Page 45 - Intellectual Property Disputes

• Analysis of the cost and availability of certain key raw materials may be necessary in order to
demonstrate that the patent holder had the ability to manufacture the lost sales that are being
claimed in the lost profit calculation. fn 57

• The size and effectiveness of the sales and distribution network that the patent holder has in
place compared with what it would need in order to make the lost sales volume.

• Channels of distribution for the actual historic sales may differ from those channels through
which the infringer made the infringing sales. The patent holder may need to demonstrate that it
had the ability to make sales through these alternate channels of distribution in order to prove
marketing capacity.

• In certain industry sectors, such as pharmaceuticals, increasing production capacity requires
certification and approval from government agencies such as the Food and Drug Administration.
These approvals may increase the cost or time required before the patent holder can increase
production.

The patent holder may be able to prove manufacturing capacity by demonstrating that sufficient capacity
existed, could have been contracted for, or both, to manufacture the additional units that were infringed.
The latter analysis would require the expert to quantify the costs of contract manufacturing of the
patented product. Alternatively, the patent holder can demonstrate manufacturing capacity by showing
that it was feasible to expand its existing production facilities to meet the growing demand. However,
this approach will often be found unfeasible when expansion would require closing down the production
of a more profitable product. fn 58 With respect to marketing capacity, the patent holder should attempt to
demonstrate its ability to reach the marketplace in question from a geographic or support perspective.

Factor 4 — Quantifying lost profits. Lost profits do not have to be calculated with absolute precision
but, rather, with reasonable probability. fn 59 In other words, lost profits are neither unfounded
speculation, nor complete precision but, rather, an estimate. Because " . . . determination of a damage
award is not an exact science[,] [t]he trial court must best approximate the amount to which the patent
owner is entitled." fn 60 "When the amount of damages is not ascertainable with precision, reasonable
doubt is appropriately resolved against the infringer." fn 61

Typically, a patent holder may recover lost incremental profits, equal to the difference between (a) net
revenues resulting from regaining the sales lost due to infringement and (b) the incremental cost of
making those sales. This measure of profit loss is appropriate when the patentee’s fixed costs do not rise,

fn 57 R. L. Parr, Intellectual Property Infringement Damages: a Litigation Support Handbook, 2d ed. (New York: John Wiley & Sons,
1999), 64–65.
fn 58 Polaroid Corp. v. Eastman Kodak Co., 16 U.S.P.Q.2d 1481, 1511 (D. Mass. 1990), typographical errors to opinion amended by
17 U.S.P.Q.2d 1711 (D. Mass. 1991).

fn 59 Bio-Rad Lab., 739 F.2d at 604, 616.

fn 60 King Instrument Corp. v. Otari Corp., 767 F.2d 853, 863 (Fed. Cir. 1985).

fn 61 Del Mar Avionics, Inc. v. Quinton Instrument Co., 836 F.2d 1320 (Fed. Cir. 1987).

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