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Claimants who have successfully proved liability in an action for patent infringement, either actual or anticipated, are entitled to elect their remedy. Successful litigants will learn that the rate of the choice for compensation may vary widely depending upon their election between hurts and an account of profits.

Comparison of the Remedies

The variance between an account of profits and hurts exists because the focus is on the affairs of different parties: in one instance that of the claimant and the other on the defendant.

Hurts

An choice of hurts focuses on the losses sustained by the claimant. There is no upper limit on the rate of hurts that may be awarded. Relief for patent infringement may overlap with other areas of intellectual property; for instance the copyright of the claimant may have also been infringed (an instance being software). In calculating the sum to be paid in hurts, a court will disregard whether the defendant could have avoided infringement by using substitute process and thus avoided a charge of infringement altogether. It is irrelevant. Losses not caused by the infringement are not recoverable.

An Account of Profits

On the other hand an account of profits focuses on the profits made by the defendant, without reference to the hurt suffered by the claimant at the hands of the defendant. The purpose of the account is to preclude the unjust enrichment of the defendant by the use of the claimant’s invention. The claimant is treated as if they were conducting the business of the defendant, and made the profits of the defendant. As such, the upper most limit of an choice is the sum of profits made by the defendant caused by the infringement. In most cases, an choice of hurts will copy or exceed the maximum choice in an account of profits; but an account of profits may greatly outstrip an choice of hurts in the right case. When assessing an choice, to say that a defendant should have generated higher profits is beside the point: the claimant must take the defendant as he finds them.

The profits must have been earned from the use of the claimant’s invention, and if the infringed invention formed only part of the overall product or process, then only that part of the profit attributable to the patented invention is recoverable. This is where most difficulty is experienced in assessing the profits earned by the defendant and a number of approaches may be taken during the assessment. Courts take the view that this would be unfair upon the defendant for the claim to be awarded all of the profits where attribution of profits is possible. Manufacturing processes that use the patent in question as a small step in the manufacturing process provide a typical example, in that it clearly cannot be said that the entire profit of the application of the process is attributable to the infringement. Where it is appropriate to apportion losses, the reference for the assessment will involve splitting the profits between infringing and non-infringing parts of the process.

On the other hand, there are instances where it is appropriate for the claimant to recover all of the profits of an invention, but whether this is so turns on the facts of the case.

Making the Calculations
Hurts

It is trite to say that the claimant is entitled to be placed in the position they would have been had the infringement not taken house in the context of hurts. The test for the rate of hurts in patent cases is seen in the application of the ‘but for’ test, and the hurt must be the natural and direct consequence of the defendant’s acts. Although the claimant must prove their loss, they are assessed liberally. Courts recognise that monopoly rights lead to higher prices or license fees, so this is the peg to which hurts are assessed.

A court is commonly prepared to entail that inference with the claimant’s monopoly will cause hurt in the ordinary course of events, and the absence of a precise means to calculate hurts will not automatically result in an choice of nominal hurts, but a honest sum of what a reasonable person may expect to have lost, with reference to the general trade that has been interfered with by the defendant.

There are two ways to calculate the hurts suffered by a defendant, and the method turns on whether the claimant manufactures the patented invention or whether manufacturing of the invention is licensed to others.

The Reasonable Royalty

Where the patent owner licenses the production or use of the invention to others, the rate of hurts is the lost royalty profits.

A court is usually inclined to choice a reasonable royalty to the claimant, on paper asking: if the claimant did grant a licence to use the patent, what would they reasonably be expected to obtain in the promote?

The hurts are limited to the lost license fees that would have been payable by the defendant. Where previous licensing fees have been agreed, the determination of the price as it has been determined in the free promote will be persuasive evidence of the proper sum payable, as that is the sum that the infringer will be presumed to be questioned to pay. The sum may be increased where ordinary license fees impose restrictions upon the licensee which are not similar to the conduct of the defendant when committing the infringing acts. Thus when a product is usually made available on a usage only basis, and the infringer has manufactured and sold the product with purported licenses to further develop the invention to its licensees, an uplift in the choice payable is likely.

Where there is no precedent of licensing by the claimant, estimate of a reasonable royalty may take into account:

1. the patent owners’ previous conduct in pricing and terms

2. Percentages ordinary in the trade

3. cost of designing around the patent monopoly rights

The proper sum for the notional license fee is the sum that a potential licensee would be keen to pay to enter the promote.

Where there is no licensing activity, the court may use this notional license fee to calculate hurts. Evidence of the quantum to be awarded may be a quoted license fee by the claimant. Where there is no quote for a reference point, the rate will be the rate that a licensee who is not in the promote would pay, regardless of whether they might have been able to make non-infringing equivalents.

Manufacturers of Patented Inventions

When the patent owner manufactures the product, the patentee is entitled to lost manufacturing profits.

When the patent owner is a manufacturer rather than a licensor, it has often been said that the appropriate figure cannot be indoors at with mathematical precision. It is the profit that the claimant could have made that sets the baseline for the choice. Some allowance may be made for the exertions made by the defendant, as it is presumed that not all sales made by the defendant would have been made by the claimant had there been no infringement.
Heads of Hurts

Depending on the type of case, the following heads of hurt have been established by previous case law:

1. Loss of profits

a. in the form of sales diverted away from the claimant by reason of the infringement;

b. lost margins on sales not made due to the pressing need to lower prices due to price depression caused by the infringer.

2. Loss of goodwill and reputation to the claimant, which arguably has several dimensions;

3. Sums representing the benefit of the use of the invention by defendant in the promote, which is qualified by taking the promote value of the use. It is hurts for the unauthorised use, which resonates as a license fee for the use and restitutionary hurts (sometimes referred to as ‘gain based hurts’), an area of hurts law rarely pressed.

4. Lost profits on sales lost on commodities that are commonly sold with the invention

5. Springboard Hurts: hurts that are suffered after the infringement by establishing a promote incidence through infringement and ahead of schedule access into the promote.

6. Diminution of value in subsidiary companies owned by the patent owner due to the loss of sales by them where the profits flow through to the holding company.

7. Depending on the nature of the patent, there may be losses sustained by loss of sales on products commonly sold with the patented products, provided it is foreseeable and caused by the infringement.

8. As a general rule a claimant was entitled to recover for losses and expenses reasonably incurred in mitigation.

Where the patent owner has reduced prices in a competitive promote, a court may have regard for the argument that the patent owner could not have maintained their sales at current prices in that environment. This is a matter that goes to causation of hurt – the claimant is not entitled to recover losses unless the defendant caused them.

In the case of infringement of a product, a excellent starting point for assessing hurts is to obtain evidence of the number of infringing products made and in the alternatives sold, the sums received and the approximate costs incurred. This makes a reference point for the estimate.

The point needs to be made that the hurts recovered in any fastidious case depends on the facts of the case. The general principle of awarding tortuous hurts applies – that any losses caused by the infringement are recoverable, whether or not the fastidious heads appear in the list above. A defendant is said to take the claimant as they find them, and thus hurts outside these heads of hurts which are peculiar to the claimant will be recoverable in the appropriate case.

Making an Accounts of Profits

Defendants are not obliged to hand over the combined profit obtained by reason of the infringement. In keeping with the approach that the claimant is said to stand in the shoes of the defendant, a court will make allowances to the defendant for parts of the combined profit that are attributable to proper expenses associated with making sales, such as advertising and marketing; increases in value of commodities or services once sold or provided and additional features of the product or service that are outside the infringing invention (such as value added services).

In the event an infringer makes a loss in a manufacturing process, the sum by which the infringing process reduces persons losses are recoverable on an account.

Where it is hard to separate out the different components of a process in order attribute a proportion of the profits, courts may choose to assign a percentage of the profits on the same percentage that the costs and expenses are attributed to them by adopting an accounting approach. A judge will make a reasonable approximation. Account may then be taken of the relative importance of the relative attractions of different parts of an infringing product. In this way the courts reserve a discretion to grant a larger slice of the profits where the infringement can honestly be said to play an vital role in the profits obtained by the defendant. This approach takes a ‘base allocated profit’ percentage and then that percentage is weighted for the importance to the profits obtained.

There are cases where the patented invention has readily discernable impact on profits, either positively or negatively. For instance, the patented invention may lower the costs associated with the manufacturing process, making the process more efficient. In that case a larger share of the profits would be payable to the claimant on an empirical basis. It involves a comparison between the profitability achieved when the patented invention is used and on the other hand when it is not used. This brings consideration of efficiencies introduced by the invention into consideration for the estimate of the slice of the profits to be awarded to the claimant.

Making assessments of hurts and accounts of profits frequently require the involvement of forensic accountants with some knowledge of the industry in which the infringement has taken house. As a general rule, an account of profits will probably be preferred in cases where the claimant cannot point to any hurt in their own business. This will usually be the case where the margins of the defendant outstrip the profits that of the claimant.

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