Nordock v. Systems was decided on September 29, 2015 on appeal from the Eastern District of Wisconsin. There, a jury found defendant Systems infringed plaintiff Nordock’s design patent, and that the patent was not invalid. Nordock’s damages expert testified that System’s net profit for the sale of the infringing items was $912,201. System’s expert testified that a royalty was the proper form of damages, and that total damages were about $91,650. The jury awarded Nordock $46,825 as a reasonable royalty, and indicated on the verdict form that Systems’ profits were $0. The district court then denied Nordock’s request for a new trial on damages, and denied Systems’s motion for JMOL as to validity and its motion to amend the judgment. Both parties appealed.
The Federal Circuit affirmed the district court’s decisions denying Systems’ motion for JMOL as to validity and denying its motion to amend the judgment, vacated the jury damages award, and remanded for a new trial on damages.
Under § 284, upon infringement, the patentee is entitled to “damages adequate to compensate for infringement, but in no event less than a reasonable royalty.” This section provides patentees with two alternative categories of compensatory damages: “the patentee’s lost profits and the reasonable royalty he would have received through arms-length bargaining.” For design patent infringement, a patentee can recover under § 284 or under § 289. Section 289 entitles the patentee to either $250 or the infringer’s “total profit.” Thus a design patentee can recover the greater of either (1) a reasonable royalty or lost profits under § 284, (2) total profits under § 289, or (3) $250 or total profits under § 289.
The Federal Circuit held that the district court erred by relying on Systems’s expert Bero in upholding the jury award. The asserted patent covered the ornamental design of a lip and hinge plate for a dock leveler. The dock is welded to and sold as a unit with the dock leveler. Bero testified that “because Nordock had not established that it incurred lost profits, royalty damages were the proper form of damages, and that $15 per allegedly infringing dock leveler was appropriate.” “[A]s an alternative form of damages,” Bero continued, “the profits associated with the … ornamental design of the lip and hinge plate is approximately $15 or less per dock leveler.” Further, “the cost savings that Systems received as a result of using that [ornamental] design are again less than $15 per unit.” So Bero concluded that the profitability of the ornamental design was the same number or less than the royalty damages.
The district court “erred in relying on Bero’s cost savings methodology, rather than on the gross profits methodology required by law.” This cost-savings approach is inconsistent with § 289’s provision for “recovery of the infringer’s total profits.” Profits under the section are based “on gross revenue after deducting certain allowable expenses.” Rather than using gross revenue as a starting point, Bero used his cost-savings methodology, which focused on the savings Systems received as a result of using the ornamental design. This methodology was “limited to the lip and hinge plate portion of the dock levelers.” In using it, “Bero ignored the fact that total profits are based on the article of manufacture to which the [design patent] is applied—not just a portion of that article of manufacture.” “[A]pportioning profits in the context of design patent infringement is not appropriate.” Because there was “no evidence that Systems sold a lip and hinge plate separate from the leveler as a complete unit,” the article of manufacture, to which the “total profit” provision applied, was the dock leveler. Because Bero’s testimony “misled both the district court and the jury into believing that Nordock was only entitled to … profits attributable to a small portion of the dock levelers,” the Federal Circuit reversed and remanded for a new trial on § 289 damages.
The Federal Circuit held that the jury verdict was “against the manifest weight of the evidence.” On the verdict form, the jury indicated that Systems’ profits were $0 despite that there was “no credible evidence” supporting this total profit amount. Nordock’s damages expert Dr. Smith indicated that Systems had net pretax profits of $912,201. Even Bero found that Systems’ operating profit per unit for its hydraulic levelers was $433, and Systems sold 1,457 hydraulic dock levelers (total profit = $433*1,457 = $630,881). “Under either formulation, the evidence showed that Systems’ profits were over $630,000—a far cry from $0 (which was based on the profits from the ornamental design of the lip and hinge plate).” (parenthesis added).
The Federal Circuit held that the jury must determine § 289 damages on remand. The district court and jury “were confused with respect to the interplay between § 284 and § 289.” The fact that Nordock could recover only either (1) Nordock’s lost profits or a reasonable royalty, or (2) Systems’ total profits, did not absolve the jury of its obligations to determine the amounts of Systems’ total profits under § 289. “To the extent the district court believed that the jury could simply choose between awarding damages under § 284 or § 289, it [was] incorrect.” “Only where § 289 damages are not sought, or are less than would be recoverable under § 284, is an award of § 284 damages appropriate.” Because Nordock sought § 289 total profits, the jury was obliged to determine Systems’ profits under § 289, and could not simply choose to award § 284 damages.
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