Federal Circuit drills down into Panduit, apportionment, and lost profits

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)

In two related decisions, the Federal Circuit recently examined a paramount damages issue that comes up in patent cases. The question was whether, in terms of calculating lost profits, the patent holder’s ability to meet the Panduit factors makes a separate apportionment analysis unnecessary.

The case involved simulation/emulation technology. Mentor Graphics Corp. (Mentor), a multinational company with headquarters in Oregon, sued Synopsys Inc. and related entities (Synopsys) alleging Synopsys developed an emulation system that included features covered by a Mentor patent. Synopsys’ emulators competed directly with Mentor’s. Both companies sold to Intel, and there was no other competition.

“But for” Synopsys’ infringement, Mentor would have made the sales Synopsys made, Mentor claimed. It argued it lost one sale for each infringing sale by Synopsys. Mentor asked for lost profits and used the four-factor Panduit test to prove causation. The test requires a showing of: (1) demand for the patented product; (2) an absence of noninfringing alternatives; (3) the patent holder’s capability to meet the demand for the product; and (4) the amount of profit the patent holder would have made.

Synopsys did not dispute any of the key facts or the ability of Mentor to satisfy the Panduit factors. But, after a jury awarded Mentor $36 million in lost profits, as well as another $242,000 in reasonable royalties, Synopsys appealed the verdict with the Federal Circuit. It claimed the award should be stricken because the district court failed to apportion the lost profits. It said apportionment was necessary to ensure compensation was limited to the contribution the patented features make to a product.

A three-judge panel of the Federal Circuit upheld the award. Among other things, the panel found that the facts in the instant case were “remarkably simple for a patent damages appeal” and were not disputed by Synopsys. There were only two acceptable alternatives to Intel: Mentor’s emulator or Synopsys’ infringing emulators. Mentor proved that no other supplier could have made the specific sales to Intel.

Synopsys rejected the panel’s ruling.

Find out more about subsequent developments in the case here.