Legal Definitions - Panduit test

The Panduit test is a legal framework used in patent infringement lawsuits to determine if a patent holder can claim "lost profits" as part of the damages caused by an infringer. This test helps courts assess whether the patent holder would have made specific sales that were instead captured by the infringing product.

To successfully claim lost profits under the Panduit test, the patent holder must prove four key factors:

• 1. Demand for the Patented Product: The patent holder must demonstrate that there was a market demand for the product or technology protected by their patent. This shows that customers wanted the innovation.
• 2. Patent Holder's Capacity: The patent holder must prove they had the manufacturing, marketing, and distribution capabilities to meet the demand for the product that the infringer ultimately sold. In essence, they must show they could have made those sales themselves.
• 3. Absence of Acceptable Non-Infringing Alternatives: The patent holder must show that there were no other products or technologies available on the market that customers would have purchased instead, which did *not* infringe the patent. If acceptable non-infringing alternatives existed, it becomes harder to argue that customers would have bought the patent holder's product.
• 4. Quantification of Lost Profits: The patent holder must be able to reliably calculate the specific amount of profit they lost due to the infringement. This typically involves showing their profit margin and the number of sales diverted by the infringer.

Here are some examples illustrating how the Panduit test might be applied:

• Example 1: Innovative Medical Device

  A company called MediTech Innovations holds a patent for a unique, highly effective surgical tool that significantly reduces recovery time for a specific type of operation. Another company, SurgiCo, begins manufacturing and selling a tool that incorporates MediTech's patented technology without permission.

  • Demand: MediTech can present strong sales figures for its tool, testimonials from surgeons, and market research indicating a high demand for surgical instruments that improve patient outcomes.
  • Capacity: MediTech can demonstrate that it had the manufacturing facilities, sales force, and distribution network in place to produce and sell the exact number of infringing tools that SurgiCo sold to hospitals.
  • No Alternatives: Experts testify that at the time of infringement, no other surgical tool on the market offered the same patented recovery benefits without infringing MediTech's patent. Hospitals seeking this specific advantage would have purchased from MediTech.
  • Lost Profits: MediTech provides detailed financial records showing its profit margin per unit and calculates the total profit lost from the sales SurgiCo made using the infringing device.

• Example 2: Advanced Battery Technology

  PowerCell Corp. patents a groundbreaking battery design that allows electric vehicles to charge twice as fast as existing technologies. ElectroDrive Inc., an electric vehicle manufacturer, integrates a battery system into its new car model that is later found to infringe PowerCell's patent.

  • Demand: PowerCell can show a clear market demand for faster-charging electric vehicles, evidenced by consumer surveys, industry trends, and licensing inquiries from other auto manufacturers.
  • Capacity: PowerCell had the production capabilities and a dedicated sales team ready to license its battery technology to additional automotive partners, including ElectroDrive Inc., had ElectroDrive not infringed.
  • No Alternatives: At the time of the infringement, no other battery technology offered the same rapid-charging capabilities without infringing PowerCell's patent. Vehicle manufacturers prioritizing this feature would have sought PowerCell's solution.
  • Lost Profits: PowerCell can calculate the lost licensing fees and potential royalties it would have earned from ElectroDrive Inc. based on its standard licensing agreements and the number of infringing vehicles sold.