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24 September 2007
The ruling in Ipesa SA v Uniroyal Chemical Company Inc (Case 2316/96,
March 14 2006, Second Court of Appeals of the Federal Circuit on Civil and Commercial
Matters) established new and clear parameters for the reckoning of damages
in patent infringement cases.
Before this case the owner of a patent rarely sought damages in addition to the cessation of infringement. When damages were claimed there was no standard method to estimate the amount owed. Nor was it clear whether the existence of damages should be proved and what the amount should be. Questions such as the following arose:
Ipesa claimed that its products did not infringe Uniroyal's herbicide patent. Uniroyal counterclaimed against Ipesa, seeking immediate cessation of the infringement of its patent and damages to compensate for that infringement.
Uniroyal's patent was granted on July 12 1995 for 15 years. On December 23 1996 it sent a letter to Ipesa requesting that the latter refrain from commercializing a certain herbicide that infringed its patent. In spite of this letter, Ipesa launched its own weedkiller in February 1997 and did not stop its commercialization until the date of the ruling.
The court of first instance dismissed Uniroyal's counterclaim, stating that the herbicide that Ipesa was selling did not infringe Uniroyal's patent. Uniroyal lodged an appeal against this ruling seeking a reversal.
The Federal Court of Appeals reversed the decision, stating that Ipesa's herbicide certainly infringed Uniroyal's patent, and ordered the payment of damages.
Although the existence of the damages themselves was never proved, the Second Court of Appeals stated that as long as Uniroyal was the only body legally authorized to sell the patented herbicide, all herbicide sold by Ipesa infringed Uniroyal's patent and consequently caused damage to Uniroyal which must be compensated. In fact, Ipesa's sales implied an equivalent and proportional erosion of the sales of the only company legally entitled to make the product, which amounted to damage in itself.
In order to quantify the amount owed in damages, the court stated that although it is not always clear whether the profit of the infringer is equal to the damage caused to the patent owner, in this case, since Uniroyal was the only body legally entitled to sell the herbicide covered by the patent, the relationship between the infringer's sales and the presumed damage was not in doubt. In this respect, the court stated that taking the infringer's earnings as a starting point for estimating damages was an appropriate criterion.
The court also affirmed that it may have been more appropriate to take as a starting point the earnings that the patent owner could have received from such sales had it made them itself instead of the infringer. The ruling presumed that the patent owner's earnings could have been greater, as it was presumed to have a better cost structure and superior management. This notwithstanding, and even though the court considered it particularly useful, this criterion could not be applied in this case since there was no evidence of Uniroyal's earnings.
After these general statements the court established how the amount of damages was to be estimated.
A report submitted by an accountant expert witness made it clear that during the 31 months between February 1997 and August 1999 (the report's filing date), Ipesa's sales of the herbicide rose to approximately $270,000. To calculate the total cost of the infringement during the nine years from the launch of Ipesa's herbicide on the market to the date of the ruling, the judge divided that amount by 31 months, multiplied it by 12 (to annualize it) and then multiplied it again by nine. According to this calculation, the infringement amounted to approximately $940,000.
In one of the most important parts of this ruling, the judge ordered that the damages be estimated based on the total profits of Ipesa obtained through the sale of the herbicide. Since the accountant expert did not state these earnings, the judge estimated them at 30% of the total amount of the infringement ($282,000). Interest could also have been ordered but was not requested by Uniroyal.
This ruling is a significant step towards the prevention of patent infringement, as now any potential infringer risks having to compensate the patent owner for entire loss of earnings.
On the other hand, this case is very important for what was mentioned in the reasoning. An infringer rarely keeps account of what it sells and what it earns from the infringement. The real importance of this case is the statement that a patent owner can claim in damages for the earnings that it could have made had it made the infringer's sales itself. Thus, the patent owner need only demonstrate the existence of an infraction and the profit that it could have obtained from the commercialization of its goods. The existence of an infraction allows the judge to presume the existence of damages. To calculate the amount that the infringer must pay for damages, it will be necessary to know only the quantity of infringing goods that have been sold. However, in the absence of this evidence, the Code of Proceedings on Civil and Commercial Matters allows the judge to estimate figures prudently. Once the quantity of infringing goods has been estimated, it is not hard to estimate the profit that the patent owner could have obtained had it made those sales itself.
For further information on this topic please contact Carlos Octavio Mitelman or Carlos María Gallo at Obligado & Cia by telephone (+54 11 4114 1100) or by fax (+54 11 4311 5675) or by email (email@example.com).
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