CAFC Denies Rehearing En Banc in Mentor Graphics Lost Profits Case

The Federal Circuit, in Mentor Graphics Corp. v. EVE-USA, Inc. (also including Synopsys, Inc. as a defendant), Nos. 2015-1470, 2015-1554, 2015-1556 (Fed. Cir. September 1, 2017) (per curiam), denied EVE-USA's petition for a rehearing en banc on issues of apportionment and lost profits damages. Judge Stoll, with whom Judges Newman, Moore (who issued the underlying opinion), O'Malley, Neyna, and Wallach joined, denied the rehearing. Judge Dyk, with whom Judge Hughes joined, dissented from the denial. 2017 WL 3806141 at *1.

In support of the rehearing, Judge Dyk made four points: 1) EVE-USA sought to present evidence of apportionment at trial but evidence was excluded; 2) the District Court erred by "satisfying the but-for test of the Panduit factors… [but] not determin[ing] whether the entire value of the product is attributable to the patented feature"; 3) even the patentee argued that the "but for" analysis was different than apportionment; and 4) "apportionment is an important issue that will likely arise in every future lost profits case." Id. at 3-4.

"Awards of lost profits … must be apportioned between patented and unpatented features" and "lost profits is not necessary unless the patentee established that it would have sold the item but for the infringement." Id. at 1 (citing cases from the middle of the 19th century, as well as Ericksson, Inc. v. D-Link Sys., Inc. in 2014). Judge Dyk noted that "the panel here holds that applying the first [demand for patented product] and second [absence of acceptable noninfringing substitutes] Panduit factors results in the required apportionment," but "the panel opinion simply does not apportion." Id. at *3. Judge Dyk disagreed with the panel who "found that application of the Panduit factors to be the same as the entire market value rule." Id. at *4. "Consumer demand for the patented feature and but-for causation may exist (and satisfy the Panduit factors), but this does not mean that other features do not contribute to consumer demand." Id.

Judge Stoll defended the rehearing denial, as well as the holding in Mentor, as being "consistent with longstanding patent law damages principles." Id. at 1 (citing Garretson from 1884). Judge Stoll also noted that she did "not agree with the dissent that there should be a special rule for damages in patent cases which is at odds with mainstream damages principles." Id. at 1 n.1. In the Court's opinion, the jury properly considered the Panduit factors, including demand and absence of acceptable noninfringing substitutes. Id. In light of the undisputed evidence that there was demand for the patented product and there were no noninfringing alternatives, "further apportionment is unnecessary." Id. at 2. Judge Stoll further clarified, "apportionment is typically necessary in both reasonable royalty and lost profits analysis," but in light of the undisputed facts here, "the damages award properly accounted for apportionment." Id.