Federal Circuit Vacates Preliminary Injunction in a Schedule A Case

Some readers may not be familiar with Schedule A litigation in the United States.  The two leading scholars who write about it are Professors Sarah Fackrell and Eric Goldman, whose work on the topic I recommend.  Citing their work, however, I did mention the phenomenon in my recent book Wrongful Patent Assertion:  A Comparative Law and Economics Analysis (Oxford Univ. Press 2026), where at page 103 n.160 I wrote that the majority of Schedule A cases

 

involve allegations of trademark or design patent infringement, though some allege violations of copyrights or of utility patents. The typical case involves an owner who files a complaint and a motion for an ex parte temporary restraining order, often under seal, against multiple, often foreign, defendants, who are identified in an accompanying list, often referred to as “Schedule A.” The papers allege that the defendants are offering allegedly infringing products for sale online. Over the past decade or so, several U.S. judges have granted these motions, notwithstanding the difficulties (especially in design and utility patent cases) of determining on the basis of ex parte, preliminary evidence that the accused products infringe. The orders are then forwarded to the online platforms on which the defendants are offering merchandise for sale, after which the platforms typically make the accused products,and sometimes all of a defendant’s products, unavailable, sometimes for longer than the fourteen days that a temporary restraining order is supposed to last. Judges also have issued asset-freezing orders, sometimes in cases in which such orders are not permitted under U.S. law. . . . Given the cost of litigation, the end result is often that defendants either settle or default. Plaintiffs may voluntarily dismiss their claims against those who do not settle or default, and those parties may be eligible for compensation in the amount of the injunction bond; but they are not automatically awarded their fees, and U.S. courts can be reluctant to award litigation sanctions.

Anyway, a precedential decision handed down yesterday, Shenzhen Jisu Tech. Co. v. The Entities and Individuals Identified in Annex A, is an appeal from the dissolution of an earlier-granted preliminary injunction in one such case (majority opinion by Judge Hughes, joined by Judge Prost; partial dissent by Judge Stoll).  The appellant Shenzhen owns U.S. Design Patent No. D886,982, for a design for a foldable fan.  Shenzhen asserted the patent against several entities identified in a Schedule A and obtained a TRO; but some of the defendants appeared to oppose converting the TRO into a preliminary injunction, arguing that Shenzhen was unlikely to succeed on the merits of proving infringement.  The district court nevertheless granted the preliminary injunction.  The defendants thereafter moved for reconsideration, pointing to the recent issuance to a third party of U.S. Design Patent No. D1,046,104, for a foldable fan.  Specifically, defendant

 

Zhouty argued that because novelty is a requirement for patentability, the patent examiner must have concluded that the ’982 patent’s design did not anticipate the ’104 patent’s design—otherwise, the ’104 patent would not have issued. And, because the test for design patent infringement and the test for anticipation are identical, the conclusion that the ’982 patent does not anticipate the ’104 patent would suggest that products practicing the ’104 patent’s design do not infringe the ’982 patent. Together with the representation that the ’104 patent protects the exact design of Zhouty’s accused product, Zhouty argued that the ’104 patent’s issuance suggested there is some material and patentable difference between the design of its accused product and the design protected by the ’982 patent. Zhouty suggested that this undermined the likelihood Shenzhen would succeed in its infringement action, which in turn undercut its entitlement to a PI (pp. 4-5).

The district court denied the motion for reconsideration, after which Shenzhen added some five defendants to the litigation and moved for another TRO.  The new defendants appeared and made the same argument that Zhouty had made in its motion for reconsideration.  This time, the district court was persuaded, and it dissolved the already-issued PI.

On appeal, Shenzhen argues that collateral estoppel should have precluded the district court from reconsidering the matter, but the Court of Appeals rejects that argument to the ground that collateral estoppel does not apply to earlier, nonfinal decisions within a continuing case (p.7).  The court also rejects the argument that the district court had applied a rule requiring the owner to prove the invalidity of a relevant, later-issued patent; “[r]ather, we understand the district court to have assessed the strength of Shenzhen’s infringement claim via an analysis rooted in this court’s caselaw holding that anticipation and infringement are the same inquiry for design patents” (p.9).  More specifically:

To assess the likelihood Shenzhen would succeed on its infringement claim, the district court was required to preliminarily apply this court’s test for design patent infringement—the ordinary observer test. This test asks whether, “in the eye of an ordinary observer, giving such attention as a purchaser usually gives, two designs are substantially the same.” Gorham, 81 U.S. at 528. As noted, the district court was correct when it observed that, in the case of design patents, the test for anticipation and infringement are the same. . . . Thus, if an ordinary observer would view two designs as substantially the same, the later design is anticipated, and an accused product practicing its design would infringe any patent claiming the earlier design. See Peters v. Active Mfg. Co., 129 U.S. 530, 537 (1889) (“That which infringes, if later, would anticipate, if earlier.”). By extension, when a design patent issues over an earlier one, the presumption of patent validity suggests that the later claimed design is not anticipated by—i.e., not substantially the same as—the earlier patented design. . . . Indeed, by statute a patent is presumed valid once issued, and included within that is a presumption that its claimed design is novel and thus not obvious or anticipated. . . .

 

We see no abuse of discretion in the district court’s application of these themes to the facts before it as an aid in estimating the likelihood that Shenzhen would succeed in its claim for infringement. Because the accused products were purported to be coextensive with the later-issued ’104 patent, the district court was within its discretion to note that the ’104 patent’s issuance may suggest that an ordinary observer would not find the accused products substantially similar to the design claimed by Shenzhen’s ’982 patent (p.10). 

Judge Stoll dissents on this last issue, writing that “the district court applied a shortcut to its analysis by assuming that, because the relevant defendants asserted that their accused product practices another, later-issued design patent (which is presumptively valid), Shenzhen had failed to who a likelihood of infringement of its asserted patent” (dissent p.3).  Judge Stoll would vacate and remand for the lower court to apply the three-way test “comparing the accused product, the patented design, and the prior art” (id.).

Some Recent FRAND-Related Papers

1. Kung-Chung Liu and Rui Li have published A Critique on WT/DS611 Panel and Arbitration: To Better Understand Chinese Courts, Anti-Suit Injunction, and TRIPS, 2026 GRUR Int. (Advance Access Publication June 25, 2026).  Here is the abstract: 

More and more often, parties and national courts are resorting to anti-suit injunctions (ASIs) to deal with the issues caused by parallel proceedings disputing the fair, reasonable, and non-discriminatory licensing of standard essential patents. Recent and sporadic ASIs issued by Chinese courts have led to a dispute between the EU and China before the WTO. The Panel report and arbitration award touch upon the term ‘give effect’ Art. 1(1), first sentence of TRIPS, and the territoriality principle embedded in intellectual property treaties, and therefore can be consequential for the dispute settlement mechanism of the WTO and the understanding of TRIPS. The arbitration also reveals alarming misperceptions about how Chinese courts, especially the Supreme People’s Court (SPC) and its IP Tribunal, operate. This Opinion will address these three issues. It will first summarize the findings and reasonings of the Panel and the arbitration to set the stage, explain how the SPC, not its IP Tribunal, normally regulates through written policies to dispute the existence of a so-called ‘unwritten’ ASI policy, and persuade that even there were such an ASI policy, it is an autonomous judicial policy, well grounded, non-binding on lower courts, defensively applied, well-reasoned, settlement-conducive, and should be welcomed. This Opinion then argues that the ordinary meaning of ‘give effect’ does not allow the expansive reading by the arbitration; and that such a reading would also be an unacceptable deviation from the territoriality principle. 

2. Peter Slowinski and Fabian Hoffmann have posted a paper on ssrn titled Third-Party Determination of Interim Licenses and Security Payments: A German Approach to the Huawei Framework.  Here is a link to the paper, and here is the abstract:

 

Litigation of Standard Essential Patents (SEPs) takes place in Europe within the framework provided by the CJEU in its landmark decision Huawei v. ZTE. However, Courts in Europe are still struggling to find the best approach for the resolution of these disputes. German courts and the UPC rely on competition law and a determination of whether the parties have been willing to conclude a license. British courts focus on the setting of license terms but their approach is not entirely convincing, either. This article shows an alternative way forward based on instruments from German civil law that use third-party determination of contract terms. It combines these instruments with a preliminary calculation of a security and down-payments to provide parties with an interest-oriented way forward. The proposed third-party determination of FRAND terms is deliberately not a final determination but limited to the interim period before a final agreement. This preserves the autonomy of the parties while supporting them in the settlement process and it does not affect the right to be heard in court. Moreover, the obligation to demonstrate willingness to grant or take a license entails the necessity not to reject the other party's proposal for a third-party determination for the interim period. And in infringement proceedings it increases the pressure to negotiate constructively to reach a FRAND compliant agreement. While the method is based on German civil law, it is transferable to other legal systems and can be equally applied in the Unified Patent Court. 

3.  Enrico Bonadio and Arjun Solanki also have posted a paper on ssrn, titled Reinvigorating Competition Law in SEP Litigation: Towards a More Balanced UK Framework for Standard Essential Patents.  Here is a link, and here is the abstract:

 

The United Kingdom has become a leading forum for adjudicating standard essential patent (SEP) and fair, reasonable and non‑discriminatory (FRAND) disputes, yet competition law has played a strikingly marginal role in this jurisprudence. Despite EU enforcement practice on SEPs and abuse of dominance, no UK court has issued a standalone competition law decision in a SEP case and the Competition and Markets Authority (CMA) has not opened any SEP‑focused investigation. This article offers a systematic account of this “competition silence”, showing how institutional incentives, evidential burdens and post‑Brexit doctrinal uncertainty have channelled disputes into contractual FRAND rate‑setting and left Chapter II of the UK Competition Act effectively dormant. It argues that FRAND adjudication is an incomplete substitute for competition enforcement: retrospective, bilateral and ill‑suited to addressing market‑wide harms such as supra‑FRAND royalties, coercive injunctions against willing licensees and exclusionary licensing practices. Against the backdrop of the withdrawn EU SEP Regulation, the pending Supreme Court appeal in Optis v Apple and the CMA’s expanded powers under the Digital Markets, Competition and Consumers Act 2024, the article contends that the UK is at an inflection point in SEP governance and advances a calibrated reform agenda to reinvigorate competition law’s role while complementing judicial FRAND. 

Federal Circuit Reaffirms Limited Use of the Book of Wisdom

In a precedential decision handed down yesterday, 4DD Holdings, LLC v. United States, opinion by Judge Hughes joined by Judges Prost and Stark, the court reaffirmed its understanding that so-called “book of wisdom” evidence can be used in estimating the hypothetical bargain the parties would have negotiated as of the date of infringement, but not to alter the terms of the bargain they would have struck in view of ex post evidence.  The distinction is subtle, but this holding is consistent with the view the Federal Circuit has expressed in other cases (though it is inconsistent with a proposal Norman Siebrasse and I made in a 2016 article, as discussed below).

The present case is actually a copyright dispute, filed against the federal government under 28 U.S.C. § 1498.  As I stated in my recent book Remedies in Intellectual Property Law, § 1498 is a federal statute that “authorizes the U.S. government to take a nonexclusive compulsory license for the use of any such invention or work, subject to the obligation to pay “reasonable and entire compensation.  The U.S. Court of Federal Claims, in which actions are litigated, typically will award a reasonable royalty calculated largely in accordance with the methodology that would be applied in awarding a reasonable royalty for infringement.”  In the present case, the plaintiff 4DD negotiated a license with the government in 2013 for the use of its TETRA software.  The government, however, “regularly exceeded the scope of the government’s license by making ‘thousands’ of unauthorized copies” (p.4).  4DD found out about this, and the parties negotiated a “true-up” agreement in 2015.  That agreement was based on the assumption that the government had made 168 additional “core” copies—but as it turned out, the government had made many more copies, which were deleted.  The government thereafter terminated its license with 4DD.  4DD filed suit, and while that litigation was pending it discovered the government’s destruction of TETRA copies and sought sanctions (which were awarded, in the amount of $1.1 million).  The Court of Federal Claims also awarded over $12 million in compensation.

Without going into more detail than necessary, the issues on appeal all relate to damages, and the Federal Circuit cites a good deal of patent damages law along the way.  The court rejects 4DD’s argument that its licenses with the government created an established rate that the Court of Claims was obligated, as a matter of law, to apply, and affirms the lower court’s decision instead to apply the “hypothetical bargain” framework using the Georgia-Pacific factors.  (Under 4DD's rule, the alleged damages would have been over $5 billion.) Nevertheless, the court agrees that the trial court misapplied the “book of wisdom” and remands for a redetermination of damages:

4DD contends that the trial court adopted an overexpansive view of the book of wisdom. That is, the trial court constructed the hypothetical negotiation with the knowledge that the government would later cancel its work with TETRA before it could be successfully implemented. 4DD suggests this amounts to legal error.

 

The Supreme Court has made clear that factual developments that occur after the date of the hypothetical negotiation may nonetheless still inform a court’s damages analysis. Sinclair Refin. Co. v. Jenkins Petroleum Process Co., 289 U.S. 689, 698 (1933) (“Here is a book of wisdom that courts may not neglect. We find no rule of law that sets a clasp upon its pages, and forbids us to look within.”). Thus, this so-called book of wisdom allows courts to consider later-occurring events when appraising the value of a patent or copyright at an earlier point in time. . . .

 

Further, this court has specifically incorporated the book of wisdom into the hypothetical negotiation framework. . . . As already explained, the hypothetical negotiation seeks to ascertain “what a willing licensor and licensee would bargain for at hypothetical negotiations on the date infringement started,” which is then used to assess damages owed for infringement. . . . And while the date of the hypothetical negotiation is the date that the infringement began, LaserDynamics, Inc. v. Quanta Comput., Inc., 694 F.3d 51, 75 (Fed. Cir. 2012), some later-arising information, including “evidence of usage after infringement started,” can be helpful in assessing the royalty’s reasonableness, because “[u]sage (or similar) data may provide information that the parties would frequently have estimated during the negotiation,” Lucent, 580 F.3d at 1333–34. Therefore, as the government suggests, the trial court’s decision to conduct the hypothetical negotiation with knowledge of the details of SMS’s process for adapting TETRA to the government’s networks, which resulted in the infringing copies, was not legal error. Nor was its consideration of the number and type of copies created in that process. . . .

 

But the book of wisdom is not without limits. Its use in correcting uncertainties in the hypothetical negotiation “is not to charge the offender with elements of value nonexistent at the time of his offense.” Sinclair, 289 U.S. at 698. Rather, it is meant “to bring out and expose of light the elements of value that were there from the beginning.” Id. (emphasis added). This accords with the key element in setting a reasonable royalty via hypothetical negotiation: the need to conduct the negotiation from the date the infringement began to avoid an after-the-fact assessment of the hypothetical license’s value. See Unisplay, S.A. v. Am. Elec. Sign Co., 69 F.3d 512, 518 (Fed. Cir. 1995).

 

The purpose of the book of wisdom is to provide insight and reduce uncertainty as to the elements of a license the parties are hypothetically negotiating. See Lucent, 580 F.3d at 1333–34. It may not, therefore, be used to impute knowledge of later-occurring events affecting the value of the license that were unforeseeable at the time of negotiating, such as the government’s change in leadership and resulting decision to end its work with TETRA before implementation. Cf. Sinclair, 289 U.S. at 698. Such facts are wholly inconsistent with determining the “reasonable needs and expectations” of the parties at the time of licensing and are improper for consideration in a hypothetical negotiation. . . . Thus, the trial court’s construction of the hypothetical negotiation with knowledge of TETRA’s future cancellation amounts to legal error in its application of the book of wisdom. See, e.g., 4DD Holdings, 169 Fed. Cl. at 187.

 

Because we cannot say with confidence that this error is harmless, we must vacate the trial court’s judgment. When assessing the relative strength of the parties’ bargaining positions in the hypothetical negotiation, the trial court relied on its knowledge of TETRA’s future cancellation (which was neither known nor knowable by the parties at the time) to emphasize that the project “never made it beyond the development stage and, as a result, never solved the government’s interoperability problem.” Id. The trial court considered this fact “most damaging to 4DD’s bargaining position.” Id. (emphasis added). The trial court then found that this fact, alongside two others, resulted in the conclusion that the government possessed a “substantially superior bargaining position.” Id. Because we cannot separate the court’s error in applying the book of wisdom from its assessment of the parties’ respective bargaining positions, which has implications for the outcome of the hypothetical negotiation, we must vacate and remand for further proceedings.

. .  (pp. 12-15).

The court also holds that the Court of Claims was wrong to consider the maximum statutory damages award, under the Copyright Act, for willful copyright infringement ($150,000 for each infringing work) as a constraint on the bargain the parties would have reached:

As a threshold matter, the trial court’s grant of increased statutory damages for willful infringement is legal error. Section 1498(b) makes clear that recovery is available in the amount of the copyright owner’s “reasonable and entire compensation,” which includes “the minimum statutory damages as set forth in section 504(c) of title 17.” 28 U.S.C. § 1498(b) (emphasis added). And given section 1498’s roots in eminent domain, punitive damages available in a private suit under title 17, including the increased statutory damages for willful infringement, are not available in a suit against the government under section 1498. See Gaylord II, 678 F.3d at 1343 (noting copyright owner is entitled to “compensatory damages, including the minimum statutory damages, but not to noncompensatory damages”)

The court rejects the plaintiff’s other arguments, and remands for a new trial on damages.  The lower court might reach the same figure, but it will be constrained by the above considerations.

I mentioned at the beginning that Norman Siebrasse and I have argued that the optimal rule is not the “orthodox” hypothetical bargain contract that the Federal Circuit applied here (and has applied in other cases, such as Aqua Shield v. Inter Pool Cover Team, 774 F.3d 766 (Fed. Cir. 2014), see previous posts here and here), but rather what we referred to as the “contingent ex ante” approach.  Under this approach, a court see its task as estimating the hypothetical bargain the parties would have reached ex ante, with full knowledge of all relevant events ex post.  In our view, this rule would avoid patent holdup (because it’s an ex ante construct) while better aligning patent (and copyright) damages with the plaintiff’s contribution to the state of the art (by authorizing a higher reward where the invention or work turns out, ex post, to be more successful than anticipated, and a lower one where it is less successful).  See Norman V. Siebrasse & Thomas F. Cotter, A New Framework for Determining Reasonable Royalties in Patent Litigation, 68 Fla. L. Rev. 929 (2016); see also Thomas F. Cotter,  Thomas F. Cotter, John M. Golden, Oskar Liivak, Brian J. Love, Norman Siebrasse, Masabumi Suzuki, & David O. Taylor, Reasonable Royalties, in Patent Remedies and Complex Products:  Toward a Global Consensus 6, 31-33 (Brad Biddle, Jorge L. Contreras, Brian J. Love & Norman V. Siebrasse eds., Cambridge Univ. Press 2019)).  Of course, in this case, the hypothetical bargain the parties would have negotiated ex ante knowing that (ex post) the government would terminate the project might be very low, reflecting only the value of whatever knowledge the interim use of the software enabled the government to obtain.   

My ElgarBlog Post, "Finding the Right Remedy for IP Infringement"

ElgarBlog has posted my piece Finding the Right Remedy for IP Infringement.  The piece discusses my recently-published book Remedies in Intellectual Property Law (Edward Elgar Publ. 2026), as well as why I think it is important for IP professionals today to be well-versed in both the law of remedies and comparative IP law.  Enjoy!  

 

Liu on the Last-Patent Problem

S. Frederick Liu has published The “Last-Patent Problem” in Patent Portfolio Licensing, 106 J. Pat. & Trademark Off. Soc’y 107 (2026) (available on Westlaw).  Here is the abstract:

Companies often license patents in portfolios because doing so can reduce transaction costs and infringement uncertainty. However, some companies include static royalty rates in their patent portfolio licenses, requiring licensees to pay the same royalty rate until the last patent in the portfolio expires or is invalidated. Such a practice turns the last remaining patent in the portfolio into a lever and imposes a “public-domain tax” that inflates prices, depresses output, and stifles innovation. This Article introduces and analyzes the problem created by such a practice as the “last-patent problem.” Part I explains why companies transact in patent portfolios and how patent portfolio licenses with static, non-diminishing royalty rates, though often efficient ex ante, become distortionary as the patents in the portfolio expire or are invalidated. Part II formalizes the last-patent problem with several simple economic models showing that a static portfolio royalty rate magnifies price-cost wedges over time relative to a proportional step-down rate tied to the share of remaining value-bearing patents. Part III situates the analysis in the history of the U.S. patent system. Part IV shows that the patent-misuse doctrine, narrowed by statute and case law, does not reach the last-patent problem, and that because relief under antitrust’s rule of reason is costly, under-deterrence follows. Part V proposes structural and behavioral remedies that administrative agencies, legislatures, and courts can adopt or mandate to alleviate the last-patent problem. The goal of the remedies offered in this Article is to preserve the efficiencies of patent portfolio licensing while restoring fidelity to the mandate of the Constitution's Intellectual Property Clause to “promote the Progress of Science and useful Arts.”

This is an interesting paper.  One question I have, however, is whether patent owners with sufficient market power to impose portfolio licensing contracts of the type the author objects to would respond to his policy recommendations by charging higher (albeit diminishing over time) licensing rates during the earlier years of the portfolio license’s term (as suggested by Scheiber v. Dolby Labs., Inc., 293 F.3d 1014, 1017 (7th Cir. 2002), cited at p.145 n.233).  I tend to agree with the author’s proposal for greater transparency in licensing (e.g., restricting the use of “Black Box” licensing, see p.143).   

The Pending Cert. Petition in Sunoco v. Powder Springs Logistics

So, I must confess—on Friday, January 16, I published a short post about my newly-published book, Remedies in Intellectual Property Law.   I also stated that “this morning the Federal Circuit released a 59-page nonprecedential (!) opinion in Sunoco v. Powder Springs Logistics dealing with, among other things, damages; I'll probably have something to say about it next week.”  I then, apparently, forgot entirely about Sunoco until this morning, when I saw that Dennis Crouch had published a post titled Whole or Apportioned: Sunoco Asks the Supreme Court to Rethink Lost Profits, concerning Sunoco’s petition for certiorari.  The petition poses the following two questions:

1. Whether the Federal Circuit’s standard for recovery of lost profits damages violates 35 U.S.C. § 284.

 

2. Whether Rule 702 requires courts to exclude expert testimony when record evidence is contrary to a critical fact upon which the expert relied, as the Federal Circuit holds, or whether juries should determine whether facts upon which an expert relied are true, as all other Circuits have held.

The principal issue presented by Question 1 is whether the district and appellate courts erred in holding that Sunoco was not entitled to present its lost profits argument to the jury.

The basic facts are these.  Sunoco and Powder Springs both competed for a contract to be awarded by Colonial Pipeline Company, relating to the provision of services pertaining to the blending of gasoline with butane.  Sunoco offered its standard contract, the Butane Supple Agreement (BSA), under which it obtains either a 40/60 or 50/50 share of the profits a customer earns on sales of gasoline gallons created.  Under those contracts, as described by the Federal Circuit, “Sunoco (1) constructs and operates its patented system at a licensee's gasoline terminal, (2) supplies butane needed for the system, and (3) grants a limited license to its patents, all in exchange for sharing the licensee's profits from selling the extra gasoline created using the patented inventions. Also under the BSAs, Sunoco performs services related to (1) making and using the patented inventions, such as designing, engineering, constructing, and maintaining the blending systems; and (2) providing regulatory oversight support, maintenance and support services, risk management, customer services, and financial services related to butane hedging, among others. Additionally, Sunoco's BSAs include the use of its proprietary blending algorithm with its patented system.”  (Slip op. at 13-14.)  Powder Springs won Colonial's business, however, but ultimately was found to infringe one of Sunoco’s patents.  While there were other issues on appeal, both substantive (patent eligibility) and damages-related (e.g., whether the lower court erred in not awarding a damages enhancement), the principal damages issue of interest here is whether Sunoco was entitled to present expert testimony that it would have made a profit on the Colonial business, in the amount of at least $150.3 million, but for the infringement.  (Instead, based on the district court’s evidentiary rulings, the jury awarded a reasonable royalty in the amount of about $12 million.)

The Federal Circuit held that it was not an abuse of discretion to exclude Sunoco’s evidence pertaining to its lost profits theory, because Sunoco (1) had not apportioned these purported damages to account for the other services provided under the BSA, or shown that the patent in suit drove the demand for a BSA contract; and (2) did not satisfy what is sometimes thought of as an alternative method of apportionment under Mentor Graphics Corp. v. EVE-USA, Inc., 851 F.3d 1275 (Fed. Cir. 2017), under which proof of the four Panduit factors suffices to satisfy apportionment.  (The Panduit factors, as originally set forth in Panduit Corp. v. Stahlin Bros. Fibre Works Inc., 575 F.2d 1152 (6^th Cir. 1978), and subsequently adopted by the Federal Circuit for use in establishing lost profits, are “(1) demand for the patented product, (2) absence of acceptable noninfringing substitutes, (3) his manufacturing and marketing capability to exploit the demand, and (4) the amount of the profit he would have made.”)

So perhaps I should say a word first about Mentor Graphics.  In fact, I’ll just quote what I say about that case in my aforementioned book at pages 146-47:

The plaintiff and defendant were the only two competitors in the market for a type of emulator system for which there was one single customer, Intel.  The plaintiff had a patent on a process and apparatus essential to the functioning of its emulator systems, and for which there were no noninfringing alternatives (although the emulator systems incorporated “thousands of [other] hardware and software features” as well).  The defendant’s emulator systems infringed the patent; and, the defendant conceded, but for that infringement, the plaintiff would have sold Intel additional emulator systems on which the plaintiff would have earned approximately $36 million.  The defendant argued, however, that the patentee was obligated to “further apportion its lost profits to cover only the patentee’s inventive contribution.”  Rejecting this argument, the Federal Circuit affirmed the judgment in favor of the plaintiff, stating:

 

            While there may have been other features of the emulator that were important to Intel, only Mentor could sell Intel an emulator with all the features it required. Because Mentor had proprietary rights to the only means of satisfying this demand by Intel, because no other party could sell Intel an emulator with those two components, no one else had the right to sell emulators to Intel that satisfied all of Intel's requirements. In short, for these particular sales, no other party could satisfy the Panduit factors, making it impossible for multiple patentees to obtain lost profit damages for the same sales.

 

The court cautioned, however, that cases like this may be rare:  “[w]ith such multi-component products, it may often be the case that no one patentee can obtain lost profits on the overall product—the Panduit test is a demanding one.”  Nevertheless, “when the Panduit factors are met, they incorporate into their very analysis the value properly attributed to the patented feature.”  Simply put, the but-for principle controls in the (perhaps unusual) cases in which infringement of a single component deprives the IP owner of sales of a multicomponent product.

In affirming the district court, the Federal Circuit panel in relevant part wrote (slip op. pp. 49-53):

Sunoco contends that Dr. Ugone established a prima facie case of “but for” causation for lost profits by opining on how the Panduit factors were met. As part of these opinions, Dr. Ugone calculated that Sunoco would have averaged a per-gallon profitability that ranged from $0.25/gallon (from a 40/60 profit-share) to $0.28/gallon (from a 50/50 profit-share) but for infringement, resulting in lost profits of $150.3 to $166.7 million. . . .

 

The district court did not abuse its discretion in striking Dr. Ugone's lost profits opinions under the Panduit factors for the same reasons discussed above related to his opinion on reasonable royalty and comparable licenses. Dr. Ugone used the full profit-share of the unapportioned BSAs to calculate Sunoco's lost profits. While Sunoco may be able to show demand for its BSAs, the BSAs are not coextensive with the asserted patents and instead encompass more services and products than the patented inventions. Thus, there was no prima facie showing under Panduit factor one—demand for the patented product—or Panduit factor four—the amount of profit Sunoco would have made— without apportioning the value of the patents from the other services. . . .

 

In [Mentor Graphics], we acknowledged that “apportionment is an important component of damages law generally, and we believe it is necessary in both reasonable royalty and lost profits analysis.” We then narrowly held (1) that “[i]n this case, apportionment was properly incorporated into the lost profits analysis and in particular through the Panduit factors,” and (2) “that on the undisputed facts of this record, satisfaction of the Panduit factors satisfies principles of apportionment: Mentor's damages are tied to the worth of its patented features.” Id. at 1288. We also emphasized that Mentor was “a highly factual case, and [the defendant] did not appeal any of the jury's fact findings relating to damages.” Id. at 1289.

 

There are no undisputed facts on the Panduit factors here. Indeed, Magellan contests both Panduit factors one and two. And again, as to factor one, Dr. Ugone did not start his analysis with demand for the claimed inventions; instead, he and Sunoco sought to conflate demand for the claimed inventions with the demand for the BSAs as a whole. But they cannot start with the demand for undisputedly more than the patented inventions—indeed, for an entire basket of services—to base patent damages on. See, e.g., VirnetX, 767 F.3d at 1326 (“[A] patentee must take care to seek only those damages attributable to the infringing features.”).¹⁰

 

^10/ As to factor 2, Magellan points out that following the jury's verdict of infringement, Powder Springs switched to a non-infringing manual blending operation, indicating that there were acceptable non-infringing alternatives.

My take on this is that there were two possibilities at the time the parties were vying for the Colonial contract.  First, it may be that Colonial would have considered an offer from Powder Spring that contemplated the use of a noninfringing manual blending operation to be more attractive than signing a BSA with Sunoco, at the price and for the services Sunoco was offering.  In that case, the infringement didn’t cost Sunoco a sale, but Sunoco should get a reasonable royalty that reflects some portion of the benefit Powder Spring derived from the use of the infringing method.  Alternatively, it may be that Colonial would have rejected such an offer and gone with Sunoco, in which case the infringement did cost Sunoco a sale, and Sunoco should recover the entire profit it would have made on that BSA, even though the BSA included more than just a license to the one patent that ultimately was in suit.  What I can’t tell from the Federal Circuit opinion alone is what the state of the evidence was on noninfringing alternatives before the jury verdict. If there was conflicting evidence on this issue, I would be inclined to think that the plaintiff’s expert’s opinion should have been admissible; but otherwise, not.  In other words, in my view, from an economic perspective the presence of an acceptable noninfringing alternative should be dispositive on the issue of whether the infringement caused the plaintiff to lose the contract with Colonial. Also relevant, however, as a practical matter, is the burden of proof.  Under U.S. law, it’s the patentee’s burden to come forward with evidence of the absence of acceptable noninfringing alternatives.  In that sense, I guess, one could say that we presume that there are acceptable NIAs, absent evidence to the contrary—though if the plaintiff does prove that there are no acceptable NIAs on the market, the burden shifts to the defendant to prove that an NIA nevertheless would have been available (see my book, p.143; one could debate, moreover, where the burden of proof should lie, as a matter of policy).   

For this reason, I tend to think that all of the discussion about apportionment and “demand for the patented invention” tends to obscure the relevant economic question.  Again, consider Mentor Graphics.  That case was correctly decided, in my view, because the patentee was able to prove that but for the infringement, Intel would have selected Mentor Graphics over EVE-USA.  Mentor therefore was entitled to the entire profit it would have earned on that lost sale, without any apportionment or reduction, even though the Mentor Graphics emulator incorporated many other valuable components.  And while you could say, as the Federal Circuit did, that in a case like Mentor Graphics apportionment is already taken into account by the Panduit factors, I actually think it might be more accurate, or at least less confusing, simply to say that the relevant question is whether the patentee has adequately proven that but for the infringement it would have made the sale in question.  I therefore have disagreed with critics of Mentor Graphics who would have required some further apportionment of the lost profit awarded in that case.  In Sunoco, on the other hand, I would tend to conclude that if (but only if) the patentee didn’t adequately carry its burden of proving the absence of NIAs, the case was rightly decided.      

Foss-Solbrekk on Interim Losses Resulting from Wrongly-Granted Preliminary Injunctions

Following up on my post from Wednesday (with update), I though I should note a recent article by Katarina Foss-Solbrekk, titled Delay-and-Pay:  Prolonging Pharmaceutical Patent Proection Without Paying the “Price”, 56 IIC 1684 (2025).  Here is the abstract: 

This article argues that actors use the patent system as part of a “delay-and-pay” strategy to preserve drug prices for as long as possible by delaying generic/biosimilar market entry – and that they have a significant financial incentive to do so. This strategy is based on the notion that it is much more profitable for patentees to delay generic/biosimilar market entry by way of a patent infringement claim and ensuing injunction, then pay damages to the enjoined party should the infringement claim be defeated. Indeed, patentees have much to gain and little to lose under “delay-and-pay”. My analysis establishes that the money national health bodies spent purchasing the more expensive, patented drug whilst the interim injunction remained in effect is not usually compensated following a patent revocation and discharged injunction. That is neither just, nor fair: the losses of national health bodies ought to be recovered. 

Dr. Foss-Solbrekk’s thesis is based on the economic reality that the patentee’s gain from a wrongly-issued preliminary injunction often will exceed the loss suffered by the enjoined party; and she makes a compelling argument that national health services, who also often suffer substantial harm, also should be reimbursed for their interim losses.  The topic of how the law should respond to wrongly-issued injunctions is one that I too discuss, in chapter 4 of my recent book Wrongful Patent Assertion:  A Comparative Law and Economics Analysis (Oxford Univ. Press 2026), at pages 85-104; and I regret that Dr. Foss-Solbrekk’s paper came out too late for me to engage with there—though I do cite one of her other papers, The Divisional Game: Using Procedural Rights to Impede Generic/Biosimilar Market Entry, 53 Intʼl Rev. Intell. Prop. & Comp. L. 1007 (2022), in chapter 7, and I look forward to reading more of her work in the future. 

I also discovered, in reading Dr. Foss-Solbrekk’s recent paper, a typographical error in my book, where I cited Professor Uri S. Hacohen’s paper Evergreening at Risk, 33 Harv. J.L. & Tech. 479 (2020), but spelled his name “Haconen”.  My apologies to Professor Hacohen.  Perhaps the three of us will all meet some day at some conference on wrongly-issued injunctions—a topic that really does deserve increasing scrutiny!