Lost Profits Rejected Where Patentee Failed to Prove It "Would Have Made" a Competing Product Absent the Alleged Infringement

On March 29, 2012, in Avidyne Corp. v. L-3 Comms. Avionics Sys., Inc., Civil Action No. 05-11098 GAO (D. Mass. March 29, 2012), Judge O'Toole ruled on summary judgment motions, including a motion against the patentee's claim for lost profits. The court initially observed whether lost profits are categorically recoverable is a question of law for the court, and only after lost profits are deemed recoverable does the jury then determine the amount of lost profits. See Wechsler v. Macke Int'l Trade, Inc., 486 F.3d 1286, 1293 (Fed. Cir. 2007).

The issue here turned on whether the patentee, L-3, which did not make product that competed with Avidyne's accused product, had the ability to make and market a product but for some legitimate reason did not. The court cited Wechsler on this point. There the Federal Circuit held that, even though the patentee did not make a product that competed with the accused product, the patentee was entitled to lost profits because it not only could have sold a competing device, but likely would have done so during the period of infringement. Id. at 1294.

According to L-3, had Avidyne not infringed, L-3 would have made a device covered by its patent and sold it to Avidyne's customer, Cirrus, which purchased Avidyne's accused product. L-3 attempted to support this position by arguing that only it and Avidyne were plausible sources for the product at issue, and that if Avidyne had not contracted with Cirrus, L-3 would have done so and would have earned profits. In other words, but for Avidyne's infringement, L-3 would have sold product to Cirrus and would have profited from those sales.

The court rejected this argument citing several factors. First, when Cirrus sought bids for the product, Avidyne submitted a bid but L-3 did not. Second, L-3's development efforts with other partners failed, and the court decided this inability to develop a product for others undermined L-3's claim that it would have done so for Cirrus. Finally, the court cited the fact that L-3's parent did not support the project. The court concluded that these factors placed a substantial cloud on whether L-3 would have ever produced a device for Cirrus. Merely showing that it may have developed a competing product was insufficient to remove the situation from speculative to reasonably probable. See Wechsler, 486 F.3d at 1293 (holding that lost profits requires proof of "causation in fact," meaning a reasonable probability that the patentee would have made additional profits "but for" the alleged infringement).