Micro Motion, Inc. v. Kane Steel Co., Inc., 894 F. 2d 1318 (Fed. Cir. 2003)

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Micro Motion, Inc. v. Kane Steel Co., Inc., 894 F. 2d 1318 (Fed. Cir. 2003)

Patent Damages

A

If successful in an infringement suit, a patent owner may recover actual damages or at least a reasonable royalty. 35 U.S.C. § 284 (1982). Where the patentee produces or sells a product (or service) covered by the patent claims, the patentee may seek to recover damages based on a theory of lost profits because the amount is likely to be greater than reasonable royalties.

To recover damages on the theory of "lost profits", a patentee must show that, but for the infringement, it would have made the infringer's sales. King Instrument Corp. v. Otari Corp., 767 F.2d 853, 864, 226 USPQ 402, 409-10 (Fed.Cir.1985), cert. denied,475 U.S. 1016, 106 S.Ct. 1197, 89 L.Ed.2d 312 (1986). This requirement of causation implicates the patentee's manufacturing capacity and marketing capability, the desires of customers for the claimed invention, the relationship of the claimed invention to the product sold and other factors pertinent to the particular market or parties. Causation is most easily found where only two companies, the patentee and the infringer, are in the market. Kori Corp. v. Wilco Marsh Buggies & Draglines, Inc.,761 F.2d 649, 653, 225 USPQ 985, 987 (Fed.Cir.), cert. denied, 474 U.S. 902, 106 S.Ct. 230, 88 L.Ed.2d 229 (1985).

Where there is evidence of a third party competitor, the lost profits theory would appear to be nonviable inasmuch as the third party could have made the sale rather than the patentee. Under such circumstances, there appears to be no possible causation. However, such is not the law.

Patentees have successfully urged modifications to the basic damage theory so as to cover situations other than the simple two-supplier market. There is precedent for finding causation despite an alternative source of supply if that source is an infringer or puts out a noninfringing product that is an unacceptable alternative, or has insignificant sales. See, e.g., Bio-Rad Laboratories, Inc. v. Nicolet Instrument Corp.,739 F.2d 604, 222 USPQ 654 (Fed.Cir.) (proof of no acceptable substitutes), cert. denied, 469 U.S. 1038, 105 S.Ct. 516, 83 L.Ed.2d 405 (1984); Gyromat Corp. v. Champion Spark Plug Co., 735 F.2d 549, 222 USPQ 4 (Fed.Cir.1984) (no alternative competing source where only four or five machines sold); Central Soya Co. v. Geo. A. Hormel & Co., 723 F.2d 1573, 220 USPQ 490 (Fed.Cir.1983) (no acceptable alternatives because, inter alia, scale of operations of others was insignificant). Other litigants have been held entitled to lost profits damages calculated on a portion of an infringer's sales based on the patentee's market share. State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1577-78, 12 USPQ2d 1026, 1029 (Fed.Cir.1989), cert. denied, 493 U.S. 1022, 110 S.Ct. 725, 107 L.Ed.2d 744 (U.S.1990). These various theories are all invoked here to justify discovery from K-Flow of its products, comparative test results, sales figures, customers' names, and the like, to enable Micro Motion to determine which version or versions of the various lost profits damage theories to pursue.

While the Federal Rules of Civil Procedure unquestionably allow broad discovery, a right to discovery is not unlimited. Hickman v. Taylor, 329 U.S. 495, 507, 67 S.Ct. 385, 391, 91 L.Ed. 451 (1947). As a matter of procedure, to secure protection from discovery, a nonparty may invoke the inherent power of the court, see 5A J. Moore & J. Lucas, Moore's Federal Practice, § 45.05[3], at 37 (2d ed.1989), or Fed.R.Civ.P. 45(b), if appropriate, to quash a subpoena. Under Rule 45(d), a nonparty subpoenaed for testimony and production 1323*1323 of documents may move for a protective order under Fed.R.Civ.P. 26(c), including an order that discovery not be had. Confidential commercial information warrants special protection under Rule 26(c)(7). Smith & Wesson v. United States, 782 F.2d 1074, 1082 (1st Cir.1986). A nonparty also may merely object to production of documents and things. Fed.R.Civ.P. 45(d)(1). By merely objecting, such discovery is foreclosed except pursuant to an order of the court. Id. Also, Rule 26(d), which pertains to controlling the sequence and timing of discovery, may be invoked as a mechanism for accommodating the competing interests of those involved in the discovery process, for example, by delaying discovery on damages until liability is established. Cf. Sinclair Refining Co. v. Jenkins Petroleum Process Co., 289 U.S. 689, 53 S.Ct. 736, 77 L.Ed. 1449 (1933).

While the burdens may vary somewhat depending on which rule or procedure is invoked, the substantive considerations for denying a party discovery are generally the same and may be gleaned from Rule 26(b), (c) and (g). Truswal Sys. Corp. v. Hydro-Air Eng'g, Inc., 813 F.2d at 1210-11, 2 USPQ2d at 1036-37; American Standard, Inc. v. Pfizer Inc., 828 F.2d 734, 739-42, 3 USPQ2d 1817, 1820-23 (Fed.Cir.1987); Heat & Control, Inc. v. Hester Indus., Inc., 785 F.2d at 1023-26, 228 USPQ at 931-33. Discovery may not be had regarding a matter which is not "relevant to the subject matter involved in the pending action." Fed.R.Civ.P. 26(b)(1). Even if relevant, discovery is not permitted where no need is shown, or compliance would be unduly burdensome, or where harm to the person from whom discovery is sought outweighs the need of the person seeking discovery of the information. Fed.R.Civ.P. 26(b)(1); American Standard, Inc. v. Pfizer Inc., 828 F.2d at 739-42, 3 USPQ2d at 1820-23. Rule 26(g) specifically requires that the party or his attorney seeking discovery must certify that he has made a "reasonable inquiry" that the request is warranted. This "reasonable inquiry" is also imposed by Rule 11. See Fed.R.Civ.P. 11, Notes of Advisory Committee on Rules — 1983 Amendment ("Discovery motions, however, fall within the ambit of Rule 11."); see also Apex Oil Co. v. Belcher Co., 855 F.2d 1009, 1015 (2d Cir.1988) (noting that Rule 26(g) "imposes a more stringent certification requirement than Rule 11" because a discovery request usually pertains to more specific subject matter than that covered under Rule 11). Each of the requests here is improper under one or more of these protective grounds.