Landmark German Case on Patent Damages, Part 2

Continuing my discussion from Wednesday of the Judgment of the Munich Regional Court of Apr. 16, 2026, 7 O8367/25, the second portion of the decision centers on issues relating to awards of the infringer’s profits.  The court states that calculating the award involves three steps:  determining the infringer’s revenue, deducting the appropriately deductible costs, and determining the appropriate proportionality factor (Anteilsfaktor) (para. 61).  As for the first of these, the patentee can rely on the amount the infringer discloses pursuant to its disclosure obligation (Auskunftsverpflichtung) (para. 63).  In addition, the court says it is fundamentally irrelevant whether the claim is for direct or (as here) indirect infringement; in such a case, the revenues from all of the machines sold by the defendant and assumed to have been used for the purpose of practicing the patented technology are to be taken into account (para. 64).  (More on this issue below.)  Further, for sales made up to three months following expiration of the patent (sometimes referred to in English as “springboard” profits), the court believes that there should be a rebuttable presumption that these sales were the product of infringing offers made during the patent term (para. 65).  Extrapolating from the BGH’s decision in Polsterumarbeitungsmaschine (Judgment of Nov. 14, 2023, I ZR 30/21, discussed on this blog here), moreover, the patentee also is entitled to recover profits earned from additional business (Zusatzgeschäften, a term that in the context of patent law I would normally translate as “convoyed goods,” but I hesitate to use that term here because this is a case involving indirect rather than direct infringement), including goods that were sold after patent expiration but which are traceable to infringing conduct during the patent term (paras. 66-72).  These effects presumably dissipate over time, however, and so the court concludes that it is appropriate to presumes that the portion of such sales decreases in a linear fashion over a ten-year period—to wit, in the first year following patent expiration, the monetary recovery can be assessed at 100%, in the second year 90%, and so on (para. 72).  The court next turns its attention to deductible costs, which in general are the variable costs of production only and not the fixed costs, in accordance with the BGH’s Gemeinkostenanteil decision as I noted the other day (see paras. 73-88, going into some detail about which costs typically should be classified as variable and which fixed).  The court then turns its attention to causality and the proportionality factor, stating that this inquiry involves two steps:  determining the appropriate base (Bezugsgröße) and then the appropriate percentage of the profit to allocate to that base (para. 89).  Again it references the brake pad example noted on Wednesday, stating that

To answer the question of the extent to which the infringer’s profit is attributable to the infringement, the specific Bezugsgröße of the infringing product must first be determined. For example, if the infringed patent concerns a specific design of a brake pad for a motor vehicle, the proportion factor will vary depending on whether the vehicle, the brake system, or the brake pad is taken as the reference. The larger the Bezugsgröße chosen, the lower the proportion factor to be applied. Another factor in determining the Bezugsgröße is whether the patent protects a minor improvement or a completely novel invention. It is also relevant whether alternatives exist on the market and whether the product is emotionally charged (e.g., a brand-name product), which is generally unlikely to be the case (para. 91).

 Tying together the proportionality factor and the presumption of springboard profits, the court states that

. . . when determining the causality factor, it must be noted that subsequent transactions concluded after the expiration of the patent’s term are likely to be based less and less on the infringement of the intellectual property right over the years (the “blurry factor”—derived from the English term “blurry”: blurred).  In its Polsterumarbeitungsmaschine decision, the BGH does not postulate a right of the patent holder to perpetual participation in the profits generated by the patent infringer through subsequent transactions. Rather, the intention is to achieve a fair balance of interests. Therefore, the Chamber assumes that follow-on transactions are generally included for a period of 10 years after patent expiration, and that the proportion of the infringer’s profits attributable to the patent infringement decreases by 10% of the baseline value each year. This means that, in the first step, the causation factor must be determined as the base value, for example, 50%. This value is to be applied for the first year. In the second year, only 45% is to be applied, in the third year 40%, and so on (para. 92).

The decision concludes with the application of this methodology to the facts of the case.  The defendant sold 28 machines (25 during the patent term, 3 within one month of expiration), which generated revenue of €1,994.312, from which the court deducts €986,365.40 in variable costs; the court then determines that the appropriate causality factor is 50%, reasoning that, although “the machine is solely suited to carrying out the patent-infringing process,” “particularly with such expensive machines, other factors also play a role in the purchase decision, such as the defendant’s reputation or the quality of the services it offers in connection with the machines” (para. 118).   The resulting sum is, according to the court, €503,972.80 (I get €503,973.30; not sure what accounts for the missing 50 cents).  The revenue from the sales of 26 canisters of solvent sold during the patent term amounts to €531,611.32, from which €245,486.08 is deductible, leaving €286,125.24, to which the court applies a causality factor of 70%, resulting in €200,287.67.  The court then turns to solvents sold post-expiration but before the court hearing (36 months), and comes up with a figure of €397.26 in profit per machine per month (I’m not quite following the math here), to which the “blurry factor” analysis leads to a reduction of 10%, resulting in €360,394.27.  So overall, the award is €1,064.654.74, plus interest.  

So, to summarize, in a case in which the defendant was found to have engaged in indirect infringement by selling machines and solvent used by third parties to perform the patented process, the patentee is entitled to recover an allocable share of the profits earned on the sale of those machines and solvent, including a portion of the profits earned on sales made post-expiration.  (Although the name of the solvent is redacted, my sense is that it is a staple article of commerce.  I should also mention, perhaps, that the defendant is appealing the underlying liability determination.)  Overall, I think this is pretty remarkable.

In and of themselves, awards of damages (or, in countries where the law so permits, profits) for Zugeschäften are not so remarkable, assuming that there is sufficient proof of a causal connection between the infringement and those sales—although with respect to convoyed goods as such, the law in the U.S., unlike in the U.K., France, and Germany, imposes an additional limitation that the damages must “function together with the patented component in some manner so as to produce a desired end product or result.”   See Rite-Hite Co. v. Kelley Corp., 56 F.3d 1538 (Fed. Cir. 1995) (en banc) (stating further that “[a]ll the components together must be analogous to components of a single assembly or be parts of a complete machine, or they must constitute a functional unit,” and that “precedent has not extended liability to include items that have essentially no functional relationship to the patented invention and that may have been sold with an infringing device only as a matter of convenience or business advantage”).  Recovery of springboard damages or profits also are not so remarkable either, again assuming proof of a sufficient connection between the infringing conduct and sales made post-expiration.  German law, however, as evidenced by the Posterumarbeitungsmaschine decision, already had gone one step further, in permitting the recovery of profits on springboard convoyed sales.  And now this decision applies that logic to the induced infringement of a process patent. 

Even if we put aside for the moment the question of whether the court’s presumptions pertaining to post-expiration profits are sound, something about awarding the profits earned by an indirect infringer on its sales to the direct infringer of machines and solvent used for carrying out the patented process seems odd to me.  Suppose, for example, that a direct infringer benefits from the use of a patented process because the process reduces its costs of production by €150; but that to carry out the process, it must first buy equipment that costs it €50, so its net benefit from using the process is €100.  Suppose further that the seller of the equipment (who, let’s assume, will be liable under applicable law for some form of indirect infringement) incurs costs of €25 to produce that equipment, and thus earns a €25 profit on sales of the equipment to the third party.  Alternatively, suppose that the equipment costs the direct infringer €100 but still only costs €25 for the indirect infringer to manufacture.  The direct infringer’s net benefit is now €50 and the equipment manufacturer’s profit is €75.  In either case, the optimal outcome ex ante would have been for the direct infringer to agree to pay a royalty for the use of the use of the process, in some amount up to €150 minus the cost of the equipment used to carry out the process.  If the price of the equipment was €50, the direct infringer should have paid a royalty of up to €100, but on these facts the patentee who sues the indirect infringer can recover only €25 (assuming that profits are an available measure of monetary recovery).  Conversely, if the price of the equipment was €100, the direct infringer should have paid a royalty of up to €50, but the patentee who sues the indirect infringer can recover €75.  In neither case is the award of profits really tethered to the value of the use to the direct infringer, which would seem to me to be the more appropriate measure.  Of course, this is just a stylized example, and I suppose one could argue that a rule allowing for the recovery of either the direct or indirect infringer’s profit encourages the parties to negotiate ex ante rather than to infringe.  Even so, it seems like an odd result to me, though I need to give the matter some more thought.   (On the topic of damages for indirect infringement, see this article by the late Professor Dmitri Karshtedt, which I noted here.)

Another thing that is striking about the decision is the court’s summoning out of thin air its three-month, ten-year, and “blurry factor” presumptions.  Oddly enough, in a talk earlier this week to a group in the Netherlands, I mentioned at one point how the conventional view is that common-law judges have some measure of discretion to make law in response to changing circumstances, whereas civil-law judges are constrained to follow the code; but in fact, it’s not very difficult to come up with examples in which civil law judges have sometimes crafted judge-made standards dehors the text.  The example I actually had in mind when I made the comment was the development by French and German courts, over a hundred years ago, of moral rights in copyright law, though later I thought about the Huawei v. ZTE “dance” as articulated by the CJEU and further refined by the UPC and domestic courts; and the above decision would seem to be yet another example.  Meanwhile in the U.S., our (in my view, sometimes excessively) textualist-minded courts seem to be moving in precisely the opposite direction, as witness, e.g., cases like Romag Fasteners (discarding both precedent and common sense in adopting a literal reading of the Lanham Act's provision on disgorgement of profits, see discussion here), AMG Capital Management (in contrast, holding that the FTC cannot seek disgorgement of profits, see discussion here), or in a related vein Grupo Mexicano de Desarrollo S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999) (holding that the Judiciary Act of 1789 precludes U.S. district courts from entering injunctions of a type that were unknown in 1789).  Freaky Friday, anyone?

Federal Circuit Vacates Judgment Including Lost Profits on Convoyed Sales

On Monday I blogged about the Federal Circuit’s nonprecedential opinion last week in Roland v. InMusic, which discussed (among other things) the “inexorable flow” exception to the U.S. rule that a patent owner can recover lost profits only for its own lost profits, and not for those of a subsidiary or other affiliated company.  Last week’s other Federal Circuit decision on damages, Wash World, Inc. v. Belanger Inc., is a precedential opinion authored by Judge Stark, joined by Judges Lourie and Prost.  Much of the opinion addresses the question of whether the defendant forfeited certain arguments relating to claim construction by not raising them in a timely fashion before the district court.  (The Federal Circuit’s answer:  yes as to two issues of claim construction, no as to the third but it doesn’t matter because the district court’s construction was correct.)  A similar question comes up in connection with the damages award, but the court concludes that there was no forfeiture.  The damages issue on appeal is therefore whether there was sufficient evidence for the jury award of $9.6 million in lost profits, given that about $2.6 million of it apparently related to “convoyed” sales.  The Federal Circuit concludes that there was not, and therefore remands with instructions to remit the $2.6 million.

Convoyed sales are sales of goods or services that are complementary to the sale of the patented article.  They may include things such as spare parts or other nonpatented subject matter that may typically be sold along with the patented subject matter.  In Rite-Hite Co. v. Kelley Corp., 56 F.3d 1538, 1550 (Fed. Cir. 1995) (en banc), the Federal Circuit announced the following standard for deciding when the patent owner may recover lost profits on sales of these convoyed goods:

. . . when recovery is sought on sales of unpatented components sold with patented components, to the effect that the unpatented components must function together with the patented component in some manner so as to produce a desired end product or result. All the components together must be analogous to components of a single assembly or be parts of a complete machine, or they must constitute a functional unit. Our precedent has not extended liability to include items that have essentially no functional relationship to the patented invention and that may have been sold with an infringing device only as a matter of convenience or business advantage.

As I discuss in my forthcoming book Remedies in Intellectual Property Law, the requirement that the convoyed goods “function together with the patented article,” and not merely be sold along with the infringing product as a matter of convenience, differs from the rule followed in the U.K., France, Japan, and Germany, all of which apply a simple but-for principle, albeit subject to limitations on damages for harms that are too remotely caused by the infringement.  In our article Rethinking Patent Damages, 10 Tex. Intell. Prop. L.J. 1, 89 (2001), Roger Blair and I argued that the Federal Circuit's rule might be justified as a sort of bright-line proximate causation rule.  In Patent Remedies for Complex Products:  Toward a Global Consensus (C. Bradford Biddle et al. eds., 2019), on the other hand, my coauthors and I, in the chapter titled Lost Profits and Disgorgement, recommended that courts should award lost profits on sales of convoyed goods “provided that the patentee can demonstrate both (1) “but for” causation and (2) proximate causation, which is established by demonstrating that sales of the unpatented component, part, or good was ‘reasonably foreseeable by an infringing competitor in the relevant market,’” and I am inclined to think that that is the better view.  The meaning of “function together with the patented component” is itself not always clear, as the Wash World case shows.  There, the relevant claim was for a “spray-type car wash system” comprising three elements: a carriage, a spray arm mounted from the carriage, and a lighting system distributed along the arm.  The convoyed goods were unpatented dryers (see opinion p.24).  As Dennis Crouch points out, however, in his post yesterday about the case, although “according to the court, the patentee did not present evidence of how the components functionally interacted or depended on each other,” perhaps the patentee could have “presented specific evidence showing that the dryers were functional aspects of a carwash system–part of a single unit that is ordinarily sold together”--or drafted its claims more broadly to cover the entire car wash system, not just the novel feature.  If so, the Federal Circuit’s rule seems kind of arbitrary.  Moreover, while a full compensation rule may or may not be necessary to provide the optimal incentive to invent (or optimal deterrence of infringement), it is a simple rule to understand; and traditional proximate causation analysis arguably is sufficient to ensure that losses that are too remote, unforeseeable, indirect, etc. would be excluded.

Apportionment of Infringer's Profits in the U.K.

As discussed recently on the EPLaw Blog, in late April Judge Richard Hacon (Intellectual Property Enterprise Court for England & Wales) handed down an opinion in OOO Abbott v. Design & Display, a case involving an award of the defendant's profits.  (I've previously blogged about earlier proceedings in this case here and here.)  The case involves EP No. 1,891,631, for a display panel, the "inventive concept" of which is an insert made of a resilient metal, typically aluminum.  In September 2014, Judge Hacon held that the defendant Design & Display was liable for an award of profits made on sales of panels that incorporated the infringing invention.  In addition, the judge also awarded profits on sales of inserts and panels, where the inserts and panels were sold separately.   Finally, he declined to allow Design & Display a deduction for an allocable portion of its overhead.  In February 2016, however, the Court of Appeal reversed, holding that (1) in awarding profits, the judge should have apportioned the profit (para. 37), and (2) allocable overhead is deductible in a somewhat wider range of circumstances that Judge Hacon had envisioned (paras. 51-52).  

On remand, Judge Hacon summarizes the legal principles relevant to the first point as follows (para. 37):

(1) In an account of profits the claimant is entitled to the infringer's profit made from the exploitation of the right infringed.

(2) Where the right is a patent, the invention must be identified. Where the invention is a product, the claimant is entitled to the infringer's profit made from the sales of articles or part articles which embody the invention.

(3) Where the patent protects only part of an article sold by the infringer, the claimant is entitled to the profit made by the infringer from the sale of the entire article if either

(a) the protected part is the essential feature of the entire article, or

(b) the entire article would never have been made by the infringer if there had been no infringement of the claimant's right.

(4) Part of an article is its 'essential feature' if the part is functionally and/or commercially the most significant part of the whole.

(5) If the patent protects part of an article and neither 3(a) nor (b) apply, the court must assess how much of the total profit made by the infringer on the sale of the article is to be apportioned to the protected part of the article. The claimant is entitled to that part of the total profit.

(6) Where the sale of an article protected by the patent drives the sales of other, unprotected, goods or services, the claimant is in addition entitled to the profit made by the infringer on the sale of those other goods and services (convoyed goods and services).

(7) The sale of an article 'drives' the sales of other goods or services if there is a causative link between the purchase of the article protected by the patent and a consequential purchase of the other goods or services.

(8) There will be a causative link where there is a perceived compatibility, functional interaction or other connection of that nature between the protected article and the other goods or services.

(9) The purchase of the putative convoyed goods or services must be consequential in the sense that the purchase of the protected article is the principal purchasing decision in the mind of the buyer and the purchase of the other goods or services follows as a consequence.

(10) In relation to the foregoing issues the evidential burden rests on the infringer.

Applying these principles here, the judge estimated first that, for instances in which the defendant sold the infringing inserts incorporated into panels, the inserts were an "essential feature" for only about 10% of those sales, such that Design & Display would have to pay its entire profit on only 10% of those sales (paras. 43-44).  Second, for instances in which the defendant sold the inserts and panels separately, the judge writes that "on a strict view the panels bought separately from the infringing inserts are not convoyed sales because part of the invention is embodied in the panels. There [sic] are therefore to be treated the same way as panels in which the infringing inserts were incorporated. . . .   I again estimate that in relation to sales of the panels with separate inserts, 10% of the sales of panels were driven by the sales of accompanying inserts in that way. Abbott is entitled to the whole of Design & Display's profit on 10% of its sales of infringing inserts and separate but associated panels" (paras. 45, 47). For the remaining 90% of instances in which customers "did not specify infringing inserts," Abbott was entitled to all of the profits on the inserts plus 10% of the defendant's profit on the associated panels (para. 51).  Altogether, this amounts to a substantial reduction from what the judge would have awarded prior to the appeal, where he concluded that Abbott was entitled to all of the profits from the sales of infringing inserts and the associated panels, despite the comparatively "modest" nature of the inventive concept (see para. 32 of the 2014 opinion).  As I suggested in my post on the Court of Appeal's 2016 opinion, the correction envisioned by the appellate court (and now carried out on remand) ameliorates some of the economic distortion introduced by the U.K. courts' adherence to the principle that, in awarding lost profits or infringer's profits, courts should not take into account the fact that the defendant could have made the same number of sale by employing a noninfringing alternative.  Perhaps something along these lines also will be relevant when the U.S. courts get around to applying the U.S. Supreme Court's rule in Samsung v. Apple that design patent owners are entitled only to the profit attributable to the "article of manufacture" that incorporates the infringing design, and not necessarily the profit on sales of the entire product (e.g., a smartphone) of which the article of manufacture is merely one component.

As for the second issue, the judge summarized the now-governing principles as follows (para. 57):

(1) Costs that were associated solely with the defendant's acts of infringement are to be distinguished from general overheads which supported both the infringing business and the defendant's other, non-infringing, businesses.

(2) The defendant is entitled to deduct the former costs from gross relevant profits.

(3) A proportion of the infringer's general overheads may be deducted from gross relevant profits unless

(a) the overheads would have been incurred anyway even if the infringement had not occurred, and

(b) the sale of infringing products would not have been replaced by the sale of non-infringing products.

(4) The evidential burden rests on the defendant to support a claim that costs specific to the infringement and/or a proportion of general overheads are to be deducted from profits due to the claimant.

The difference between this summary and the  judge's first opinion is that the first opinion would have permitted a deduction only when (under 3(b)) "the defendant was running to maximum capacity."  Under the new approach, although the fact that the defendant was running at maximum capacity would be evidence that, absent the infringement, it would have replaced sales of infringing products with sales of noninfringing product, such a showing is not a necessary condition for proving that the defendant would have deployed the overhead to sell noninfringing products in the but-for world.

Interesting French case on damages

I just came across Waters Corp. et Waters SAS v. Hewlett-Packard GmbH et Agilent Technologies Deutschland GmbH, Cour d'appel de Paris, Oct. 5, 2011, PIBD No. 954, III, 56.  The patent in suit was the French portion of EP No. 0 309 596, titled "Dispositif de pompage pour délivrer un liquide à haute pression" (which I would translate as "pumping device for delivering a liquid at high pressure").   There is a more detailed write-up from Véron & Associés here, along with links to the case in French and English, which appeared shortly after the case was handed down, but here is my somewhat briefer summary.

The case seems reasonably straightforward to me in its analysis of lost profits and reasonable royalties under French law, a topic I discuss in my book at pages 264-66, 269-70.  As for lost profits, the court first determines the masse contrefaisante, that is, the number of infringing sales multiplied by the sales price.  It then estimates how many of these sales the plaintiff would have made and multiplies that figure by its estimate of the plaintiff's relevant profit margin.  The case presented a few wrinkles, though.  First, the defendants argued that the plaintiff Agilent Deutschland (which succeeded to the interest of its assignor, Hewlett-Packard Deutschland, which had settled) wasn't entitled to any lost profits because it didn't exploit the patent in France.  The court rejected this argument, because the German company made sales in France through an affiliated French concern from 2000 to 2002.  Second, the plaintiff was entitled to lost profits on certain accessories and replacement parts, based on an estimate of customer carryover rates (taux de report).  Third, the plaintiff was entitled to a reasonable royalty for infringing sales it couldn't show that it would have made in France from 1997 to 2002; in this regard, the court accepted an expert's proposal of a 12% royalty rate.  The court also affirmed "springboard damages" (l'effect tremplin) in the amount of €100,000, based on the benefit the defendants would have enjoyed after the period of infringement due to, e.g., repeat business.   

One interesting defense argument the court rejected was based on article L613-9 of the French IP Code.  In English translation, this reads:   

To have effect against others, all acts assigning or modifying rights deriving from a patent application or a patent must be entered in a register, known as the National Patent Register, kept by the National Institute of Industrial Property.  

However, an act may have effect, prior to entry, against parties who have acquired rights after the date of such act, but who had knowledge of the act when acquiring the rights. 

In the present case, Hewlett-Packard had assigned the patent to Agilent on October 29, 1999, but the assignment wasn't recorded until August 21, 2000.  The defendants argued that they weren't liable for damages for that interim period of time, but the court rejected this argument on the ground that the article isn't intended to immunize infringing acts committed during the period of time before the assignment is recorded.  That seems to make sense.  Though I haven't researched the issue--and according to the Véron & Associés write-up, there was case law supporting the position the court rejected--I would assume that article L613-9 is intended to protect good faith purchasers of patent rights, somewhat akin to U.S. Patent Act section 261, which in relevant part reads "An assignment, grant, or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage."       

Interesting Theoretical Point Raised in Recent U.K. Decision on Lost Profits

Judge Birss’s opinion in Xena Systems Ltd. v. Cantideck, [2013] EWPCC 1 (Pat. Cty. Ct.2013), came out too late for inclusion in my book, but it’s worth a look for its detailed application of U.K. law in awarding a prevailing patent owner its lost profits.  EPLAW and PatLit have already blogged on various aspects of the decision and I need not repeat their analysis here, but I would like to note two aspects of the opinion that I found particularly interesting.  One is that the court awarded the patentee damages for higher borrowing costs it incurred as a result of the infringement; the court viewed these costs as foreseeable consequences of the infringement and recoverable under the House of Lords’ decision in Sempra Metals v. Inland Revenue Commissioners [2008] 1 AC 561.  The other is a theoretical point on the recoverability of lost profits on so-called convoyed sales, that is, on sales of nonpatented complementary goods or services that the patentee would have made along with the sales of patented articles that it would made but for the infringement.  Lost profits damages for such goods are recoverable under English law, as long as they are foreseeable consequences of the infringement and not too remote (see my book, p. 187).  Defense counsel, however, raised an interesting theoretical point which the court addressed as follows:

44  In relation to the claim for losses of unpatented fixed platform hiring, Cantideck accepted that losses for so called "convoyed goods" were recoverable in principle in a patent case (Gerber). Mr Abrahams pointed out that in Gerber itself the convoyed sales were goods sold together with the patented products and he argued that Xena were actually seeking to claim for the loss of a chance of a chance, which is not allowed. He argued that in Gerber the court had estimated the lost chance of a sale at 60% and awarded 60% of the profit of the patented goods and the convoyed goods. It did not assess the chance of the convoyed goods separately because that head was only awarded on the basis that it goes with the patented goods. So, he submitted:

"For example, if the chance of the patentee selling the patented item was 50%, and the chance of selling the convoyed goods was 50% in any case where patented goods were sold, the right award is 50% of the profit on the patented goods and not a further award of 25% of the convoyed goods. 

This is because where the sale of the patented item gives the seller a mere chance to sell other goods, that is too remote […]. Otherwise a supermarket that sold an infringing item would have to pay damages in respect of every lawful item in the shop."

45  Mr Cuddigan called this a novel submission and did not agree with it. In my judgment Mr Abrahams' argument, when it is put as a matter of principle, is not right. By approaching it as a "chance of a chance" the argument sets too much store by one mathematical approach to assessing damages. It may be that there is something about the defendant's sales which means none of them, had they been made by the patentee, would have included the convoyed article or maybe all of them would have but these are all matters of fact open to be proved if necessary or proportionate by one side or the other. If, on the evidence available, there is nothing to distinguish sales which included the convoyed goods from sales which did not then one can say that the overall fraction of the patentee's sales which included convoyed goods reflects a probability for each sale that it would have included convoyed goods. Assuming that chance is a substantial one, then I can see no objection to taking it into account as long as the requirements of foreseeability and remoteness are satisfied. One could equally well divide the patentee's lost chance into two separate lost chances, a lost chance of high value sale of a patented product plus convoyed article (25% on Mr Abrahams' figures) and a lost chance of a lower value sale of a patented product alone (also 25%).

46  However, although I do not accept Mr Abrahams' argument when it is put as a matter of principle, it seems to me that care needs to be taken with the facts in this sort of case. When a patentee sells two products side by side, one patented and the other not, it does not follow that just because, averaged over a period, a fraction of the customers who bought the patented article also bought the non-patented one, the patentee can claim for sales of the non-patented article. Gerber is clear authority that the scope of recovery is not restricted to activities which themselves constituted infringements but it is still limited by causation and remoteness. As Staughton LJ said (at 456 ln5-15):

           

"Beyond that the assessment of damages for infringement of a patent is in my judgment a question of fact. There is no dispute as to causation or remoteness in the present case; nor can I see any ground of policy for restricting the patentees' right to recover. It does not follow that, if customers were in the habit of purchasing a patented article at the patentee's supermarket, for example, he could claim against an infringer in respect of loss of profits on all the other items which the customers would buy in the supermarket but no longer bought. The limit there would be one of causation, or remoteness, or both. But the present appeal, in so far as it seeks to restrict the scope of recovery, should be dismissed."

The relevant language from Gerber Garment Technology Inc. v. Lectra Systems Ltd., [1997] R.P.C. 443, reads as follows:

As I have already said, the judge awarded damages on the basis that the patentees would have achieved 15 sales if the infringers had not made their 25 wrongful sales. There was extensive evidence of the circumstances of those 25; but the judge did not identify 15 which would in fact have been achieved by the patentees. Nor, in consequence, did he identify the profit lost on each particular machine featuring in his calculation. He simply awarded 60 per cent of the total sum claimed as loss of profit on the 25 machines. One can infer that he must have found the figures for loss of profit for each machine proved.

The judge adopted a similar method of calculation for spare parts, servicing and CAD systems. Mr. Hobbs Q.C. for the infringers says that the judge was wrong in law to adopt the method which he did; and he should have made findings relating to the individual machines. His clients, as he put it, were entitled to a speaking award. The judge's calculation of price depression and springboard damages was subject to similar criticism. . . .

In my judgment the issue as to the amount of the patentees' loss in the present case was a question in the second class; it depended on the hypothetical actions of third parties, that is to say the buyers of the infringing machines (or spare parts, servicing and CAD systems). The judge was entitled to conclude that the patentees had lost a chance of making sales to those buyers - no doubt a chance of differing probability in each case. He was entitled to evaluate the chances as a whole, rather than separately, if he chose to do so. The contrary view, that if the judge found 25 chances of a sale, each of 49 per cent probability, he should award nothing is absurd.

I’m inclined to think that in both cases the court got it right—that the plaintiff should recover lost profits on convoyed sales that it reasonably would have made, but for the infringement (note that U.S. law is a bit different on this score; see my book at pp. 117-18); that the application of this principle should turn on the specific facts of the case; and that courts should be wary of undercompensating patent owners and underdeterring infringement by applying overly rigid probability cut-offs. 

Of course, in other contexts a successful tort plaintiff who can show, say, only a 40% chance that the defendant’s conduct caused it to suffer a loss of $1 million generally doesn’t recover $400,000, but rather $0, a result that could lead to underdeterrence in some contexts.  On the other hand, a plaintiff who can show a 60% chance recovers the full $1 million, which can result in overdeterrence.  The problem is well known in the law and economics literature.  See, e.g., Ariel Porat & Eric Posner, Aggregation and Law, 122 Yale L. J. 2 (2012).  Off the top of my head, however, I can’t think of other instances in which the problem has been considered in the context of patent damages in particular.  Perhaps a good topic for a future article . . .