Panduit: A Test for All Seasons

The Panduit test for determining lost profits in a patent case is almost fifty years old. The four-factor test doesn't exactly roll off the tongue, but it has persevered. Therefore, it is always of interest anytime there's a lost profits decision in a patent case where a court states that “given the particularities of [the] case, it is not clear that the Panduit test is appropriate.”  

In Lexmark Int'l Inc. v. Universal Imaging Indus., LLC, No. 8:18-cv-1047-WFJ-AEP, 2023 WL 6688588 (M.D. Fla. Oct. 12, 2023), the patentee incorporated microchips into its toner cartridges that work with its printers. The defendant sold microchips to third party cartridge manufacturers that work in the patentee's printers. It sought summary judgment on the patentee's lost profits claim because, according to the defendant, its microchips could not be considered “interchangeable” with the patentee's cartridges under the first Panduit factor. Quoting from the Federal Circuit's decision in Bic Leisure Prods. v. Windsurfing Int'l, the defendants asserted that the parties' products are not “substantially the same” and do not “compete[] in the same market for the same customers.” 1 F.3d 1214, 1218-19 (Fed. Cir. 1993).

The district court denied the defendant's motion. It credited the patentee's arguments that (1) Panduit was a non-exclusive way to demonstrate lost profits, and (2) it would offer expert testimony that, but for the infringement, customers who purchased cartridges containing the defendant's microchips instead would have bought the patentee's products. To address the defendant's argument on the first Panduit factor, the court could have pointed to DePuy Spine v. Medtronic, where the Federal Circuit held that factor could be satisfied by evidence that there is general economic demand for “a product ‘covered by the patent in suit.’” 567 F.3d 1314, 1330 (Fed. Cir. 2009). As in DePuy Spine, the real issue in Lexmark implicates the second Panduit factor – whether the defendant's customers would have turned to available noninfringing substitute products in the absence of the accused devices.

Although the district court suggested otherwise, Lexmark's lost profits claim thus fits squarely within the Panduit framework. Panduit has endured in substantial part because the Federal Circuit has avoided the rigid application of the test that the defendant sought in Lexmark.

"[G]iven the particularities of this case, it is not clear that the Panduit test is appropriate. Regardless of the fact that UII was selling its products to remanufactures while Lexmark was selling to end users—an apparent issue for treating the demand for UII’s products and Lexmark’s products as interchangeable—a material issue of fact exists as to whether each of UII’s sales directly caused Lexmark to lose a customer. This is because Lexmark plausibly argues that (1) UII’s devices would not allow aftermarket toner cartridges to work in Lexmark printers without certain aspects of Lexmark’s patented technology, and (2) customers would be forced to buy Lexmark products if UII was not helping remanufacturers produce infringing substitutes." - Lexmark Int'l Inc. v. Universal Imaging Indus., LLC, No. 8:18-cv-1047-WFJ-AEP, 2023 WL 6688588 (M.D. Fla. Oct. 12, 2023)

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