Interesting Question on the Relevance of Profits Earned on Sales of Noninfringing Goods

As I mentioned on Wednesday, after I return from my last little summer trip next week, I plan to write at least a couple of posts analyzing the recent decision of the Court of Appeal for England and Wales in Lufthansa Technik AG v. Astronics Advanced Electronic Systems, [2026] EWCA Civ 964, concerning the relationship among disgorgement of infringers’ profits, causation, noninfringing alternatives, and apportionment.  Before I go, though, I thought I would note another matter also relating to infringers' profits that was mentioned this morning on the ip fray blog, namely an order entered on August 11 by the UPC’s Munich Local Division in Edwards Lifesciences Corp. v. Meril GmbH.  In an earlier proceeding, the defendant Meril was found to have infringed Edwards’ EP No. 3 669 828, relating to a transcatheter heart valve.  The remaining questions yet to be decided concern monetary relief for the infringement.  The order anticipates a hearing next month concerning, inter alia, the extent to which the defendant may be ordered to “open its books” to the plaintiff, which in turn may depend on resolution of the other two issues.  One is whether UPC or national law applies to infringement that occurred prior to the date the UPC entered into force.  In March 2025, the Mannheim Local Division concluded that UPC law applied (see discussion on this blog here and here), so it will be interesting to see whether or not the Munich court follows this approach if the parties themselves do not reach agreement on this issue or settle.  The other issue concerns whether the court may take into account profits the defendant made on noninfringing products that the defendant offered as a substitute for the infringing products that were taken off the market.  From the order:

The judge rapporteur [Dr. Matthias Zigann] explains that, if this case is not settled or goes to the PMAC [Patent Mediation and Arbitration Centre], it will require a decision from the Court of Appeal. This is because, for the first time, the UPC will need to define the details of a claim for damages and the accompanying claims to open the books with regard to non-infringing products. Although there is some national case law, the situation at hand has not, it seems, been decided: the replacement of an infringing product by a non-infringing product during the lifetime of the patent, and the patent owner's claim that the profits with this non-infringing product must be taken into account when calculating damages. . . .

 

The judge-rapporteur shared his preliminary assessment of the main legal question of whether profits from non-infringing products could be taken into account when calculating damages, and whether they could therefore be subject to an 'open the books' application. He gave an example: A department store advertises an infringing product, 'A'. A customer sees the advertisement and visits the department store to buy the infringing product “A”. However, the product has been taken off the shelves in the meantime due to a court order. The salesperson sells the customer a non-infringing product, "B", instead. In this situation, the profits made from selling product “B” can be attributed to the patent infringement, the patent-infringing offer. In the present case, it may be necessary to take into account the profits made from non-infringing products that replaced the infringing product in open tenders. However, if the link to the sales of the non-infringing products is more tenuous, this might be viewed differently.

This is a very interesting issue.  I’m inclined to think that, although there is a causal connection between the profits earned on sales of the noninfringing substitutes and the earlier offer for sale of infringing products, that causal connection should be viewed as too attenuated.  (My understanding of German law, should that factor into the mix, is that it doesn’t have a proximate cause doctrine as such, but that German courts employ the concept of haftungsausfüllende Kausalität to cut the causal chain where damages are too remotely connected to the wrongful act.)  Under U.S. utility patent law, there is no disgorgement of the infringer’s profits, so I don’t think this precise issue would come up (unless it were somehow relevant to determining a reasonable royalty, which seems a bit of a stretch).  According to Rite-Hite Co. v. Kelley Corp., 56 F.3d 1538 (Fed. Cir. 1995) (en banc), however, infringers can be liable for lost profits on sales of noninfringing goods that compete with infringing products—but not for lost profits on sales of noninfringing complementary products that the patent owner ordinarily sells along with the patented article, unless they “function together with the patented component in some manner so as to produce a desired end product or result” and are therefore “analogous to components of a single assembly or be parts of a complete machine, or . . . constitute a functional unit.”  I think that logic would exclude the recovery of the infringer’s profits on noninfringing goods, even if U.S. law otherwise permitted disgorgement in utility patent cases.  Of course, UPC law or domestic national law within the E.U. could chart a different path.

Update:  Now that I've thought about the matter some more, I'm beginning to wonder if my reasoning above is correct.  Suppose that a defendant makes an infringing offer that bears a causal connection to its subsequent sale of noninfringing goods.  Maybe it would make sense, if U.S. patent law permitted the recovery of infringer's profits, to say that the profits earned on the sales of noninfringing goods are recoverable.  The noninfringing goods may well compete with the plaintiff's patented goods, after all.  Note also that in Germany, it appears that the plaintiff could recover damages from the defendant's sales of products made outside of Germany, or on sales of complementary goods, or on sales of products made following the completion of the patent term, as long as there is a sufficient causal connection between the infringing act and these sales.  See discussion on this blog here, here, and here.  Maybe that logic makes more sense.

Court of Appeal for England and Wales Issues Important Ruling on Disgorgement of Profits

The decision, which I just became aware of today though it was released on July 27, is Lufthansa Technik AG v. Astronics Advanced Electronic Systems, [2026] EWCA Civ 964.  The principal opinion is by Lord Justice Arnold, in which Lord Justices Lewison and Nugee concur.  Lord Justice Lewison also writes a separate opinion, in which Lord Justice Nugee concurs, and Lord Justice adds a very short separate opinion of his own.  The decision is long (92 pages altogether, with 353 paragraphs), and while the principal topic is the principles applicable to awards of infringers’ profits (including the relevance of noninfringing alternatives, but-for and proximate causation, and apportionment), the case also presents issues relating to double recovery and prejudgment interest.  Lord Justice Arnold’s opinion cites some of my work, as well as work by Professor Norman Siebrasse and a chapter I coauthored (with Siebrasse, Chris Seaman, Brian Love, and Masabumi Suzuki) that was published in the edited volume Patent Remedies and Complex Products (Cambridge Univ. Press 2019). Rather than rush to get something out, I want to do justice to this important and thoughtful decision, and I suspect that doing so may require two or three separate, rather detailed, blog posts.  For today, then, I’m simply providing the link to the decision (above) for readers who have not read it yet but are interested in the relevant topics, and will summarize what I view as the three most important holdings, all pertaining to disgorgement of profits.  The first is that “there are some cases in which it is possible to say that all of the profits in issue are derived from the infringement” (para. 159).  The second is that a “differential profits analysis”—under which the profits attributable to the infringement are measured by the difference between the profits the infringer actually earned and the amount if would have earned in the counterfactual world in which it deployed the next-best available noninfringing alternative to the patented invention—can in some cases be “a useful tool to identify the profits derived from the infringement” (para. 160), but that there are numerous difficulties concerning its use in the real world (see paras. 150-58).  The third is that “there is a well-established alternative to differential profit analysis, which is for the court to make a fair apportionment of the profits in issue,” and that “[t]his approach is to be adopted when the case does not fall into either of the [preceding] two categories . . . that is to say, it is not a case where all of the profits are derived from the infringement or where a differential profit analysis can readily be undertaken” (para. 161; see also para. 111, describing apportionment as "normally the appropriate approach").  The opinion then goes on (starting at paragraph 191) to discuss some principles relating to how apportionment may be carried out.

Again, this is a very important decision on one of the most practically and intellectually challenging topics in all of IP remedies law.  My plan is to return with a detailed, probably multipart, analysis, probably starting the week after next (I will be away for one more little summer jaunt next week).  

Federal Circuit Reaffirms No Presumption of Irreparable Harm

The case is Socket Solutions, LLC v. Import Global, LLC, a short precedential opinion by Chief Judge Moore (joined by Judge Prost and District Judge Seeborg) handed down last Tuesday.  Plaintiff Socket Solution “owns U.S. Patent No. 9,509,080, which is directed to an indoor electrical

wall outlet cover that permits use of a wall outlet while concealing the outlet contact openings” (p.2).  “Socket Solutions sued Import Global, alleging Import Global’s Neat Socket product infringed claim 19 of the ’080 patent, and moved for a preliminary injunction” (id.).  The district court granted the preliminary injunction, but the Federal Circuit reverses and remands.  In particular, the appellate court concludes that the district judge erred in construing two terms (“backplate” and “pin”) used in claim 19, and therefore vacates and remands for further consideration on the issue of “likelihood of success on the merits” (pp. 5-9).  Of greater interest, however, to the law of remedies, is the appellate panel’s discussion of irreparable harm:

Because we remand to the district court on the likelihood of success factor, we do not reach Import Global’s irreparable harm arguments. We hold only that the court erred to the extent it relied on a presumption of irreparable harm when a clear showing of patent validity and infringement has been made. . . . We note that this presumption cannot be justified after eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 393–94 (2006).

 

In eBay, the Supreme Court reversed a grant of permanent injunction where the appeals court applied a “general rule” unique to patent disputes “that a permanent injunction will issue once infringement and validity have been adjudged.” 547 U.S. at 393–94 (citation omitted). The Supreme Court explained that patent disputes are no different than in other cases governed by the “traditional principles of equity,” and thus the traditional four-factor framework should apply. Id. After eBay, we confirmed the presumption of irreparable harm was abolished as it applied to determining injunctive relief. Robert Bosch LLC v. Pylon Mfg. Corp., 659 F.3d 1142, 1149 (Fed. Cir. 2011) (“We take this opportunity to put the question to rest and confirm that eBay jettisoned the presumption of irreparable harm as it applies to determining the appropriateness of injunctive relief.”). Although eBay and Bosch involved permanent injunctions, we see no reason to depart from their holdings in the preliminary injunction context.

 

It is not clear here that the district court applied the presumption of irreparable harm to its fact findings rather than simply note there is such a presumption. . . . In any event, the court may analyze irreparable harm in a manner that does not rely on the presumption, if it reaches this issue on remand (pp. 9-10).

By itself, the above discussion is pretty unremarkable, inasmuch as it merely reaffirms the Federal Circuit’s long-standing understanding of eBay, albeit in the context of preliminary relief.  The absence of a presumption of irreparable harm nevertheless remains a fraught issue, with Collision Communications having argued (unsuccessfully) before Judge Gilstrap, and more recently before the Federal Circuit (where the matter remains pending), that it is entitled to such a presumption because that would have been the practice in courts of equity in 1789, and under Trump v. CASA federal courts are obligated to apply the law of equity as it would have been understood as of that time.  For previous discussion on this blog of Collision Communications v. Samsung, see here; for recent discussion of the pending appeal, see the write-up last week on Patently-O, here.  My own long-standing view is that, while the eBay opinion is not a paragon of legal reasoning, the eBay standard remains a necessary tool, at least in U.S. practice, for reducing the harms resulting from patent holdup.  I also wonder whether, doctrinally, even if U.S. courts are obligated to apply the standards that a court of equity would have applied in 1789 (sigh), if a district court today can award post-judgment reasonable royalties but could not have done so in 1789 absent proof of an established royalty, that should render the presumption of irreparable harm nugatory--or does that argument only work if ongoing royalties are characterized, contrary to current Federal Circuit case law, as a form of legal relief authorized under 35 U.S.C. § 284?  See pp. 1162-63 of this paper; cf. Plaintiff’s Brief at p.53, citing an 1887 Supreme Court decision (McConihay v. Wright) for the proposition that “The adequate remedy at law, which is the test of equitable jurisdiction in [federal] courts, is that which existed when the judiciary act of 1789 was adopted, unless subsequently changed by act of congress”).