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© Michael A. Shimokaji, 2014

DO YOUR PATENT INFRINGEMENT DAMAGES JUSTIFY THE

COSTS OF BRINGING A LAWSUIT?

The American Intellectual Property Law Association (AIPLA)

reports that for patent infringement lawsuits where $1M to $10M is at risk

the cost to go to trial is about $2M. Just getting through discovery costs

about $1M.

Given the high costs of patent litigation, a patent owner needs to

evaluate the amount of possible recovery before instituting a patent

infringement lawsuit. If the amount of possible recovery - without regard

to the likelihood of proving infringement – does not exceed the litigation

costs, there may not be sufficient justification to bring a lawsuit.

A more accurate analysis of the amount of possible recovery might

also account for the likelihood of proving infringement. If this likelihood

is quantified at less than 100%, then the amount of recovery can be

accordingly reduced.

The amount of possible recovery is affected by different factors.

One factor is when the patentee’s damages start to accrue. A second factor

is whether the patentee can seek a reasonable royalty or damages. A third

Michael Shimokaji

www.shimokaji.com

949-788-9968

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© Michael A. Shimokaji, 2014

factor is the extent to which the patentable features can be linked to

infringing sales.

Under the first factor, the patent owner can recover damages from

the infringer from the time of notice of infringement. This notice may be

in the form of a “patent mark” on the patented product, a letter to the

infringer advising of infringement, or the filing of an infringement lawsuit.

The “patent mark” is where the patent number is placed on the

patented product. Where the patent owner does not make or sell a product

covered by the patent (e.g., a non-practicing entity – NPE), there is no

obligation to mark the patented product or give actual notice. Likewise,

there is no requirement of marking a patented method.

Under the second factor, the patent owner is entitled to damages but

not less than a reasonable royalty. If the patent owner can prove lost

profits due to the infringement, it can recover its lost profits.

However, one limitation to proving lost profits is that the patentee

must compete with the infringer in the relevant market for the patented

product. Thus, an NPE who does not make a competing product would be

foreclosed from recovering lost profits.

Another limitation to recovering lost profits is proving that the loss

was due to the infringement rather than market conditions.

To recover a reasonable royalty, the patent owner must prove what

would have been paid as a royalty between a hypothetical willing licensor

and a hypothetical willing licensee.

Under the third factor, damages are generally recoverable only for

the infringing product. But often, an infringing component is sold with

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non-infringing components as part of a larger product. In that case,

damages are limited to the infringing component.

An exception can apply where the patented feature drives demand

for the entire product. Damages or royalties may then be based on the

entire market value of the product.

The above and other damage factors then need to be weighed against

what counsel for the patent owner estimates to be the total costs through

trial, as well as the probability of success at trial. Though difficult to

estimate, the patent owner needs the estimates to weigh the costs and

benefits of an infringement suit.

SUMMARY:

Patent owners often look to the gross amount of infringing sales to

determine the extent of their harm or damages. However, the gross amount is

not what the patent owner will receive for damages at trial. It is far less, if at

all. That lesser amount needs to be weighed against the cost of litigation

before deciding to initiate litigation.