Navigating Patent Damages Part II: How Infringement Allegations Can Impact or Limit Potential Damages

Previously, we discussed the implications of the failure to mark defense on damages prior to the filing of a patent case.  In this next article in the series, we examine how allegations of direct and/or indirect infringement, as well as the type of patent claim being asserted (e.g., method, system, or apparatus) can impact the amount of potential damages a patent holder can recover.

It is well known that a patent holder can recover damages up to six years prior to the filing of a complaint.  35 U.S.C. § 286 (“Except as otherwise provided by law, no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action.”).  But in reality, a patent holder is not always entitled to recover damages six years prior to the filing of the complaint.  In fact, in many cases, the type of infringement being asserted and the type of patent claim being asserted can impact whether or not a patent holder can recover these damages.

Impact of Direct/Indirect Infringement Allegations on Damages

First, in many instances, a patent holder will not be able to recover pre-filing damages for claims of indirect infringement.  This is because allegations of both contributory and induced infringement require, at a minimum, that the alleged infringer know of the existence of the asserted patents.  Synqor, Inc. v. Artesyn Techs., Inc., 709 F.3d 1365, 1379 (Fed. Cir. 2013) (citing Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060, 2068 (2011)).  Thus, patent holders will not be able to recover damages for indirect infringement occurring pre-filing if there was no prior notice of the asserted patents and if the alleged infringer hadno knowledge of their existence prior to being served with the complaint.  Even if a patent holder did provide prior notice, the patent holder cannot seek damages for indirect infringement earlier than that notice – usually a period of less than 6 years.

Direct infringement, unlike indirect infringement, is a strict liability tort and does not have the knowledge and scienter requirements of indirect infringement.  Thus, a patent holder can recover damages up to six years prior to the filing of the complaint for direct infringement, but such recovery is based on the type of patent claim(s) being asserted.

Impact of the Type of Patent Claims on Direct Infringement Damages

Practically, the type of patent claims being asserted also have a direct impact on pre-filing damages for direct infringement because of the identity of the alleged direct infringer.  For example, method claims can only be directly infringed by use of the patented method.2  Likewise, apparatus and system claims may only be directly infringed once multiple components of the apparatus or system are combined by an end user, or by a seller further down the supply chain.  Therefore it is not uncommon that claims for direct infringement of method, apparatus, and system claims are directed to the manufacturer or seller’s internal use of the method or product, such as testing and use of the product utilizing the method (for example, employees using the product in a sales demonstration).

The vast majority of the alleged infringement may actually be performed by end-users, i.e., customers and purchasers of the product who are using the completed system or apparatus and/or performing the method.  In those instances, it is usually not feasible to name all end-user customers as the direct infringers in a lawsuit, so it is more common to name the seller and/or the manufacturer as indirect infringers, with the intention that the seller will be held liable for the infringement of the end-users.  In those cases, a patent holder would not have direct infringement claims against the seller for the alleged infringement by the end-users, and thus, could only recover damages based on an indirect infringement theory.  Consequently, damages incurred as a result of the end-users (customers) use of the method or the apparatus may be limited to the time period after the filing of a complaint, unless the plaintiff provided advance notice of the asserted patents.

For patent holders, these basic principles illustrate the importance of including a wide array of types of claims during patent prosecution and litigation, as well as providing advance notice of patents it believes are infringed.3  For patent defendants, being aware of these principles can provide an effective tool to mitigate damages.

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1 In addition to the minimum showing of knowledge of the existence of the asserted patents, indirect infringement also has a scienter requirement.  See SynQor, 709 F.3d at 1379 (citing Global-Tech, 131 S. Ct. at 2068) (“Liability for induced or contributory infringement under § 271(b) or (c) requires ‘knowledge that the induced acts constitute patent infringement.’”) (emphasis added).

2 See, e.g., Joy Techs., Inc. v. Flakt, Inc., 6 F.3d 770, 774-75 (Fed. Cir. 1993) (“A method claim is directly infringed only by one practicing the patented method.”); Ricoh Co., Ltd. v. Quanta Computer Inc., 550 F.3d 1325, 1335 (Fed. Cir. 2008) (“Accordingly, we hold that a party that sells or offers to sell software containing instructions to perform a patented method does not infringe the patent under § 271(a).”); NTP, Inc. v. Research In Motion, Ltd., 418 F.3d 1282, 1320-21 (Fed. Cir. 2005).

3 Obviously, where a patent holder provides advance notice to the alleged infringer, the patent holder should also evaluate risks relating to actions for declaratory judgment.

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Charles Koole

Charles Koole

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