As any reader of our excellent book, Essentials Of Intellectual Property (just released in its new-and-improved second edition!), is undoubtedly aware, damages in a case of patent infringement may be based upon either the lost profits of the patentee or a reasonable royalty on the infringer’s sales of the infringing goods or services. Generally, lost profits damages are considerably larger than the corresponding reasonable royalty would be. For this reason, plaintiffs make every effort to secure an award of lost profits damages.
Lost profits, however, are exactly what they seem – the profits which the patentee would have realized on the sales which were lost to the infringer. A plaintiff seeking lost profits must show that, but for the infringement, it would have made the sales in question. Note the emphasis on the word “it.” The sales that were lost must be those of the plaintiff. Sales lost by a related company cannot serve as the basis for a claim of lost profits damages. (Spine Solutions, Inc., Synthes Spine Company, L.P. and Synthes, Inc. v. Medtronic Sofamor Danek USA, Inc. and Medtronic Sofamor Danek, Inc.)
Spine Solutions is the owner of a patent directed to devices, known as artificial intervertebral discs, which are used to replace diseased or degenerated discs between the vertebrae in the spinal column. Spine Solutions, which does not make or sell any device covered by the subject patent, sued Medtronic, which does. Shortly before trial, and over Medtronic’s strenuous objections, Spine Solutions joined, as a co-plaintiff, its sister company, Synthes Spine, which does produce and sell an embodiment of the patent-in-suit. Not surprisingly, the plaintiffs sought damages based upon the sales lost by Synthes Spine.
At trial, a jury found for the plaintiffs and awarded lost profits damages. Medtronic appealed, arguing that the award of lost profits damages was improper because Synthes Spine, which was neither the owner nor the exclusive licensee of the patent-in-suit, lacked standing to sue for infringement, while Spine Solutions, admittedly not a seller of any products, was not entitled to any lost profits damages.
It is well settled that “[o]nly a patent owner or an exclusive licensee can have constitutional standing to bring an infringement suit … [and] to be an exclusive licensee … a party must have received not only the right to practice the invention within a given territory, but also the patentee’s express or implied promise that others shall be excluded from practicing the invention within that territory as well … a bare license to sell an invention in a specified territory, even if it is the only license granted by the patentee, does not provide standing without the grant of a right to exclude others.”
The issue, therefore, was whether Synthes Spine, the sister corporation of Spine Solutions, was an exclusive licensee. It was admitted that there was no agreement, either written or oral, as to the subject patent. Spine Solutions, nevertheless, asserted that “the only reasonable conclusion to be drawn from the [companies’] organizational structure is that Spine Solutions has made an implied promise to exclude entities other than Synthes Spine from practicing the [patented] invention.”
Not good enough, ruled the C.A.F.C. “[T]he fact that Synthes Spine is currently the only entity practicing the [subject] patent does not mean that Spine Solutions has promised to exclude all others from doing so. Nothing in the record shows that Spine Solutions would be prohibited from licensing the [subject] patent to a third party, should it so desire.” The decision of the trial court, as to the measure of damages, was reversed.
THE LESSON TO BE LEARNED: To be an exclusive licensee, for purposes of standing to sue for infringement, there must be an express license with a prohibition on licenses to others.