On September 14, 2004, the U.S. Court of Appeals for the Federal Circuit issued a unanimous opinion in Poly-America, L.P. v. GSE Lining Technology, Inc., Case No. 04-1022 [http://fedcir.gov/opinions/04- 1022.doc]. The Federal Circuit found that the district court erred in denying GSE’s motion for a new trial on damages and reversed for a redetermination of whether Poly-America incurred any lost profits.
Poly-America, L.P. owns patents directed to a method and apparatus relating to a blown-film textured landfill liner and sued GSE’s predecessor for infringement. After GSE conceded infringement, a jury returned a verdict that the patents-in-suit were not invalid and the defendant willfully infringed the patents. The jury also awarded lost profits damages of over $7 million and a reasonable royalty of over $5 million.
GSE filed post-trial motions for judgment as a matter of law (JMOL) that the patents were invalid and sought a new trial on damages. The district court denied the JMOL for invalidity, and found the reasonable royalty award excessive. The district court conditioned denial of a new trial on damages on Poly-America’s acceptance of a remittitur of less than $300,000 of the reasonable royalty award.
On appeal, GSE argued that Poly-Flex, a corporation that has the same parent as Poly-America, licensed the patents-in-suit on a non-exclusive basis and Poly-America was not entitled to lost profits damages resulting from sales Poly-Flex lost. Poly-Flex did not make or sell any product that fell within the scope of the patent claims at issue. Poly-America contended that Poly-Flex held the right of enforcement for claims for past damages as well as the right to sublicense others, and assigned those rights to Poly-America. Poly-America also argued that it operated with Poly-Flex as "a single economic unit" for the purposes of production, marketing, and sales of products covered by the patents. Accordingly, Poly-America argued that it was entitled to lost profits damages for infringement of the patents-in-suit, and a jury could have reasonably attributed Poly-Flex’s sales to Poly-America.
The Federal Circuit noted that the issue of whether lost profits are available is a question of law. Citing Rite-Hite Corp. v. Kelley Co, Inc., 56 F.3d 1538, 1548-49 (Fed. Cir. 1995) (en banc), the Federal Circuit held that to recover lost profits, a patentee need not sell a product covered by the patent, but it must sell some item for which profits have been lost due to sales of an infringing item. The fact that Poly-America and Poly-Flex shared interests was not sufficient to permit Poly-America to claim lost profits based upon Poly-Flex’s lost sales. Because the parent corporation arranged Poly-America and Poly-Flex’s "corporate identities and functions to suit its own goals and purposes, it must take the benefits with the burdens." The structure of the two corporations, as a matter of law, prevented Poly-America from claiming the lost profits of its non-exclusive licensee.
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