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 Panduit.
    • The Trial Court appointed a Special Master to determine Panduit's damages pursuant to 35. U.S.C. 284.
  • 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% for themselves).
      • That's known as a reasonable royalty.
    • 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 and remanded.
    • 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 product,
      • Absence of acceptable non-infringing substitutes,
      • 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 profits.
    • 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. 1116 (1970)).
    • 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 anyway.
  • 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.