District Court In Alabama Rejects Inexorable Flow Theory Of Lost Profit Damages

On January 28, 2020, the Northern District of Alabama granted-in-part a defendant's motion for summary judgment, holding that the plaintiff could not recover damages based on a theory of lost profits because the plaintiff itself does not sell any products that are covered by the patents-in-suit.

On January 6, 2015, plaintiff filed suit against defendant for infringing its patents related to the design of spot-welding cap changers and magazines for automotive manufacturing. While the plaintiff does not manufacture or sell products covered by the patents-in-suit, it does license a third-party company to do so. The third-party distributor makes a flat-fee payment to plaintiff for each unit sold. Defendant moved for summary judgment on damages, arguing that plaintiff could not recover damages based on the lost profits of its distributor. Plaintiff argued that, in Mars, Inc. v. Coin Acceptors, Inc., the Federal Circuit left open the possibility that plaintiffs may recover lost profits under a theory that a seller's profits would “inexorably flow” to the plaintiff. 527 F.3d 1359 (Fed. Cir. 2008).

In Mars, the Federal Circuit rejected the patentee's argument that a subsidiary's profits flowed inexorably to the patentee and that the patentee should be able to recover the lost profits that the subsidiary would have made absent infringement. In that case, however, the patentee did not identify any evidence that it received profit or revenue from the subsidiary, other than license royalty payments. Thus, the Federal Circuit declined to decide whether a parent company can recover lost profits of a subsidiary whose profits actually flow inexorably up...