Page 129 - Intellectual Property Disputes

Standing to Collect Damages

Various cases have addressed the issue of a patent owner or patent licensee’s standing to collect
damages. In Poly-America, L.P. v. GSE Lining Technology, Inc., the Federal Circuit reversed the district
court opinion that awarded lost profits to Poly-America based on sales by a sister company, Poly-Flex.
"We disagree with Poly-America and the district court that Poly-Flex’s lost profits are properly
recoverable as if they were Poly-America’s own damages." GSE Lining "alleges that Poly-Flex, even
though it is a sister corporation to Poly-America, nonetheless lacks any exclusive rights and is hence not
entitled to damages for infringement." The Federal Circuit noted that "Poly-America and Poly-Flex have
a common parent corporation and are not simply divisions of a single corporation but are separate
corporate entities. Their parent has arranged their corporate identities and functions to suit its own goals
and purposes, but it must take the benefits with the burdens." fn 87

The Federal Circuit noted that "the recovery of lost profits by a patentee is not limited to the situation in
which the patentee is selling the patented device," but "the patentee needs to have been selling some
item, the profits of which have been lost due to infringing sales, in order to claim damages consisting of
lost profits." Accordingly, the Federal Circuit rejected Poly-America’s position that it "operates together
with Poly-Flex as a single economic unit for the purposes of production, marketing, and sales of the
patented liner" and should be treated as "a single economic unit for lost profits." fn 88

The Federal Circuit also ruled that provisions in the Poly-America and Poly-Flex contract do not support
a standing for lost profits. "The provision of the license agreement between Poly-America and Poly-Flex
providing that Poly-America ‘desires to have the contractual right to collect all damages accruing to
Poly-Flex for certain past infringements of the Patents’ does not change this situation." Moreover,
"Poly-Flex does not have exclusive rights. It is clearly identified in the license agreement as a non-
exclusive licensee, and as such, it received only a ‘bare license’ and has no entitlement under the patent
statutes to itself collect lost profits damages for any losses it incurred due to infringement." "Awarding
lost profits to Poly-America on the basis of its private arrangement with Poly-Flex would synthetically
create lost profits for Poly-America, when it may not have suffered any, to the detriment of GSE." The
Federal Circuit held "that a licensee generally may not sue for damages unless it has exclusive rights
under a patent, including the right to sue." fn 89

In Mars, Mars owned the patents, but its wholly owned subsidiary, MEI, sold the product. Mars entered
into a nonexclusive license with MEI, whereby MEI paid Mars a royalty based on total sales value of
MEI’s products. The Federal Circuit ruled that because Mars did not benefit from the lost profits of MEI
while MEI was licensed, that is, it was paid its royalty percentage regardless of whether MEI made a
profit, Mars was not entitled to a recovery for lost profits. Accordingly, the Federal Circuit passed on the
issue of "whether a parent company can recover on a lost profits theory when profits of a subsidiary
actually do flow inexorably up to the parent." "In this case, we reduced the amount of the district court’s
damages award by holding that Mars lacked standing to recover damages on sales from 1996 to 2003."

fn 87 Poly-America, L.P. v. GSE Lining Tech., Inc., 383 F.3d 1303 (Fed. Cir. 2004).

fn 88 Id.

fn 89 Poly-America, 383 F.3d at 1303.

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