The U.S. Court of Appeals for the Federal Circuit affirmed a district court's grant of summary judgment in the damages phase of 18-year-old litigation, denying recovery for lost profits. Mars, Inc. v. Coin Acceptors, Inc.,Case No. 07-1409,-1436 (Fed. Cir., June 2, 2008) (Linn, J.).
The underlying suit, originally brought by Mars in January 1990, alleged that certain products of Coin Acceptors infringed Mars' patents covering technology used in vending machines to authenticate coins. Although the district court found infringement and ordered Coin Acceptors to pay a reasonable royalty of 7 percent for the period of 1996 through 2003 (when the last patent in issue expired), it refused to allow Mars to recover under a lost-profits theory and held that Mars' former subsidiary—a non-exclusive licensee—Mars Electronics International, Inc. (MEI) lacked standing to sue for pre-1996 infringement.
On appeal, the Federal Circuit addressed four issues: whether Mars was entitled to lost profits; whether MEI had standing to recover damages incurred prior to 1996; whether Mars had standing to recover damages incurred during 1996 to 2003; whether the district court erred by imposing a 7 percent royalty rate.
On the issue of lost profits, Mars claimed that by virtue of the parent-subsidiary relationship (designed for tax purposes) in which MEI paid Mars pursuant to a "per use" license, all of MEI's lost profits (by virtue of 100 percent ownership and their consolidated financial statement) were "inherently" lost profits of Mars. The Federal Circuit, noting that Mars does not make or sell any of the patented machines and that MEI's license requires it to pay Mars based on a straight per use basis rather than some measure of profits, found that MEI's profits did not flow inexorably to Mars. The Court, therefore, denied Mars claim for recovery under a lost-profits theory.
As for standing on the part of MEI to claim lost profits on its own right, the Federal Circuit noted the patent law axiom that only a patent owner or an exclusive licensee can have constitutional standing to bring an infringement suit; a non-exclusive licensee does not. The Federal Circuit further observed that although MEI transferred the patents-in-suit to Mars (even if the patent owner is joined) in 1996, another Mars subsidiary, MEI-UK, continued to hold a worldwide license to practice the inventions. Therefore, because MEI was not an exclusive licensee, it lacked constitutional standing to sue for the pre-1996 period.
With regard to the 1996-2003 time frame, the issue was whether, under the 2006 confirmation agreement (which Mars signed after the district court entered final judgment), its ownership of the patent in suit was restored and thus cured any standing defect. The confirmation agreement provided that Mars and MEI "acknowledge[d] that MARS owns and retains the right to sue for past infringement" of the patents and that, "to the extent MEI may have or claim any rights in or to any past infringement [...], MEI does hereby irrevocably assign all such rights to Mars." Looking at this language, the Court held that without an express transfer of ownership of the patents, the mere acknowledgement of or transference of the right to sue for past damages does not convey standing as Mars was not the owner of the patents at the time of the alleged infringement. The Court, therefore, vacated the damages award for infringement from 1996 to 2003.
Finally, the Federal Circuit upheld the 7 percent reasonable royalty rate despite it being higher than the cost of non-infringing alternatives. The Court stated that reasonable royalty damages are not capped at the cost of implementing the cheapest available, acceptable, non-infringing alternative. Rather, the law provides that an infringer may be liable for damages, including reasonable royalty damages that exceed the amount that the infringer could have paid to avoid infringement.
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