Page 34 - Intellectual Property Disputes

The Panduit fn 6 test and two-supplier market test fn 7 are two recognized methods of showing but-for
causation. Although both approaches have been recognized and accepted by the courts, experts must
ensure that they consider the relevant facts and circumstances of each case (for example, market
definition and competitive products) and appropriately apply them to the selected methodology.

Patent Disputes: The Panduit Test

The Federal Circuit has made clear that there is no single method by which the patent owner must carry
its burden of proving lost profits. The Panduit case is a leading authority on the measurement of lost
profits in the patent arena, and it articulated a four-factor test that has been accepted by most courts as a
useful, but nonexclusive, method for a patent holder to prove entitlement to lost profits. fn 8

Under Panduit, the patent owner must prove each of the following facts to be entitled to lost profits:

• Demand existed for the infringed product during the period of infringement.

• Acceptable non-infringing substitute products were not available to satisfy demand during the
period of infringement.

• The patent owner possessed the manufacturing and marketing capability to have supplied the
patented product to the customers who bought the infringing product.

• The amount of the profit the patent holder would have made. fn 9

Historically, if any of the four prongs of the Panduit test were not proven, the patent holder was unable
to recover lost profits. Subsequent cases have refined, and in some respects, relaxed these requirements.
With respect to the second Panduit factor, a patent holder need not negate each and every possibility that
the purchaser would not have purchased a product other than its own, absent the infringement. Rather,
the patent holder need only show that there was a "reasonable probability" that the sales would have
been made by it but for the infringement. If the patent holder establishes the reasonableness of this
inference by satisfying all four prongs of the Panduit test, the burden of proving entitlement to lost
profits due to the infringing sales has been sustained. Each of the four Panduit factors is discussed in the
following sections. The practitioner should expect to address each of these factors and the relevant
supporting evidence in the practitioner’s damages analysis. Such supporting evidence may include
documents, analysis performed by the practitioner, or the opinions of other witnesses or experts.

Factor 1 — Demand existed for the infringed product. If both the patent holder and the infringer
have made sales of the product to informed customers on a regular basis, then demonstrating demand
may be straightforward. fn 10

fn 6 Id.

fn 7 Lam, Inc. v. Johns-Manville Corp., 718 F.2d 1056, 1065 (Fed. Cir. 1983).

fn 8 State Indus., 883 F.2d at 1573, 1577.

fn 9 Panduit, 575 F.2d at 1152.

fn 10 Gyromat Corp. v. Champion Spark Plug Co., 735 F.2d 549, 552 (Fed. Cir. 1984).

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