Opinion ID: 697651
Heading Depth: 2
Heading Rank: 1

Heading: The Insufficiency of But-For as the Sole Test

Text: 80 As a preliminary matter, I wish to state my reasons for rejecting the arguments made by appellee Rite-Hite in support of the district court's judgment. The district court held, and Rite-Hite argues on appeal, supported by the amici, that the only restriction on the award of actual damages for patent infringement is proof of causation in fact, that is, satisfaction of a but-for test. 2 Under that test, it would follow that Rite-Hite is entitled to any profits it lost due to the infringer's competition, whether it lost sales of restraints embodying the invention in suit, or those protected by other patents, or even products in the public domain, i.e., never patented or the subject of expired patents. The district court applied a but-for standard to award lost profits on dock levelers as well. 81 In support of the district court's ruling, Rite-Hite relies on the statement in Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476, 84 S.Ct. 1526, 12 L.Ed.2d 457 (1964), that a patentee's damages under the statute must be measured by the difference between his pecuniary condition after the infringement, and what his condition would have been if the infringement had not occurred. 377 U.S. at 507, 84 S.Ct. at 1543 (plurality opinion) (quoting Yale Lock Mfg. Co. v. Sargent, 117 U.S. 536, 552, 6 S.Ct. 934, 942, 29 L.Ed. 954 (1886)). However, one of the most common sources of error occurs from quotations taken from opinions out of context. One might just as well try to play music merely by reading the lyrics. In Aro, the quoted statement was made in connection with limiting the amount of damages which could be recovered. As further explained respecting damages for contributory infringement: 82 [A]fter a patentee has collected from or on behalf of a direct infringer damages sufficient to put him in the position he would have occupied had there been no infringement, he cannot thereafter collect actual damages from a person liable only for contributing to the same infringement. 83 Aro, 377 U.S. at 512, 84 S.Ct. at 1545. The quotation from Aro on which Rite-Hite relies simply precludes double recovery. Aro does not mandate that a but-for test is the only restriction on recovery of patent infringement damages. Nor does Aro endorse the expansive view of damages adopted by the majority. In rejecting the patentee's damages theory, the opinion stated, It would enable the patentee to derive a profit not merely on unpatented rather than patented goods--an achievement proscribed by the Motion Picture Patents [v. Universal Film Mfg. Co., 243 U.S. 502, 37 S.Ct. 416, 61 L.Ed. 871 (1917) ] and Mercoid [Corp. v. Mid-Continent Inv. Co., 320 U.S. 661, 64 S.Ct. 268, 88 L.Ed. 376 (1944) ] cases--but on unpatented and patented goods. 377 U.S. at 510, 84 S.Ct. at 1544-45 (plurality) (emphasis in original). 84 Rite-Hite's principal authority from this court for its but-for theory is Lam, Inc. v. Johns-Manville Corp., 718 F.2d 1056, 219 USPQ 670 (Fed.Cir.1983). The Lam rule, according to Rite-Hite, similarly requires only that the court answer the question: Had the Infringer not infringed, what would Patent Holder ... have made?'  Lam, 718 F.2d at 1064, 219 USPQ at 677 (quoting Aro, 377 U.S. at 507, 84 S.Ct. at 1543). However, lost profits in Lam were awarded for interference with the patentee's sales of lamps which were the embodiment of the claimed invention. Lam, 718 F.2d at 1059, 219 USPQ at 671. In Lam, indeed, in all of our previous decisions on lost profits, we were addressing the factual issue of whether the patentee was entitled to its lost profits by reason of the infringer's diversion of the patentee's sales of products embodying the invention of the infringed patent. 3 The issue of recovery for losses related to the marketing of a patentee's competitive product protected, if at all, under a different patent, was not involved. 85 Over centuries of judge-made law, the term damages has become a word of art in the common law carrying both factual and legal limitations. The legal limitations (frequently called proximate cause, an unfortunate expression because of its confusing similarity to a but-for test) must be determined as a matter of law by the judge. W. Page Keeton, et al., Prosser and Keeton on the Law of Torts Sec. 41 (5th ed. 1984). Causation in fact of an injury (i.e., the but-for test) is applied after the legal determination is made that the asserted injury is a type which is legally compensable for the wrong. The but-for determination is a factual matter for the jury (or the judge in a bench trial). Thus, the common law term damages does not encompass any and all economic injury that one may suffer in fact from a wrong. Also, contrary to the district court's view, proximate or legal causation of patent damages is not merely a more closely scrutinized causation in fact test determined by the quality of plaintiffs' proof. 774 F.Supp. at 1537, 21 USPQ2d at 1819. In connection with a tort created by a federal statute, the public purpose of the statute and the likely intent of Congress are the overriding considerations respecting the types of injuries for which damages may legally be awarded. Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 274, 112 S.Ct. 1311, 1321, 117 L.Ed.2d 532 (1992); Associated Gen. Contractors, Inc. v. California State Council of Carpenters, 459 U.S. 519, 538-40, 103 S.Ct. 897, 909-10, 74 L.Ed.2d 723 (1983); see also Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 697, 50 L.Ed.2d 701 (1977) ([Plaintiff under section 7 of the Clayton Act] must prove more than injury causally linked to an illegal presence in the market. Plaintiffs must prove antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent.) Courts must be careful to discern and not exceed the purpose which the legislature intended. Cf. Keeton, et al., supra, Sec. 36. 86 The term damages in the patent statute must be interpreted in light of the familiar common law principles of legal or proximate cause associated generally with that term. In rejecting a but-for standard for determining damages in the Clayton Act, 4 the Supreme Court observed: 87 [A] number of judge-made rules circumscribed the availability of damages recoveries in both tort and contract litigation--doctrines such as foreseeability and proximate cause, directness of injury, certainty of damages, and privity of contract. Although particular common-law limitations were not debated in Congress, the frequent references to common-law principles imply that Congress simply assumed that antitrust damages litigation would be subject to constraints comparable to well-accepted common-law rules applied in comparable litigation. 88 Associated Gen. Contractors, 459 U.S. at 532-33, 103 S.Ct. at 905-06 (citations omitted). 89 The Supreme Court has recently applied a similar analysis of the civil action damages provision of RICO. 5 Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 264-71, 112 S.Ct. 1311, 1316-19, 117 L.Ed.2d 532 (1992). As stated in Holmes respecting the overriding necessity for proximate cause for an injury to be compensable under a statute awarding damages: 90 [A] showing [must be made] not only that the defendant's violation [of RICO] was a 'but for' cause of [the plaintiff's] injury, but was the proximate cause as well. [As further explained] proximate cause [is used] to label generically the judicial tools used to limit a person's responsibility for the consequences of that person's own acts. 91 503 U.S. at 265-68, 112 S.Ct. at 1316-18 (emphasis added). 6 92 Under this Supreme Court precedent, the law is clear that proximate cause is applied as a legal limitation on damages in connection with the statutory torts which the Court has considered. A but-for test tells us nothing about whether the injury is legally one which is compensable. As above stated, the lack of proximate causation will preclude recovery for certain losses even though a but-for standard of injury in fact is satisfied. See also Blue Shield of Va. v. McCready, 457 U.S. 465, 476-77, 102 S.Ct. 2540, 2547-48, 73 L.Ed.2d 149 (1982) (Clayton Act); Davis v. Avco Fin. Servs., Inc., 739 F.2d 1057, 1067 (6th Cir.1984), cert. denied, 470 U.S. 1005, 105 S.Ct. 1359, 84 L.Ed.2d 381 (1985) (but-for test may not be equated with proximate cause); Keeton, et al., supra, at 42. 93 Rite-Hite and the majority treat lost profits as the legal injury. However, lost profits is a way to measure compensation for a legal injury. Lost profits is not itself the legal injury. No rational basis is suggested by Rite-Hite or the amici for applying a different interpretation to the statutory term damages in connection with the tort of patent infringement. No legislative history even hints that patentees are so favored that a special or more expansive meaning was intended for patent damages. A but-for test for damages, which would mandate that all types of economic injury to a patentee's business traceable to the infringement are compensable, is as legally deficient a standard for patent infringement damages as for damages under the Clayton Act or RICO. Causation in fact is not the sole test for determining compensable damages under 35 U.S.C. Sec. 284. 94 That said, however, merely brings us to the issue of what are the legal limits on damages for patent infringement. 95 As will be shown, precedent before 1946 unequivocally established that compensable lost profits were restricted to those the patentee would have made from commercializing the invention. Further, Congress reenacted the provision for damages with that understanding.