Micro Chemical Inc. v. Lextron Inc.

Micro Chemical Inc. v. Lextron Inc.[1]

It will be recalled that in determining damages to be awarded for patent infringement, the basic test is one of lost profits and that the normal, but not exclusive, test to apply in addressing the issue of lost profits based on lost sales was set out in Panduit Corp. v. Stahlin Bros. Fibre Works Inc.[2] as follows:

To obtain as damages the profits on sales he would have made absent infringement, i.e. the sales made by the infringer, a patent owner must prove: (1) demand for the patented product, (2) absence of acceptable non-infringing substitutes, (3) his manufacturing and marketing capability to exploit the demand, and (4) the amount of profit he would have made.

If any of these does not exist or cannot be determined, then damages must be assessed on a “reasonable royalty” basis.

In the present case, which relates to microweigh machine for adding nutrients to animal feed, the district court held that there was an acceptable non-infringing alternative and so assessed damages on a reasonable royalty rather than a lost profits basis. The plaintiff appealed.

The issue in Micro Chemical v. Lextron was how does one determine if there is an acceptable non-infringing substitute. The Federal Circuit held that factors to be considered in determining whether such an alternative was available include whether the material and know-how for the alleged substitute were readily available at the time of the infringement and whether, even if these requirements were met, the cost of the alleged alternative was such as to preclude its being available as a practical alternative. The Federal Circuit found that the equipment that the district court had held to be an available alternative was as a matter of fact shown by the record available at the time of the infringement and that the defendant had only later designed equipment that did not infringe and so had “designed around” the patent. At the time of the infringement they had not possessed the necessary equipment, know-how or experience to make a non-infringing apparatus at the time if the infringement.

[1] 65 USPQ2d 1695 (Fed. Cir. 2003).
[2] 575 F.2d 1152 197 USPQ 726 (6th Cir. 1978). The opinion was by Judge Markey, later to be the first chief judge of the Federal Circuit.