Monday, September 30, 2013

Awards of Infringer's Profits: A Summary of the Issues

Several of my recent posts have been about awards of defendant's profits.  This is a common remedy for patent infringement in some systems--Canada especially--but in the U.S., since 1946, it has been available only for design patent infringement (and in copyright, trademark, and trade secret cases).  Maybe this is a good time to summarize some of the issues.  Perhaps all of this will lead at some point to a law review article--or make its way into a second edition of my book someday--but that's in the distant future for now.

First, there's the question of the rationale for awarding the infringer's profits.  Although some patent systems view, or have viewed, this remedy as a proxy for the plaintiff's own lost profits, that's not a very sound economic rationale.  A better rationale is that awarding the infringer's profit deters infringement by ensuring that the infringer is no better off for having infringed.

Second, though, is the question of whether such awards threaten to overdeter; see this post for discussion.  Perhaps not, if the infringement is deliberate, but that raises some interesting issues of its own, among them what "deliberate" should mean in this context, and whether (as a consequence) awards of infringers' profits should only be available for deliberate infringement.  (In U.S. trademark law, awards of infringers' profits traditionally were available only for willful infringement, though some courts no longer follow this rule.)

Third--and perhaps related to the preceding point--should infringers' profits be available if the patent owner is a nonpracticing entity (NPE)?  If awards of infringer's profits are available only for deliberate infringement, this would exclude many, though perhaps not all, cases in which the patent owner is an NPE, because as an empirical matter the majority of such cases probably involve inadvertent infringement.  (Patent systems that view awards of infringers' profits as a proxy for lost profits, such as Japan, also limit such awards to cases in which the patent owner is working the patent, though questions may remain as to what "working" means.  See here and here for recent discussion on this blog.)

Fourth, should awards of infringers' profits ever be available for the infringement of a standard-essential patent?  I would think not; Axel Walz appears to agree, see here.  See also this post at Foss Patents, discussing Samsung's recent decision not pursue this type of relief in one of its German cases.

Fifth is the issue of how to calculate the infringer's profits.  These should only be the profits attributable to the infringement (but see my discussion of the perverse U.S. practice as it relates to design patents, here, and my discussion of Chinese law on this point, which appears to have been rectified, at my book pages 355-57).  But how do you calculate that?  One issue is what costs to deduct from the revenue the infringer derived from the sale of infringing goods:  variable costs only, or some portion of allocable overhead?  This is an interesting issue, which I discuss in my book at pages 207-08, and which is the subject to the German BGH's famous decision Gemeinkostenanteil (see my book pages 270-73).  Another issue is what factors should be taken into account to accurately capture the amount of the profit that is attributable to the infringing feature.  As an economic matter, the most important factor should be whether there are noninfringing alternatives (see my book page 68), though as I discuss in my book in Germany and the U.K. this factor is not given sufficient emphasis in the case law (see pages 197-203, 273-74).  (Canada gets it right, see pages 203-05.)  Other factors may be relevant as well.  One of my recent posts discusses the extent to which the defendant's ability to sell at a lower price than the patent owner should be relevant, see here.

Sixth, should awards of infringer's profits be available if the defendant delays filing suit more than x number of years? See discussion, here.

Seventh, should awards of "profits" be given if the defendant earned no profit, but did save costs by using the patented feature?  (In other words, the defendant lost less money that it would have, if it had used an alternative.)  In my view, if a patent system is going to award a disgorgement type of remedy, the answer should be yes:  the defendant should disgorge the benefit it received, which is the amount of its cost saving.  But as I discuss in my book (pages 201, 205, 273, 324-25) some patent systems say no, because the relevant statute literally allows only awards of profits, not cost savings. 

No comments:

Post a Comment