Federal Circuit grapples with Panduit, apportionment, and lost profits

BVWireIssue #181-3
October 18, 2017

In two related decisions, the Federal Circuit recently dug into a key damages issue specific to lost profits claims in patent infringement cases. Does satisfaction of Panduit obviate the need for a separate apportionment analysis?

No two-step process: Mentor Graphics Corp. (Mentor), a multinational company with headquarters in Oregon, sued Synopsys Inc. and related entities (Synopsys) claiming Synopsys produced an emulation system that unlawfully included features protected by a Mentor patent and that competed directly with Mentor’s emulators. Both parties sold emulators to Intel. Mentor contended that, “but for” Synopsys’ infringement, it would have made the sales Synopsys made. This was a two-supplier market. Mentor used the four-factor Panduit test to show causation. Synopsys did not dispute any of the key facts.

A jury awarded Mentor $36 million in lost profits and another $242,000 in reasonable royalties. Synopsys appealed the decision with the Federal Circuit. The gist of its argument was that there should be a two-step process for calculating lost profits: (1) The patent holder has to calculate the amount of profits lost using the Panduit factors; and (2) the patent holder has to apportion the lost profits to ensure compensation is limited to the contribution the patented features make to a product. Apportionment was particularly important in “this age of complex, multicomponent electronic devices.” Here, the district court mistakenly did not pursue an apportionment analysis, Synopsys said.

A three-judge panel of the Federal Circuit upheld the award. It found that, in this case, “apportionment was properly incorporated into the lost profits analysis and in particular through the Panduit factors.” Further apportionment was not necessary.

No rehearing: Synopsys then asked the Federal Circuit for a rehearing by the entire court (en banc review), but a majority of the court denied the request. However, the majority’s decision triggered a fiery dissent, arguing the panel mistakenly had equated Panduit with apportionment when Panduit merely satisfied the “but for” causation requirement applicable to lost profits claims. Supreme Court and Federal Circuit patent case law required more than a showing of but-for causation to satisfy the apportionment requirement, the dissent said. It found numerous reasons specific to the case that justified en banc review. What’s more, “apportionment is an important issue that will likely arise in every future lost profits case,” the dissent said.

A digest of Mentor Graphics Corp. v. EVE-USA Inc., 2017 U.S. App. LEXIS 16854 (Sept. 1, 2017) (Mentor II), and Mentor Graphics Corp. v. EVE-USA, Inc., 851 F.3d 1275 (March 16, 2017), and the court’s opinions, are available at BVLaw.

Please let us know if you have any comments about this article or enhancements you would like to see.