Federal Circuit Denies Mars' Appeal to Recover Lost Profits from Coin Acceptors, But Affirms Award of 7% Royalty Rate

Holding:

In this suit involving patents relating to technology used in vending machines to authenticate coins, the U.S. Court of Appeals for the Federal Circuit denied Mars' appeal for an award of lost profits. While the statutory text states tersely that a patentee like Mars should receive “adequate” damages, the Supreme Court has previously held that “adequate damages” should approximate those damages that willfully compensate the patentee for infringement. In this regard, the district court did not err in denying an award of lost profits because Mars itself did not lose any sales (“because it did not sell coin changers itself”), and that there was no evidence that profits from its subsidiary MEI’s sales flowed inexorably to Mars. But the Federal Circuit sustained the district court’s assessment of a 7% reasonable royalty rate, thus rejecting defendant Coinco’s argument that “an infringer should not be required to pay more in reasonable royalty damages than it would have paid to avoid infringement in the first place by switching to an available noninfringing alternative.” Even if Coinco had shown that it had an acceptable noninfringing alternative at the time of the hypothetical negotiation, Coinco was wrong as a matter of law to claim that reasonable royalty damages are capped at the cost of implementing the cheapest available, acceptable, noninfringing alternative.

Detailed Summary:

The patents-in-suit referred to technology used in vending machines to authenticate coins. Plaintiff-appellant Mars, Inc. (“Mars”) was a candy company. Mars’s former subsidiary—Mars Electronics International, Inc. (“MEI”) — was engaged in the manufacture and sale of vending machine coin changers with the ability to recognize and authenticate coins electronically. Mars itself was not engaged in the production, and had never made vending machine coin changers.

Until 2006, MEI was a wholly owned subsidiary of Mars. Mars filed this appeal for a reversal of the judgment of the United States District Court for the District of New Jersey precluding Mars from recovering…

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