You May Have Won the Case, But Those Lost Profits May Not Be Your Own

November 2008

By: David J. Brody

Hamilton Brook Smith Reynolds Alert

Important patent rights may be lost by careless placement of title to a patent. This pitfall was highlighted recently when a large multinational corporation prevailed in an infringement case but, nevertheless, was barred from recovering lost profits because title to the patent was held by the parent corporation, not a subsidiary. The case is Mars, Incorporated v. Coin Acceptors, Inc., 527 F.3d 1359 (Fed. Cir. 2008).

A patent owner or an exclusive licensee who successfully sues an infringer is entitled to recover damages for the past infringement. In an effort to secure the greatest possible damage recovery, the multinational corporation in the recent case, the candy maker Mars, tried to recover its lost profits. However, the court permitted damages based only upon a reasonable royalty, resulting in a far smaller recovery than lost profits. Mars could not recover lost profits because the parent corporation held title to the patent, whereas an operational subsidiary suffered the lost profits.

In a belated effort to cure the problem, Mars tried to join the subsidiary as a co-plaintiff. This tactic failed because another entity in the Mars corporate family was also using the patented invention and, therefore, the subsidiary could not be considered an exclusive licensee. Because a licensee can sue for infringement only if it is an exclusive licensee, the court would not allow the subsidiary to join the case. As a result, the infringer avoided liability for the lost profits that its wrongful conduct had caused.

Hamilton Brook Smith Reynolds assists clients with licensing strategy and negotiations and litigation arising from such transactions. David J. Brody practices in the areas of complex business and intellectual property disputes. David can be reached at David.Brody@hbsr.com.

Overview

November 2008

By: David J. Brody

Hamilton Brook Smith Reynolds Alert

Important patent rights may be lost by careless placement of title to a patent. This pitfall was highlighted recently when a large multinational corporation prevailed in an infringement case but, nevertheless, was barred from recovering lost profits because title to the patent was held by the parent corporation, not a subsidiary. The case is Mars, Incorporated v. Coin Acceptors, Inc., 527 F.3d 1359 (Fed. Cir. 2008).

A patent owner or an exclusive licensee who successfully sues an infringer is entitled to recover damages for the past infringement. In an effort to secure the greatest possible damage recovery, the multinational corporation in the recent case, the candy maker Mars, tried to recover its lost profits. However, the court permitted damages based only upon a reasonable royalty, resulting in a far smaller recovery than lost profits. Mars could not recover lost profits because the parent corporation held title to the patent, whereas an operational subsidiary suffered the lost profits.

In a belated effort to cure the problem, Mars tried to join the subsidiary as a co-plaintiff. This tactic failed because another entity in the Mars corporate family was also using the patented invention and, therefore, the subsidiary could not be considered an exclusive licensee. Because a licensee can sue for infringement only if it is an exclusive licensee, the court would not allow the subsidiary to join the case. As a result, the infringer avoided liability for the lost profits that its wrongful conduct had caused.

Hamilton Brook Smith Reynolds assists clients with licensing strategy and negotiations and litigation arising from such transactions. David J. Brody practices in the areas of complex business and intellectual property disputes. David can be reached at David.Brody@hbsr.com.

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