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Category 2: Derivative Sales (repair parts or spare parts)

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Category 2: Derivative Sales (Repair/Spare Parts)

Repair and spare parts, while falling under the same umbrella as other collateral sales, are generally treated differently due to the “repair versus reconstruction” doctrine. Broadly defined, spare parts may include parts for repair or reconstruction of a patented device or extra parts sold together with the patented device at the time of the original sale, as well as parts for new machines. The Federal Circuit has distinguished spare parts from convoyed sales: “The expression ‘convoyed sales’ should preferably be limited to sales made simultaneously with a basic item; the spare parts here [sold after the original infringing product was sold] should best be called ‘derivative sales.’” Carborundum Co. v. Molten Metal Equipment Innovations, Inc., 72 F.3d 872, 881 n.8 (Fed. Cir. 1995).

Two lines of cases have arisen concerning spare parts. The first is where parts are being sold for a product that was sold or licensed by the patentee. Here, the patentee must prove that the spare parts sold by the infringer were not used to repair the licensed product, but rather to reconstruct the product into a new product. The reason for this is that a purchaser of a patented, licensed product is free to repair the device without incurring new liability. Aro Mfg. Co. v. Convertible Top Replacement Co., 365 U.S. 336 (1961) (Aro I); Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476 (1964) (Aro II). This rule stems from an “implied license” that the infringer obtains when it pays the patent owner on the first sale. King Instrument, 814 F.2d at 1564. Requiring the consent of the patentee to repair the device would impermissibly expand the scope of the patent monopoly.

The above situation – spare parts for licensed products – is distinguishable from the second line of cases in which the infringer is selling spare parts to repair an infringing product sold by the infringer, i.e., a product that is not sold or licensed by the patentee. Here, the patentee may be able to recover damages for spare parts sales that are used to repair the infringing product. In Carborundum Co. v. Molten Metal Equipment Innovations, Inc., 72 F.3d 872 (Fed. Cir. 1995), the defendant sold both the infringing product and the repair parts. The defendant argued that by paying damages to the patentee to compensate for the infringement by the infringing product, the defendant obtained an implied license to sell the repair parts, which thus could not be compensated under the patent laws (the Aro situation). The Federal Circuit rejected this argument and upheld a permanent injunction precluding the infringer from selling repair parts to customers who had previously purchased the infringing product. Id. at 882. The court recognized that the patentee was entitled to compensation for both past and future repair parts sales.

In King Instrument Corp. v. Otari Corp., 767 F.2d 853, 865-66 (Fed. Cir. 1985), the Federal Circuit explained how spare parts relate to the entire market value rule and how they should be treated in the context of lost profits damages. The patentee (King) argued that it should receive damages for lost sales of spare parts that it did not make, due to the infringement.  The district court had awarded damages for lost sales of spare parts by King. The Federal Circuit reversed and remanded for further findings because King had failed to prove that is “normally anticipated selling spare parts as part of the overall [patented] swing arm package”:

As support for the district court’s finding, King asserts that its spare parts are not consumable supplies for which no recovery is possible, but are parts which it normally sells with the patented swing arm machine. Such a simplistic outlook fails to perceive the underlying significance of the entire market value rule, which was accurately applied by one of our predecessor courts in Leesona Corp. v. United States, supra. [599 F.2d 958 (Ct. C. 1979).] In defining those spare parts for which a patent owner may recover, the Court of Claims recognized that parts for such items that experience had shown might be destroyed during the normal use of a device should be distinguished from parts which derive their existence and value from the patent. 559 F.2d at 974, 202 U.S.P.Q. at 439. “(A)fter a patentee has collected from … a direct infringer damages sufficient to put him in the position he would have occupied had there been no infringement, he cannot thereafter collect actual damages from a person liable only for contributing [i.e., by the sale of spare parts] to the same infringement.” Aro Mfg. Co. v. Convertible Top Co., 377 U.S. 476, 512, 84 S.Ct. 1526, 1545, 12 L.Ed.2d 457, 141 U.S.P.Q. 681, 696 (1964) (Aro II). The only recoverable position the patent owner would have occupied had there been no infringement is one where he normally would have anticipated the sale of the spare parts. In other words, the question is whether King would have made the sale of spare parts but for Otari’s infringement. An affirmative answer to this question is illustrated in Leesona where a patented battery system envisioned that many parts (i.e., anodes) would be necessary to keep the battery in operation. During the normal “life cycle” of a battery, the 22 anodes for each battery would be replaced approximately 50 times. The battery’s very uniqueness was found in the replacement of the anodes rather than in the reliance on “a cumbersome recharging device.” 599 F.2d at 975, 202 U.S.P.Q. at 440.

Whether King would anticipate additional income from the sale of spare parts is a finding which we cannot disturb unless it is clearly erroneous. Paper Converting, supra 745 F.2d at 23, 223 U.S.P.Q. at 600. We agree with Otari [the infringer], however, that on the record before this court, there is no evidence, other than unsupported arguments made by counsel, that King normally anticipated selling spare parts as part of the overall swing arm package. In addition, we are unable to find any evidence that the availability of spare parts is critical to the uniqueness of the ‘153 swing arm device. As we have seen, “spare parts” in and of itself is an unclear term capable of more than one definition. Only when a spare part falls under the “entire market value” rule may the patentee recover. On the basis of the evidence before us, we cannot find a sufficient basis for the bare conclusion that King would have made the sales of “spare parts” but for Otari’s infringing sales. Accordingly, we vacate the district court’s award of lost profits based on spare parts and remand for a determination of whether King’s spare parts are of the type for which it may properly recover.

Otari, 767 F.2d at 865-66 (emphasis added).

Significant Cases

King Instrument Corp. v. Otari Corp., 767 F.2d 853 (Fed. Cir. 1985).

Carborundum Co. v. Molten Metal Equipment Innovations, Inc., 72 F.3d 872 (Fed. Cir. 1995).


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Category 2: Derivative Sales (repair parts or spare parts)

Category 2: Derivative Sales (repair parts or spare parts) Team