Damages Expert Witness

A patentee which was the manufacturer of loading dock devices brought suit against its competitor, alleging it infringed on its patented ornamental design of a lip and hinge plate for a dock leveler. At the center of this case was the amount of damages or lost profits suffered by the patentee.

Patentee argued that the district court’s decision denying a new trial on damages was erroneous because it relied upon Competitor’s expert’s “cost savings” methodology. Competitor’s expert testified that, “because Patentee had not established that it incurred lost profits, they were not applicable damages.” Competitor’s expert stated that royalty damages were the proper form of compensation and that $15 per allegedly infringing dock leveler was appropriate. Based on this expert testimony, the district court found that the jury was free to select a reasonable royalty as the suitable form of damages.

Circuit Judge Kathleen O’Malley of the Court of Appeals for the Federal Circuit held that the district court erred in relying on Competitor’s expert’s “cost savings” methodology, rather than on the gross profits methodology required by law and described in the jury instructions.

Judge O’Malley wrote in her opinion that there were several problems with this “cost savings” approach. The first of which was that it was inconsistent with the fact that § 289 provides for recovery of the infringer’s total profits. Instead of using gross revenue as his starting point, Competitor’s expert used his “cost savings” methodology. This view limited the damages to just a portion of the dock levelers, which ignored the fact that total profits are based on the entire article of manufacture to which the patent is applied—not just a portion. As a result, Competitor’s expert used an improper methodology. His testimony was premised on an incorrect understanding of the relevant article of manufacture, which confused and misled both the district court and the jury into believing that Patentee was only entitled to recover Competitor’s profits attributable to a small portion of the dock levelers at issue.

No reasonable jury could have believed Competitor’s expert’s testimony that profits were less than $15 per unit, and the district court erred in relying on Competitor’s expert’s “cost savings” methodology in denying Patentee’s motion for a new trial on § 289 damages, the judge held. As such, the Federal Circuit reversed and remanded the case to the district court for a new trial on compensation. On remand, Patentee was entitled to a proper determination of Competitor’ profits based on the appropriate gross revenue methodology, not the expert’s so-called “cost savings” approach.

Further, the Court of Appeals agreed with Patentee there was no credible evidence that Competitor’ total profits from its sales of the infringing levelers were $0. The jury found infringement with respect to roughly 1,500 of Competitor’ hydraulic dock levelers. On the verdict form, the jury awarded Patentee a royalty of $47,000 and indicated that its profits were $0. However, Patentee pointed to the expert’s testimony and report which state that Competitor had pretax net profits of more than $900,000 on its sales of 1,500 levelers, amounting to an operating profit per unit of $433. At trial, Competitor’s expert noted that Competitor sold 1,500 accused hydraulic dock levelers. This showed that Competitor’s total profits on the infringing hydraulic levelers were, at least, $630,000. Judge O’Malley held that under either formulation, the evidence revealed that Competitor’ profits were over $630,000—“a far cry from $0.”

Competitor’s expert witness gave improper testimony, and the Court of Appeals concluded that the district court erred in denying Patentee’s motion for a new trial to assess damages under 35 U.S.C. § 289. As a result, the jury’s damages award was vacated and remanded for a new trial on damages.

Nordock, Inc. v. Systems Inc., 803 F.3d 1344 (C.A.Fed. (Wis.) 2015