Panduit Corp. v Stahlin Bros. Fibre Works, Inc.
575 F.2d 1152 (6th Cir. 1978)
Panduit had a patent on an
electrical control system doo-dad. They sued Stahlin for infringement for marketing two very similar doo-dads.
The Trial Court found for
The Trial Court appointed a
Special Master to determine Panduit's damages pursuant to 35. U.S.C.
The Special Master determined
the damages to be about $45k. Panduit appealed.
The Special Master figured
that Stahlin made about 4% profit on their doo-dads, and so Stahlin would
it would fair to both sides to assume that Stahlin would have paid about
2.5% of their revenue to Panduit to license the patent. (and kept 1.5%
That's known as a reasonable
Panduit argued that they had
lost $808k of profit due to lost sales, plus $4M in lost profits from
it's own sales due to Stahlin's price cut.
The Appellate Court reversed
The Appellate Court found
that §284 requires that the
patent owner receive from the infringer "damages adequate to
compensate for the infringement."
The Court found that when
deciding damages based on a determination of the actual profits on sales
the patentee would have made absent the infringement (aka lost profits
due to lost sales), the patentee must prove:
Demand for the patented
Absence of acceptable
Manufacturing capability to
exploit the demand, and
The amount of profit the
patentee would have made
(Sometimes these factors
are known as the DAMP Test)
The Court found that Panduit
failed to show how much profit (if any) they would have made from these
lost sales. Therefore, they could not recover based on actual lost
The Court found that when
actual damages in the form of lost profits cannot be proven, the patentee
is entitled to a reasonable royalty.
Reasonable royalty basically asks the question, "if the
infringer had licensed the patent from the patentee, what would they
have theoretically paid?"
It's a lot like a
retroactive compulsory license.
The Court found the method
the Special Master used to calculate the 2.5% reasonable royalty, was wrong. So they remanded to try again.
The Court found that
instead of just coming up with a generic 2.5% based on what would have
been profitable for Stahlin, the Special Master should consider:
The lack of non-infringing
substitutes that Stahlin could license instead.
Panduit's policy of not
licensing their patents
The future business
Panduit would lose when licensing their patent to a competitor.
The fact that the doo-dad
that infringed Panduit's patent was used in a larger doo-dad, so you
couldn't just consider the value of the infringing product, you had to
consider the value of the overall doo-dad that Stahlin was selling.
There are a lot of other
factors that courts can use. See Georgia-Pacific Corp. v. United
States Plywood Corp. (318 F.Supp.
The Court was concerned that
if the reasonable royalty was the
same amount as what someone would license the patent for anyway, then
what is the point of trying to get a license? You might as well just
infringe and figure if you win in court you get off scot-free, and if you
lose it doesn't cost more than what you would have paid for the license
So basically, when damages are
awarded, the first way you calculate them is to determine how much profit
the patentee has lost (which is not the same as the amount of profit the
knock-off made!). If you can't figure that out for some reason, then you
try to figure out how much the patentee would have licensed the patent for
and charge the infringer that amount.