Remedies – Monetary Damages

Section 284 of the United States Patent Act (35 U.S.C. § 284) authorizes the award of monetary damages for patent infringement, intended to compensate the patentee for the infringement.  Except in the case of willful patent infringement, monetary awards are based on making the patent owner whole, not punishing the defender.

No damages can be incurred until after the patent has been issued.  In order to obtain damages from the patent infringer, the infringer must have known there was a patent on the invention.  The law does not require that the infringer have “actual knowledge” of the patent.  The infringer is deemed to have knowledge if all products or processes covered by the patent are marked with the patent number.  If there is no notice through patent marking, the patent infringer must have actual knowledge of the patent before the infringer will be made to pay damages.  The infringer still may be liable for infringement and may be required to stop all use of the patented product or process. 

Proving damages can be a very involved and complicated process. To determine a fair amount of compensation, Courts consider a number of factors including:

Lost Profits

In order to obtain monetary awards based on “lost profits” the patentee typically has to prove that infringement occurred, and that he actually lost money due to the patent infringement. In other words,  “but for the infringement” the patent holder would have made additional sales. Thus to recover lost profits, the patentee must actually produce the patented product, or have had the capacity to produce the product, during the time of the infringement. 

In determining the value of lost profits, courts sometimes take “price erosion” into account. Price erosion occurs when prices charged for patented objects must be reduced in order to complete with the infringer’s similar offerings.  In order to recover damages for depressed prices, patentees must show the court that they would have been able to charge a higher price if the infringing products were not on the market.

Reasonable Royalties

A patent owner whose products have been infringed upon may be entitled to damages based on the royalty payments he likely would have received from licensees.  When the patentee has licensed the patent in question, the royalty rate used for existing licenses provides an indicator of a possible reasonable royalty rate.  When no established royalty rate exists, courts sometimes use the structure of a “hypothetical negotiation” of a license between the parties.

Entire Market Value Rate

If the patented product is an integral part of a larger unit, the patent owner may be able to recover damages for decreased sales of the larger unit.  This is called the “entire market value rule.” The entire market value rule will typically apply only if there is a strong “functional relationship” between the patented and unpatented components.

Prejudgment Interest

Prejudgment interest is recovery for an amount calculated as the interest that would have been earned on the damages amount from the time of the patent infringement until the date of judgment.  Courts generally award such interest unless there is a specific justification for not awarding it, for example, if the patent owner unduly delayed the lawsuit.

Patentees can also obtain enhanced monetary damages if the infringement was found to be particularly reckless, willful or egregious.