Blog

NDCA finds evidence of related company's potential lost profits relevant to hypo negotiation

Fish & Richardson

Authors

On April 2, 2013, the NDCA issued an opinion in Accessories Marketing, Inc. v. TEK Corporation, Case No. C 11-4773 PSG (Doc. No. 183), addressing TEK's MIL concerning damages. One of the issues concerned the impact of lost sales by a related company on the hypothetical negotiation.

Plaintiff AMI had a sister company called SSI. Both companies were owned by Illinois Tool Works. The accused products were tire repair kits. AMI did not sell tire repair kits but its sister company SSI did. AMI's damages expert John Hansen analyzed reasonable royalties alleged owed to AMI and considered the competitive position of SSI and defendant TEK.

The court reasoned that it was not inappropriate for Mr. Hansen to consider the potential lost profits to SSI when AMI and TEK negotiated the hypothetical license, even though AMI could not collected damages on behalf of SSI:

Although Hansen considered the competitive position of SSI, this was not improper in light of the relationship between SSI and AMI. Both SSI and AMI are owned by Illinois Toolworks; AMI is the exclusive supplier of tire repair kits to SSI, who then sells the tire repair kits to the OEM market. Because SSI and TEK are competitors in the tire repair kit market, a license to TEK could very well impact SSI's profits, which could itself impact AMI's profits from SSI's sales.1 Even though AMI cannot collect damages on behalf of SSI,2 robust cross-examination should be more than sufficient to clear up any ambiguities.

  1. 1

    See Union Carbide Chemicals & Plastics Tech. Corp. v. Shell Oil Co., 425 F.3d 1366, 1378 (Fed. Cir. 2005) (overruled on other grounds) (where the patentholder was a holding company whose parent company was a competitor of the infringer, the patentholder properly introduced evidence regarding the impact of the infringer's sales on the parent company's sales in evaluating a hypothetical negotiation between the holding company and the infringer). See also Synethes U.S.A. LLC v. Spinal Kinetics, Inc., Case No. 5:09-CV-01201 RMW, 2012 WL 4483158, at *12 (N.D. Cal. Sept. 27, 2012) ("[the patentee] is a mere holding company and any negotiation on its behalf would be conducted by and for the benefit of its corporate parent").

  2. 2

    Cf. Poly-Am., L.P. v. GSE Lining Tech., Inc., 383 F.3d 1303, 1311 (Fed. Cir. 2004) (rejecting patentholder's argument that it could recover lost profits on behalf of its sister corporation, where the two sister corporations were different "arms" for the purposes of manufacture and sale, and remanding to lower court to determine whether patentholder itself suffered lost profits).

The opinions expressed are those of the authors on the date noted above and do not necessarily reflect the views of Fish & Richardson P.C., any other of its lawyers, its clients, or any of its or their respective affiliates. This post is for general information purposes only and is not intended to be and should not be taken as legal advice. No attorney-client relationship is formed.