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It is all well and good to be encouraged to apply and obtain for patent protection. The main remedies for patent infringement are a narrow injunction to prevent future instances of the infringement, and either damages or an account of profits. In this article, we examine the measure of monetary compensation that may be awarded by these damages and accounts of profits and the factors taken into account in their calculation. Claimants who have successfully proved liability in an action for patent infringement, either actual or anticipated, are entitled to elect their remedy. Successful litigants will discover that the measure of the award for compensation may vary widely depending upon their election between damages and an account of profits.

Comparison of the Remedies
The variance between an account of profits and damages exists because the focus is on the affairs of different parties: in one instance that of the claimant and the other on the defendant.

Damages
An award of damages focuses on the losses sustained by the claimant. There is no upper limit on the measure of damages that may be awarded. Relief for patent infringement may overlap with other areas of intellectual property; for instance the copyright of the claimant may have also been infringed (an instance being software). In calculating the sum to be paid in damages, a court will disregard whether the defendant could have avoided infringement by using substitute process and thus avoided a charge of infringement altogether. It is irrelevant. Losses not caused by the infringement are not recoverable.

An Account of Profits
On the other hand an account of profits focuses on the profits made by the defendant, without reference to the damage suffered by the claimant at the hands of the defendant. The purpose of the account is to prevent the unjust enrichment of the defendant by the use of the claimant’s invention. The claimant is treated as if they were conducting the business of the defendant, and made the profits of the defendant. As such, the upper most limit of an award is the sum of profits made by the defendant caused by the infringement. In most cases, an award of damages will equal or exceed the maximum award in an account of profits; however an account of profits may greatly outstrip an award of damages in the right case. When assessing an award, to say that a defendant should have generated higher profits is immaterial: the claimant must take the defendant as he find them.…

Calculating Damages

Damages
It is trite to say that the claimant is entitled to be placed in the position they would have been had the infringement not taken place in the context of damages. The test for the measure of damages in patent cases is seen in the application of the ‘but for’ test, and the damage must be the natural and direct consequence of the defendant’s acts. Although the claimant must prove their loss, they are assessed liberally. Courts recognise that monopoly rights lead to higher prices or licence fees, so this is the peg to which damages are assessed.

There are two ways to calculate the damages suffered by a defendant, and the method turns on whether the claimant manufactures the patented invention or whether manufacturing of the invention is licensed to others.

The Reasonable Royalty
Where the patent owner licenses the production or use of the invention to others, the measure of damages is the lost royalty profits.

A court is usually inclined to award a reasonable royalty to the claimant, notionally asking: if the claimant did grant a licence to use the patent, what would they reasonably be expected to obtain in the market?

The damages are limited to the lost licence fees that would have been payable by the defendant. Where previous licensing fees have been agreed, the determination of the price as it has been determined in the free market will be persuasive evidence of the proper sum payable, as that is the sum that the infringer will be presumed to be asked to pay. The sum may be increased where standard licence fees impose restrictions upon the licensee which are not similar to the conduct of the defendant when committing the infringing acts. Thus when a product is usually made available on a usage only basis, and the infringer has manufactured and sold the product with purported licences to further develop the invention to its licensees, an uplift in the award payable is likely.

Where there is no precedent of licensing by the claimant, calculation of a reasonable royalty may take into account:
– the patent owners’ previous conduct in pricing and terms
– Percentages standard in the trade
– cost of designing around the patent
– monopoly rights

The proper sum for the notional licence fee is the sum that a potential licensee would be willing to pay to enter the market.

Where there is no licensing activity, the court may use this notional licence fee to calculate damages. Evidence of the quantum to be awarded may be a quoted licence fee by the claimant. Where there is no quote for a reference point, the measure will be the rate that a licensee who is not in the market would pay, regardless of whether they might have been able to make non-infringing equivalents.

Manufacturers of Patented Inventions
When the patent owner manufactures the product, the patentee is entitled to lost manufacturing profits.

When the patent owner is a manufacturer rather than a licensor, it has often been said that the appropriate figure cannot be arrived at with mathematical precision. It is the profit that the claimant could have made that sets the baseline for the award. Some allowance may be made for the exertions made by the defendant, as it is presumed that not all sales made by the defendant would have been made by the claimant had there been no infringement.

Heads of Damages
Depending on the type of case, the following heads of damage have been established by previous case law:
– Loss of profits in the form of sales diverted away from the claimant by reason of the infringement; lost margins on sales not made due to the pressing need to reduce prices due to price depression caused by the infringer.
– Loss of goodwill and reputation to the claimant, which arguably has several dimensions.
– Sums representing the benefit of the use of the invention by defendant in the market, which is qualified by taking the market value of the use.
– It is damages for the unauthorised use, which resonates as a licence fee for the use and restitutionary damages (sometimes referred to as ‘gain based damages’), an area of damages law rarely pressed.
– Lost profits on sales lost on goods that are commonly sold with the invention.
– Springboard Damages: damages that are suffered after the infringement by establishing a market presence through infringement.
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Ihab Salloum