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Federal Circuit reverses lost profits award and finding of personal liability

May 18, 2007
Post by Blog Staff

In a decision today, the Federal Circuit reversed a jury's award of damages based on lost profits as well as personal liability against the defendant corporation's principal.

The district court let the issue of lost profits damages go to the jury, but the Federal Circuit determined that, as a matter of law, the court should not have let the jury decide the issue because there was insufficient evidence for the court to conclude as a matter of law that lost profits were available. The Federal Circuit also disagreed with the lower court's conclusion that the jury's special verdicts were inconsistent, and reversed the finding of personal liability on the defendant's principal for inducing infringement even though the corporation had only one shareholder and employee: the principal.

More details of Wechsler v. Macke Int'l Trade, Inc. after the jump.

The patent in this case relates to a portable device for feeding and watering pets. One embodiment of the patent is shown below:

5636592 figure

The plaintiff (and inventor), Lawrence Wechsler, sued two defendants: Macke International Trade and its principal and only employee, Anthony O'Rourke. Between 1998 and April 2000, Macke sold a device called the "Handi-Drink," which was found to infringe Wechsler's patent. After April 2000, Macke redesigned the Handi-Drink, and the redesigned device falls outside the patent's claims. Wechsler began producing a device embodying the patent in August 2000.

After trial, the jury found that Macke had willfully infringed Wechsler's patent, and that it was liable for $630,000 in lost profits and $25,000 in reasonable royalties for the infringement. The jury found, by special verdict, that O'Rourke was not personally liable for infringement. However, the district court granted Wechsler's motion for judgment as a matter of law that the jury's special verdicts were inconsistent, and held that O'Rourke should be held personally liable for inducing infringement by Macke. The district court also denied the defendants' post-trial motion that Wechsler was not entitled to lost profits.

The Federal Circuit reversed on both issues. Regarding personal liability, the court found that the two special verdicts at issue are listed below:

1. Do you find that Mr. Wechsler has shown by a preponderance of the evidence that Mr. O'Rourke is personally liable for infringement of the [’592] patent? “YES” is a finding for Mr. Wechsler. “NO” is a finding for Mr. O’Rourke.

* * *

3. Do you find by clear and convincing evidence that Defendants have willfully infringed based upon Defendants becoming aware of the content of the [’592] patent in April 1999 and then continuing to sell the original Handi-Drink? “YES” is a finding for Mr. Wechsler. “NO” is a finding for Mr. O'Rourke.

The jury answered "NO" to #1 and "YES" to #3. The court held that it was clear that, based on the jury's response to special verdict 1, the jury did not intend to find O'Rourke personally liable for the infringement, notwithstanding the fact that #3 indicates that the jury found that the "Defendants" willfully infringed and the reference to O'Rourke. The court also rejected Wechsler's alternative theory that Macke was O'Rourke's alter ego as a basis for personal liability, and therefore reversed the finding of liability against O'Rourke personally.

On the lost profits issue, the court first pointed out that while it is up to a jury to decide the amount of lost profits to be awarded, the issue should only be put to the jury once the court has, as a matter of law, determined whether lost profits are available. The court then noted that, under normal circumstances, "if the patentee is not selling a product, by definition there can be no lost profits." Here, while Wechsler proffered expert testimony that he could have made Macke's sales during the relevant period (1998 - April 2000), the court noted that there was evidence that Wechsler was not successful in manufacturing his own device until August 2000, four months later. As a result, Wechsler had a heavy burden to show he was entitled to lost profits. In order to make this showing, Wechsler relied on two theories: sales preemption and price erosion.

These theories fared no better, however, as the court found a lack of substantial evidence to support either theory. With regard to preemption, the court noted that the issue was not whether Wechsler could have made the lost sales, but whether he would have made the lost sales. There was no such evidence in the record. Regarding price erosion, there was testimony that Wechsler wanted to charge a price greater than what he actually charged, allegedly because of Macke's prior sales. However, the court found no evidence linking the earlier sales to the lower price, further noting that "nothing in the record indicates that Wechsler ever attempted to sell his product at his originally intended price." Absent some evidentiary connection between the lower price to the infringing sales, substantial evidence to support the jury award was lacking, and the court reversed the award of lost profits. Judge Mayer dissented, and would have affirmed the lost profits award.

It will be interesting to see whether in future cases damages for price erosion are only available when the patentee has attempted to sell the patented product at a higher price, or if this reference by the court is simply an example of the type of evidence that may provide the necessary evidentiary link between infringing sales and price erosion.

To read the full opinion in Wechsler v. Macke Int'l Trade, Inc., click here.


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