Page 37 - Intellectual Property Disputes

Addressing this factor in Grain Processing Corp. v. American Maize-Products Co., the court ruled that
"Reconstructing the market, by definition a hypothetical enterprise, requires the patentee to project
economic results that did not occur. To prevent the hypothetical from lapsing into pure speculation, this
court requires sound economic proof of the nature of the market and likely outcomes with infringement
factored out of the economic picture." fn 22

The patent holder — attempting to prove that there are no or few acceptable non-infringing substitutes
under the second Panduit factor –– tends to have a narrow interpretation of what a consumer finds to be
an acceptable alternative. In particular, the patent holder may attempt to show that any alternatives in the
marketplace are truly inferior and do not have the distinct features and benefits of the product with the
patented feature. Conversely, the alleged infringer tends to have a more expansive view of the market.
For example, the alleged infringer may attempt to prove that there are many acceptable alternatives in
the market, making it impossible to demonstrate with any reasonable degree of certainty that the patent
holder would have sold additional units if the infringer was absent from such market.

Market share approach. The second prong of the Panduit test requires proof that acceptable non-
infringing substitute products were not available to satisfy demand during the period of infringement.
Early interpretations of this prong required the patent holder to prove that there was a two-supplier
market —itself and the infringer — and that a customer would either have purchased the patent holder’s
product or the infringing product. If this burden was carried by the patent holder, customers would, by
definition, have purchased the patent holder’s product absent the infringement.

More recently, the courts have ruled that if multiple competitors exist in the marketplace, they may
apply a percentage of market share approach in the context of the second Panduit factor. For example, in
State Industries, Inc. v. Mor-Flo Industries, Inc., fn 23 the Federal Circuit allowed the patent owner to
estimate sales that would have been made in the but-for world by nonparty competitors on the basis of
their proportionate market share of infringing sales. fn 24 Under this approach, awarding lost profits
based on market share is appropriate, even if acceptable non-infringing alternatives exist, if the patent
owner is able to (a) demonstrate an established market share and (b) meet its burden under the other
three Panduit factors. In this regard, the Federal Circuit stated the following:

In the two-supplier market, it is reasonable to assume, provided the patent owner has the
manufacturing and marketing capabilities, that it would have made the infringer’s sales. In these
instances, the Panduit test is usually straightforward and dispositive. ("[w]here a patent owner
maintains that it lost sales equal in quantity to the infringing sales, our precedent has approved
generally the [Panduit test] . . .")

In this case, there are multiple competitors, and the patent owner contends that all the
competitors infringed or sold a far less preferable alternative—fiberglass. The district court made
the absence of acceptable substitutes, the second Panduit factor, neutral by crediting all the other
competitors with their market shares as State Industries requested. If the court is correct in its
finding that the other competitors were likely infringers of one or the other of State Industries’
patents, State Industries would have been entitled to their shares of the market on top of its own

fn 22 Grain Processing Corp. v. American Maize-Prods. Co., 185 F.3d 1341 (Fed. Cir. 1999).

fn 23 State Indus., 883 F.2d at 1573, 1577.

fn 24 See footnote 23.

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