Monday, June 02, 2008

Mars whacked by CAFC in Coin Acceptors case

Mars, represented by John Pegram of Fish & Richardson, took a hit in the Coin Acceptors case.

The case touched on the interplay of rights of parents and subsidiaries. Here, Mars’s former subsidiary—Mars Electronics
International, Inc. (“MEI”)—manufactures and sells vending machine coin changers with
the ability to recognize and authenticate coins electronically. Until 2006, MEI was a wholly owned subsidiary of Mars.
An issue was that MEI lacked standing in the infringement action, because it was neither the owner nor the
exclusive licensee of the patents-in-suit AND Mars itself did not lose any sales (because it did not sell coin changers itself), and that there was no evidence that profits from MEI’s sales flowed inexorably to Mars.

The issues before the CAFC were: (1) whether Mars was entitled to
lost profits; (2) whether MEI had standing to recover damages incurred prior to 1996; (3)
whether Mars had standing to recover damages incurred from 1996 to 2003; and (4)
whether the district court erred by imposing a 7% royalty rate.

Of the first issue, the CAFC reached back to an 1894 case: Patent infringement is a tort.
Schillinger v. United States, 155 U.S. 163, 196
(1894). “In patent cases, as in other commercial torts, damages are measured by
inquiring: had the tortfeasor not committed the wrong, what would have been the
financial position of the person wronged?” Brooktree Corp. v. Advanced Micro Devices,
Inc., 977 F.2d 1555, 1579 (Fed. Cir. 1992); see also Aro Mfg. Co. v. Convertible Top
Replacement Co., 377 U.S. 476, 507 (1964) (stating damages analysis as assessing
“had the Infringer not infringed, what would the [Patentee] have made?”).

The CAFC further noted: Because we conclude that MEI’s profits did not—as Mars argued—flow
inexorably to Mars, we, like the Poly-America court, need not decide whether a parent
company can recover on a lost profits theory when profits of a subsidiary actually do
flow inexorably up to the parent. See Poly-America, 383 F.3d at 1311 (“[I]t is not clear
here whether Poly-America has itself suffered lost profits from the infringement, a matter
that may be dealt with on remand . . . .”)

Of the second issue, the CAFC noted: Only a patent owner or an exclusive licensee can have constitutional standing to
bring an infringement suit; a non-exclusive licensee does not. Sicom Sys., Ltd. v.
Agilent Techs., Inc., 427 F.3d 971, 976 (Fed. Cir. 2005) (“A nonexclusive license
confers no constitutional standing on the licensee to bring suit or even to join a suit with
the patentee because a nonexclusive licensee suffers no legal injury from infringement.”


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