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Based on new statutes and revisions to established statutes, patent infringement damages may be awarded for periods prior to the sale of the accused product as well as prior to the issuance of the patent(s) covering the accused products. These changes have implications for damages consultants, counsel and their clients involved in patent litigation. It is important to recognize that — just like damages after the sale of the accused product and after the issuance of the patent — damages prior to the sale of the accused product or prior to the issuance of the patent must be substantiated based on the facts of each case and the business and legal context of the matter. Additionally, legal constraints on the damages period (e.g., whether the patent-holder provided notice of his/her patent) may also limit the damages period. DAMAGES PRIOR TO THE SALE OF THE ACCUSED PRODUCT Prior to 1994, U.S.C. Section 271(a) stated that “whoever without authority makes, uses or sells any patented invention, within the United States during the term of the patent therefor, infringes the patent.” In 1994, that language was changed and infringement is now considered to occur when an unauthorized entity “makes, uses, offers to sell, or sells any patented invention. …” 35 U.S.C. � 271 (1994). As a result, there is a statutory basis for claiming damages for a period when the accused product is offered for sale but has not yet been sold. These damages might occur as a result of pre-introduction announcements by an accused infringer or, in the case of products which have longer lead times for purchasing, when an accused product is available for sale, but no sale has been consummated. If a patent-holder already sells a product at the time an alleged infringer offers an accused product for sale, damages might consist of lost profits based on reductions in the number of units sold (if the patent-holder can prove that consumers defer purchases while waiting for the accused product) or price erosion (if the patent-holder can prove that it was forced to reduce its prices in the face of a lower price being offered by the accused infringer). DAMAGES PRIOR TO THE ISSUANCE OF THE PATENT The American Inventors Protection Act was passed in November 1999. Among other things, this Act provides that, if certain disclosure criteria are met, a patent-holder may be entitled to a royalty payment on accused products sold while the patent application was pending. To obtain a reasonable royalty for this period, the patent when issued must be substantially identical to the application. These damages may not take the form of lost profits. IMPLICATIONS The potential extension of the damages period means that the amount of damages may be higher than counsel or the parties anticipated at the outset of litigation. Additionally, if the damages period begins earlier, the amount of prejudgment interest on any damages may also increase. During discovery, counsel typically explores events that occurred prior to the sale of the accused product in connection with establishing the activities leading up to the issuance of the patent and the sale of the products that allegedly embody the patent. Counsel may also wish to focus on topics helpful for the estimation of damages for that period. Such topics for investigation of the period while the patent application was pending may include licenses of other patents or intellectual property, whether acceptable non-infringing alternatives were available, financial projections and results, or reports by sales representatives regarding customer comments and price changes. Even if damages are calculated as lost profits for the period after the issuance of the patent, counsel may need to identify an expert witness to determine a reasonable royalty rate if damages are claimed for the period prior to the issuance of the patent. OPEN ISSUES Since the statutory bases of patent infringement damages prior to the sale of the accused products or the issuance of the patent at issue are relatively recent, some questions arise regarding their application in a damages claim. For example: � May damages be claimed for offers to sell that never resulted in actual sales? For example, a patent-holder may reduce prices in response to an announced product introduction by a competitor which, based on pre-introduction information or actual sales in foreign countries, is alleged to be an infringing product if sold in the United States. However, that competitor may ultimately not make any sales in the United States. � For reasonable royalty damages on accused products sold prior to the issuance of a patent, what is the appropriate rate? Should this reasonable royalty rate recognize that the royalty is being paid for a patent that has not yet been issued? Should the reasonable royalty rate for the period prior to the issuance of the patent be the same as the reasonable royalty rate after the issuance of the patent? � What is the appropriate date for the hypothetical negotiation at which a reasonable royalty would be set? What if the accused products were “offered for sale” but sales were not consummated for a year or more? CONCLUSION Although the methods for estimation of these types of damages have yet to be well-established, patent infringement damages may include periods prior to the sale of the accused products or prior to the issuance of the patent at issue. These damages estimates are likely to be most credible when — like patent infringement damages based on events after the issuance of the patent and the sale of the accused product — they are based on the specific facts of the individual case, the business context and the requirements of case law. Karl Hampe is a Director of Litigation Services in the New York office of BDO Seidman. The contents of this article represent the opinions of the author and are not the opinions of BDO Seidman. The discussion in this article is general in nature and is not intended to apply to specific matters.

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