this argument as well, stating that
As Lufthansa points out, Astronics’ and Panasonic’s approach involves converting the judge’s awards of profits, which were in US$, into euros using a conversion factor derived by averaging the exchange rate between US$ and euros over the period when each relevant sum of profits was made, then applying a Euribor-based rate of interest to the resulting euro sums and then converting the resulting amounts of interest into US$ using a conversion factor based on the exchange rate at the end of the period over which interest was to be awarded.
As Lufthansa submits, this approach is contrary to the principle that it is no part of the court’s function to allow for exchange rate fluctuations between the date as at which monetary awards are assessed and the date of judgment (paras. 307-08).
That concludes Lord Justice Arnold’s opinion, in which Lord Justices Nugee and Lewison concur. Lord Justice Nugee writes one paragraph stating his “inclination” to interpret Patents Act section 67(1) (discussed in paragraph 259 of Lord Justice Arnold’s opinion) as referring to proceedings brought only by an exclusive licensee, but notes that “it is not necessary to resolve this point for the purposes of these appeal” (para. 312). Lord Justice Lewison adds a longer concurring opinion focusing on accounts of profits, which takes a somewhat more negative view of the utility of the noninfringing alternative concept in awarding profits. He writes that "In a simple case there may be no need to investigate a counterfactual non-infringing alternative. Suppose that the patent in suit is a patent for an inventive widget. The infringer makes widgets falling within the claims of the patent and sells them. In such a case, the court need do no more than assess what profit the infringer made from the sale of the widgets and order him to pay that amount to the patentee" (para. 320). For reasons I’ve been discussing now for many years, I do not find this perspective to be persuasive--though as I noted in my previous post, I agree with the Lufthansa court to the extent that administrative costs often may counsel in favor of applying an apportionment analysis instead of the differential profits approach to calculating the profits attributable to the infringement. Lord Justice Lewison then provides a short discussion of the Canadian Nova v. Dow decision, in which however he expresses his general agreement with Canadian Supreme Court Justice Rowe’s analysis (paras. 321-27), in particular Justice Rowe’s rejection of the argument that Nova should have been able to deduct the profits it would have made from selling “an entirely different kind of plastic.” As indicated in my previous post, I concur in Professor Siebrasse’s view that the Canadian Court got this issue wrong. Lord Justice Lewison’s opinion concludes with a discussion of the Australian Dart Industries case and other English decisions. Toward the very end he adds this paragraph:
In relation to the apportionment exercise he noted that in some previous cases (Hotel Cipriani and Jack Wills Ltd v House of Fraser (Stores) Ltd [2016] EWHC 626 (Ch)) profits had been apportioned on the basis of a notional royalty, calculated by reference to actual royalties charged in the market. That was also one of the methods canvassed by Leggatt J in Marathon Asset Management Ltd v Seddon in a case where there was no non-infringing alternative. He decided that it was appropriate to use that method of apportionment. In so deciding, the judge accepted the evidence of Mr Bezant, the expert called by the Defendants, to the effect that the use of a royalty was a way of sharing the profit between the contribution made by the patent and the contribution made by other factors to the success of the Defendants’ products.
Mr Hall argued that the use of the licence was wrong in principle. A licence is designed to share profit between the right holder and the licensee, whereas the object of an account of profit is to transfer the whole of the profit from the infringer to the right holder. Although that argument was attractively put, it contains an unarticulated premise which, in my view, is wrong. The premise is that the share of profit for which a licence provides is a share of the profit derived from the right. But that is not (or at least not necessarily) so. The pool of profits which must be shared between licensor and licensee may be (and often is) the overall profit of the complex product into which the patented article is incorporated. If so, then the share of the overall profit for which the licence provides may well be the entirety of the overall profit attributable to the patented article (paras. 348-49).
Lord Justice Lewison is of course correct that “[t]he pool of profits which must be shared between licensor and licensee may be (and often is) the overall profit of the complex product into which the patented article is incorporated”; and I can't disagree that “the share of the overall profit for which the licence provides may . . . be the entirety of the overall profit attributable to the patented article” (emphasis added). But I nevertheless find Mr. Hall’s analysis more persuasive, as an economic matter: a licensee with any measure of bargaining power is unlikely to agree to agree to pay 100% of the benefit it expects to derive from the use of the licensor’s patent. Still and all, if it turns out that the English courts downplay the use of NIAs in calculating infringers’ profits but also rely heavily on notional royalty rates for apportionment, the end result may be tolerable—though one might be forgiven for asking whether the disgorgement remedy really needs to exist at all, if the end result is going to be the functional equivalent of a reasonable royalty.
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