No Apportionment of Lost Profit Damages May Be Required when Panduit Factors are Met

September 2017

 

Mentor Graphics Corp., v. EVE-USA, Inc., No. 15-1470 (Fed. Cir. Sep. 1, 2017)

 

In Mentor Graphics, a split Federal Circuit denied a petition for en banc rehearing of a decision form a panel of the court on the issue of apportionment of lost profits.  The en banc court allowed the panel’s decision to stand, which affirmed the district court’s finding that apportionment of lost profits was not required when the first two Panduit factors were satisfied.

Mentor Graphics held several patents covering features of its computer emulator product “Veloce.”  The United States District Court for the District of Oregon had found that EVE-USA and its parent company, Synopsys Emulation and Verification S.A.S., had infringed at least one such patent with their own emulator product “ZeBu.”  A panel of the Federal Circuit affirmed the finding of infringement, and held that Mentor was entitled to recover lost profit damages without apportioning the profits to cover only the patentee’s inventive contribution, because “the patented features were what imbued the combined feature that made up the emulator with marketable value.”

The district court and the panel applied the Panduit test to establish a patentee’s entitlement to lost profits.  The Panduit test requires that a patentee establish: (1) demand for the patented product; (2) absence of acceptable non-in-fringing substitutes; (3) manufacturing and marketing capability to exploit the demand; and (4) the amount of the profit it would have made.

Synopsys argued that the court should have performed an additional apportionment analysis after the Panduit test, otherwise multiple entities might be entitled to obtain lost profit damages on the same product where each entity holds a patent on a different feature of the product.  However the panel determined, and a majority of the en banc court affirmed, that apportionment is not necessary where the court has already found demand and a lack of acceptable non-infringing substitutes. Mentor was entitled to lost profits on the product as a whole because, under Panduit, nothing less than the whole product was acceptable.

Judges Dyk and Hughes dissented from the denial of rehearing. The dissent argued that while it is true that “but for” a patented feature, the product may not have been purchased, it could also be true that but for an unpatented feature the item also would not have been purchased.  Thus, the Panduit test alone does not adequately apportion profits only to the patented component.

Key Takeaway:  If a patentee is entitled to its lost profits under the Panduit test, the patentee need not separately apportion those profits between the patented and unpatented features of the product because they have already proven the lack of acceptable substitutes to the patented product as a whole.