When a patent holder can show that a competitor has sold a product that utilizes patented elements, there are two methodologies for calculating the financial damages that are owed to the patent owner:
Lost Profits: Lost profits are what might seem to the layman to be the most common sense metric for calculating damages. Essentially, “If the infringing Product B had not existed, I would have made $1 million more from Product A. Therefore, I am owed $1 million.” The argument for this profit loss might be that the patent holder sold $1 million less in product than they would have otherwise, or the infringing competitor eroded the price point of the product. However, proving this is practice is extremely difficult, and requires documentation and costly expert testimony showing that the patent owner and the infringer were operating within the same marketplace, the infringer could not have made similar sales without using the patented elements, and so on. This is why the alternative method of calculating damages based upon a “reasonable royalty” is often preferable.
Reasonable Royalty: If the infringed upon patent has been actively licensed, then it many cases the damages for infringement simply involve applying the patent holder’s licensing fee to the infringing products—acting as if the infringer had previously licensed the patented IP for their infringing product. If the patent holder charges a fee of 2% of all sales, then the infringer will owe 2% of their total sales. But there are a number of variations on how these calculations are made, and in many cases, the reasonable royalty exceeds the actual royalty charged to licensees, or that would have been charged, to a significant degree.
As a side note, this is something worthwhile for potential infringers to take note of: Don’t assume that it’s better to ask for forgiveness than to ask for permission. If you’re discovered, it’s quite possible that the royalty you’ll be compelled to pay in court will be many times what the licensor would have asked for.
Regardless of how reasonable royalty damages are calculated, there is a universal factor to consider: The starting date for calculating those royalties.
You might think that an infringer is responsible for damages from the moment that they bring an infringing product to market. This is not the case.
Generally speaking, the clock starts for damages when the infringer is made explicitly aware of the fact that the duplicated product is patent-protected. A patent holder might do this by sending a cease and desist (C&D) notice to the infringer, or simply filing a lawsuit. The problem with this approach is that infringement occurring for months or years before the date of notice is not eligible for compensation.
This is why preemptively placing a patent mark on a product—and/or licensed products—is a superior method of maximizing patent protections and royalty damages.
You do not have to wait until after an infringer starts infringing to notify them of your patent rights. If you have ever seen a product or packaging stamped with “Pat. 8,214,961” or “Patent 9,451,742,” then you have seen a patent mark.
A patent mark is a proactive means for patent holders to notify potential infringers that if they duplicate any of the claims outlined in the applicable patent(s), that they will be held responsible for their infringement. A patent mark fulfills the lawful requirement to notify an infringer, before they ever infringe. The real value of this is that this starts the clock from the very first moment of infringement. When it comes time to calculate the reasonable royalty damages, this math will take into account the entire timespan for which the infringement took place, significantly increasing the potential compensation.
There are two critical things to keep in mind when considering adding a patent mark to your product. First, only add a patent mark if the patent in question is relevant to the product. Adding an irrelevant mark amounts to making a fake rights claim, which can result in you being successfully sued by the competitors you knowingly or unknowingly intimidated with your claims. This can also undermine any legitimate claim of patent infringement that you might have made.
Secondly, if you license your patents out to other manufacturers, it’s advisable that you compel your licensees to add your patent marks to your products. In an ongoing case, Arctic Cat Inc. v. Bombardier Recreational Products Inc., on appeal it was found that because Honda, a licensee of Arctic Cat’s patents, had not marked their licensed products with Arctic Cat’s patents, Bombardier—the infringer—had not been provided with a proper notice of their infringement prior to the lawsuit being filed. The takeaway here is that any and all products, produced by the patent holder or licensees, should bear patent marks in order to ensure the maximum possible royalty damages if infringement occurs. Failing to mark such products, or inconsistent marking of products—such as if an infringer can show that some unmarked products are actually covered by the patents in question—can negatively impact any potential damages.
Protecting your patents requires implementing a proactive intellectual property protection strategy. If you would like assistance in ensuring that your patents are protected and your rights to compensation are maximized in the case of infringement, the Law Office of Michael O’Brien can help. For more information, contact us today by calling (916) 760-8265, or sending us a message using our contact form.