Income, Cash, and Lost Profits Damages Awards in Patent Infringement Cases
The Federal Circuit Bar Journal, Vol. 2, No. 2, 1992
14 Pages Posted: 9 Jul 2009
Date Written: Summer 1992
Abstract
The paper illustrates the excessive damages awards that can result in patent infringement cases by failing to take income taxes into account and by basing such awards on lost accrual income rather than lost cash flows. Examples are provided of lost profits damages calculations employing (1) the 'standard' method in which lost profits damages awards are determined based on lost pretax accrual income, (2) a calculation based on lost accrual income in which income taxes are taken into account, and (3) the determination of lost after tax cash flows. The latter calculation places the patentee in the financial position he or she would have enjoyed had there been no infringement, which is the result prescribed by the Supreme Court in Aro v. Convertible Top, 377 U.S. 476 (1964). The other two calculations result in larger amounts and thus are excessive by the standard prescribed by the Supreme Court in Aro.
Keywords: Patent Damages, Lost Profits, Income Taxes, Cash Flow, Accrual Income
JEL Classification: K29, K39
Suggested Citation: Suggested Citation