Mentor Graphics v. EVE-USA was decided on March 16, 2017 on appeal from the District of Oregon. The patents concerned simulation/emulation technology. After plaintiff Mentor sued defendant EVE for patent infringement, EVE sued Mentor for a declaratory judgment that a non-asserted patent was invalid. Mentor then counterclaimed for willful infringement of that patent. The judge granted EVE’s motion in limine precluding Mentor from introducing evidence of willfulness because Mentor relied exclusively on post-suit willfulness, and because Mentor had not first sought a preliminary injunction. The judge also found various asserted patents invalid. The jury then found infringement by EVE, and awarded Mentor $36,417,661 in lost profits, and $242,110.45 in reasonable royalties. Both parties appealed.
The Federal Circuit affirmed the infringement verdict, affirmed and reversed various invalidity rulings, affirmed the lost profits award, and vacated the motion in limine precluding Mentor from introducing evidence of willfulness.
The Federal Circuit affirmed the district court’s denial of JMOL and of a new trial on damages. “The goal of lost profit damages is to place the patentee in the same position it would have occupied had there been no infringement.” Thus, the fact finder’s job is to determine what would the patent holder have made (what would its profits have been) if the infringer had not infringe. The patentee must show but-for causation. One “useful, but non-inclusive method” to show but-for causation for lost profits is the Panduit test. Under Panduit, a patentee is entitled to lost profits if it can show: (1) demand for the patented product; (2) absence of acceptable non-infringing alternatives; (3) manufacturing and marketing capability by the patentee to exploit the demand; and (4) the amount of profit it would have made.
The first factor ascertains the demand for the patented product as a whole; and the second factor ascertains the demand for particular limitations or features of the claimed invention (indirectly by considering non-infringing alternatives). Under the second factor, if there is a non-infringing alternative which any given purchaser would have found acceptable and bought, then the patentee cannot obtain lost profits for that particular sale. This “determination is made on a customer-by-customer basis,” so it’s common for a patentee to show entitlement to lost profits for some of its sales but not others. For sales in which the patentee cannot prove lost profits, the statute guarantees a reasonable royalty.
The Panduit analysis was straight forward. The relevant market (supplier of emulators to Intel) contained two parties, Mentor and EVE. Mentor sold its emulators to Intel, and EVE sold its infringing emulators to Intel. EVE did not dispute that for each infringing sale it made to Intel, Mentor lost that exact sale (and its profits). Under factor 1, there was demand by Intel for the patented product. Under factor 2, there were no non-infringing alternative emulator systems acceptable to Intel. Under factor 3, Mentor had the manufacturing and marketing capability to satisfy Intel’s demand. And under factor 4, Mentor established the amount of profit it would have made if EVE had not infringed, $36,417,661. EVE argued that lost profits must be apportioned where, as here, the invention only covers two features of an emulator that comprises thousands of hardware and software features.
Apportionment is generally necessary in both reasonable royalty and lost profits analyses. The Panduit factors apportion damages by requiring that the patentees prove demand for the product as a whole, and prove the absence of non-infringing alternatives. These requirements tie lost profit damages to specific claim limitations. Thus the district court didn’t err in refusing to further apportion lost profits after the jury verdict applied the Panduit factors.
The district court abused its discretion in precluding Mentor from presenting evidence of willfulness. The lower court erred in determining that the alleged conduct was post-suit conduct. “The relevant date for determining which conduct is pre-suit is the date of the patentee’s affirmative allegation of infringement.” Here, Mentor alleged infringement of the relevant patent in a counterclaim. Although the alleged acts of willfulness occurred after the declaratory judgment action was filed, they are pre-suit acts because they occurred before Mentor’s willful-infringement counterclaim. The district court also erred in holding that Mentor could not assert willfulness because it did not seek a preliminary injunction. There is “no rigid rule that a patentee must seek a preliminary injunction in order to seek enhanced damages.” The Federal Circuit thus vacated the grant of the motion in limine and remanded.
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