Lost-profits damages are appropriate “whenever there is a reasonable probability that, but for the infringement, the patentee would have made the sales that were made by the infringer.” Versata Software v. SAP. A showing under the four-factor Panduit test establishes the required causation. These factors include: “(1) demand for the patented product, (2) absence of acceptable noninfringing alternatives, (3) capacity to exploit the demand, and (4) the amount of profit the patentee would have made.” Id. (citing Panduit v. Stahlin). This post will cover the first Panduit factor: demand for the patented product.
Demand for the patented product as a whole. The first Panduit factor “simply asks whether demand existed for the patented product, i.e., a product that is covered by the patent in suit or that directly competes with the infringing device.” Depuy Spine v. Medtronic. “[T]he focus on particular features corresponding to individual claim limitations is unnecessary when considering whether demand exists for a patented product.” Id. (finding the first Panduit factor met, and rejecting argument that “the requisite demand under the first Panduit factor is demand for the specific feature (i.e., claim limitation) that distinguishes the patented product from a noninfringing substitute”).
Demand for the claimed feature. Although not required, a patentee may meet the first Panduit factor by showing demand for a particular claimed feature. See State Industries v. Mor-Flo (finding demand met where (1) “there was a great need to develop” the patented method; (2) “[t]he patented method solved … problems” relevant to the industry; and (3) the patentee and infringer had substantial sales after introducing the patented method); Festo v. Shoketsu Kinzoku Kogyo Kabushiki (finding demand met where the President of the plaintiff company and the Vice President of Sales and Marketing “testified about the demand for [the patented devices] because of their unique characteristics”); Versata (finding demand of the patented product during the damages period where the infringer’s “internal documents stated there was customer need for [the patented feature,]” and where the infringer’s customers answered discovery questions, admitting that many used the patented feature).
Demand for the patentee’s product. A patentee may show demand under the first Panduit factor by showing demand for its own product. This factor is met when there was demand for the patentee’s product covered by the patent in suit. See Georgetown Rail v. Holland (finding demand met where patentee’s system was “covered by claim 16 of the ‘329 patent[,]…generated millions in revenue and was contracted out to four U.S. railroad companies in long-term contracts”). A patentee may also meet the first Panduit factor by showing demand for its product not covered by the claims if that product directly competes with the defendant’s infringing product. See Presidio v. American Technical Ceramics (finding demand met despite that “the ‘356 patent does not cover” patentee’s product where (1) the patentee’s product and the infringing products were substantially similar, (2) “the two products compete[d] head-to-head in the [same] market for the same customers and for the same applications,” and (3) both products had “substantial sales”).
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Demand for the infringer’s product. A patentee may show demand under the first Panduit factor by showing demand for the infringer’s product. See Smithkline Diagnostics v. Helena Lab (“A substantial number of sales of the infringing slides by [defendant] is compelling evidence of a demand for [plaintiff’s] patented … slides”); Gyromat v. Champion Spark Plug (“The substantial number of sales by [defendant] of infringing products containing the patented features itself is compelling evidence of the demand for the product.”). “This analysis assumes that the patent owner and the infringer sell substantially the same product.” BIC Leisure v. Windsurfing. “If the products are not sufficiently similar to compete in the same market for the same customers, the infringer’s customers would not necessarily transfer their demand to the patent owner’s product in the absence of the infringer’s product. In such circumstances,… the first Panduit factor does not operate to satisfy the elemental ‘but for’ test.” Id. (reversing the award of lost profits).
Where there’s evidence that something else drives consumer demand for the infringer’s product over the patentee’s product, the patentee may have to show demand for a particular claimed feature. Calico Brand v. AmeriTek Imports (finding demand not met despite evidence of gross sales of patentee’s product because (1) there was “evidence indicating that the only distinguishing feature influencing consumers to buy the infringing lighters over the [patentee] lighters was price,” and (2) the patentee “never explored the commercial benefits of [the patented] features and elicited no testimony to distinguish between the value of the patented and unpatented features”).
Demand during the damages period. Generally, to recover lost profits, “the patentee needs to have been selling some item, the profits of which have been lost due to infringing sales.” Versata. However, the patentee need not have actually made sales during the damages period to show demand for the patented functionality. Id. (finding the patentee “was selling” its product despite the infringer’s argument that the patentee “made no sales… during the damages period”); Georgetown Rail (finding that the patentee was selling its system during the period of allegedly infringing sales, and holding that patentee need not “show demand [of its product] during the period of allegedly infringing sales”). Evidence of demand before the damages period may suffice under the first Panduit factor if the patentee was selling its product during the damages period.