This is the second installment in a series on damages available for intellectual property (“IP”) claims, focusing on patent damages. Understanding damages is essential for two reasons: it highlights the potential rewards of building a robust IP portfolio, and it offers a benchmark for assessing risk when facing an IP claim. Our previous article addressed trademark damages.

Patent Infringement

Patent infringement is an unauthorized act that relates to the making, using, selling, or importing of an invention for which a patent has been issued, as stipulated by the Patent Act.¹ Section 271 of the act delineates several types of infringement, including direct infringement and indirect forms such as inducement and contributory infringement. Enforcement of these provisions has been influenced by the Leahy-Smith America Invents Act (“AIA”), which also introduced new post-grant proceedings affecting infringement disputes.

Patent Damages

Under the Patent Act, patent owners may seek to recover damages adequate to compensate for infringement.² The court may allow damages in the form of recovery for (1) lost profits, (2) reasonable royalties, and (3) treble damages (in cases of willful infringement). The Patent Act provides that a court should award a successful claimant damages “adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.”³ The Patent Act does not limit damages to certain types, and a judge can award other types of damages that may be appropriate under the facts of the case.

Damages are a question of fact; thus, juries can decide damages, but judges will do so if the case is not before a jury. Courts have significant levels of discretion when it comes to applying the above methods and determining how much to award in damages. Nonetheless, courts have developed equitable methods in an effort to balance compensating a successful plaintiff for losses while simultaneously avoiding windfalls.

Lost Profits

Damages for lost profits compensate a patent holder for profits it would have made had its patent not been infringed. Being awarded damages for lost profits requires a plaintiff, with some degree of specificity, to show a nexus of causation between sales lost and the infringement, meaning that the plaintiff must show that the infringement was the cause of the decline in sales.

For years, the lost profits calculation has been based on the four Panduit factors, delineated in Panduit Corp. v. Stahlin Bros. Fibre Works.⁴ The four factors are the (1) “demand for the patented product,” (2) “absence of acceptable noninfringing [alternatives],” (3) capacity to exploit the demand, and (4) amount of profit the patentee would have made.⁵

Under the second prong, a patent owner may rely on proof of its established market share rather than proof of the lack of an acceptable noninfringing substitute. A showing under Panduit permits a court to reasonably infer that the lost profits claimed were in fact caused by the infringing sales, thus establishing a patentee’s prima facie case with respect to “but for” causation. A patentee need only show that there was a reasonable probability that the sales would have been made “but for” the infringement. The burden then shifts to the infringer to show that the inference is unreasonable for some or all of the lost sales.

Reasonable Royalties

A reasonable royalty is an amount that would have been paid to a patent holder had the patent holder given the infringer a license to sell the patented item. A common approach used to calculate a reasonable royalty is the “hypothetical negotiation,” which attempts to ascertain the royalty upon which the parties would have agreed had they successfully negotiated an agreement just before infringement began.

Often, reasonable royalties are calculated when the patent holder cannot prove the elements necessary to establish entitlement to lost profits. Courts look to several factors, as outlined in Georgia-Pacific Corp. v. United States Plywood Corp.⁶ These factors include past and present royalties received by a patent holder for the patent at issue, the rates paid by the infringer for the use of similar patents, a patent holder’s policies and practices regarding the grant of licenses to its technology, the commercial relationship between the two parties, the patent’s profitability, the patent’s usefulness as compared to older models of similar technology, and the extent to which the infringer used the patented product and the value of that use. These factors, among others, are often established by expert opinion.

Treble Damages

Treble damages are designed as a punitive or vindictive sanction for infringement that is willful, wanton, malicious, bad faith, deliberate, consciously wrongful, flagrant, or the like. In these instances, under the Patent Act, a court may increase the damages up to three times the amount found or assessed.⁷ Courts tend to award the maximum amount only when the infringement is egregious.

To prove treble damages, a plaintiff needs to show clear evidence of willful conduct by the infringer. Even if a plaintiff proves willful infringement, enhanced damages are not guaranteed; such a decision is at the discretion of the court.

Summation

Patent infringement damages are designed not only to compensate a patent holder for actual harm but also to deter willful violations of patent rights. By tailoring awards to the nature and severity of the infringement, courts strive to strike a balance between fair compensation in the face of infringement and the promotion of innovation.

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Please tune in next month for part three of our series, in which we will discuss copyright damages.

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©2025. Published in Business Law Today by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

1. 35 U.S.C. §§ 1–376.

2. Id. § 284. 

3. Id. 

4. 575 F.2d 1152 (6th Cir. 1978).

5. Id. at 1156. 

6. 318 F. Supp. 1116 (S.D.N.Y. 1970). 

7. 35 U.S.C. § 284.