Defendant Damaged: A Patent Infringement Case

5.12.16

When it comes to infringement damages, design patents are different from utility patents. In fact, design patent damages can far exceed the reasonable royalties often associated with utility patent infringement. That’s because design patentees can recover the infringer’s total profits from the infringing product — even if only a single feature of the overall product infringes the patent. And this was good news for a patentee in Nordock, Inc. v. Systems Inc.

Plaintiff gets docked  

Nordock Inc. and Systems Inc. are rivals in the loading dock device industry. Nordock holds a design patent on a leveler with a “durable combined lip lug and header plate hinge construction.” It sued Systems, alleging that Systems’ hydraulic dock leveler infringed the patent. A jury awarded Nordock about $47,000 in reasonable royalties but no profits because it found that Systems earned no actual profits from the infringing features of its product.

After the trial court denied Nordock’s request for a new trial, the plaintiff appealed to the U.S. Court of Appeals for the Federal Circuit. It claimed a new trial was required to determine damages.

Hinging on Patent Act provisions

When a design patent is infringed, a patentee can recover damages under Section 289 or Section 284 of the federal Patent Act. Under Sec. 289, the patentee can recover total profits from the infringer’s sales or $250 in damages. Sec. 284 provides for damages for the patentee’s own lost profits or the reasonable royalty it would have received through licensing.

A design patentee, therefore, can recover:

• Total profits from the infringer’s sales under Sec. 289,
• Damages in the form of the patentee’s lost profits or a reasonable royalty under Sec. 284, or
• $250 in damages under Sec. 289.

The patentee is entitled to recover whichever of the three amounts is greater.

Federal Circuit unloads

On appeal, Nordock argued that the trial court had improperly relied on Systems’ expert’s “cost savings” methodology. The expert had testified that, because Nordock hadn’t established that it incurred any lost profits, lost profits weren’t applicable damages.

He stated that royalty damages of $15 per leveler were appropriate. In the alternative, the expert said, Systems’ profits associated with the design of the lip and hinge plate were approximately $15 or less per leveler. Based on this testimony, the trial court found that the jury could select reasonable royalties as an appropriate form of damages.

The appeals court faulted the lower court for adopting the expert’s cost savings methodology, which was limited to the lip and hinge plate portion of the levelers. By taking this limited approach, it said, the expert had ignored the fact that total profits are based on the entire product that incorporates the patent — not just the feature that infringes the patent. Apportioning profits isn’t appropriate in design patent infringement cases.

The court found that the defense expert used an improper methodology and that his testimony was premised on an incorrect understanding of the relevant product. His testimony, it said, confused and misled both the trial court and jury into believing that Nordock was entitled to recover only Systems’ profits attributable to a small portion of the dock levelers.

Leveling the field

The court concluded that a new trial on damages was necessary for two reasons: 1) No reasonable jury could have believed the expert’s testimony that profits were less than $15 per unit, and 2) the trial court had erred in relying on the cost savings methodology to deny Nordock’s motion for a new trial. Nordock was entitled to a proper determination of Systems’ profits based on the appropriate gross revenue methodology, “not the so-called ‘cost savings’ approach.” Design patentees who accept this or a similar apportionment approach will end up shortchanged.