Opinion ID: 6944934
Heading Depth: 2
Heading Rank: 3

Heading: Damages for Infringement of the ’966 Patent

Text: GE argues that the jury’s findings concerning damages were not supported by substantial evidence. It argues that reasonable royalty damages were incorrectly based upon the sales of the entire MRI machines rather than the value of the improvement covered by the claimed invention, and that Fonar submitted no substantial evidence to show that the MAO feature was the basis for the customer demand for the entire machine. It argues that the effective royalty rate awarded has no support in the record and that the evidence indicated that GE entered into sixteen license agreements in which the royalty rate was significantly lower. Fonar responds that GE incorrectly assumes that Fonar would have licensed the technology to a competitor for the same rate that it would have licensed a customer. Furthermore, Fonar argues that the entire market value rule entitles it to a royalty based upon the value of the entire MRI machine even when the patented feature was only a part of it, and that testimony by Fonar’s witnesses supported an even higher royalty than that awarded by the jury. The patent statute provides that Upon finding for the claimant the court shall award the claimant damages adequate to compensate for -the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court. 35 U.S.C. § 284 (1994). Under the entire market value rule, it was not improper for the jury to base a reasonable royalty on the value of the entire accused MRI machines. That rule “allows for the recovery of damages based on the value of an entire apparatus containing several features, even though only one feature is patented.” Paper Converting Mach. Co. v. Magna-Graphics Corp., 745 F.2d 11, 22, 223 USPQ 591, 599 (Fed.Cir.1984). This is permitted when the patented feature is the basis for customer demand for the entire machine. Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1549, 35 USPQ2d 1065, 1073 (Fed.Cir.) (in banc), cert. denied, — U.S. —, 116 S.Ct. 184, 133 L.Ed.2d 122 (1995). There was evidence from which the jury could have concluded that was the case here. GE’s own technical literature of record emphasized the MAO feature. A brochure for GE’s Signa machine highlighted MAO in 1987, stating that “[m]ulti-slice, multi-angle capabilities offer direct acquisition of multiple view angles in one acquisition.” Several other brochures of GE machines also identified the MAO feature. One GE brochure, entitled “Multi-angle MR imaging,” states that: “A recent advance at GE Medical Systems, however, is helping to enhance efficiency and patient throughput. Multi-angle imaging, featured on all Signa® systems, allows a single scan to be graphically prescribed with each slice— or group of slices — acquired at a different angle.” There was thus substantial evidence to support an award of a reasonable royalty based upon the cost of the entire accused machines. We agree with Fonar that the jury’s award of reasonable royalty damages was also supported by substantial evidence. Dr. Laurits Christensen, an expert witness for Fonar, testified that one-quarter to one-third of the anticipated profits on the sale of the infringing machines would have constituted a reasonable royalty and that this estimate would have resulted in a royalty of 7.25 percent, or $54 million, for the 525 accused machines. This was higher than the royalty of $34.125 million awarded by the jury. Also, GE had itself entered into a license agreement for MRI technology at a rate of seven percent. GE argues that the lost profits award on all of its sales incorrectly assumed that Fo-nar would have made sales in markets in which Fonar did not compete with GE. GE argues that Fonar failed to adequately prove that there was a lack of noninfringing substitutes. Fonar responds that there were no noninfringing substitutes, that purchasers were motivated to buy the machines because of the MAO feature and that the alleged substitutes lacked that feature. Fonar also asserts that it had the capacity to manufacture and sell the machines whose sales it lost toGE. In order to be entitled to lost profits, a patentee must show a reasonable probability that it would have made the salés “but for” the infringement. Rite-Hite, 56 F.3d at 1545, 35 USPQ2d at 1069. This may be done by means of the four-factor Panduit test, requiring proof of demand for the patented product, lack of acceptable noninfringing substitutes, capacity by the patentee to meet the demand, and the amount of profit patentee would have made. See Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156, 197 USPQ 726, 729-30 (6th Cir.1978). “The burden then shifts to the infringer to show that the inference is unreasonable for some or all of the lost sales.” Rite-Hite, 56 F.3d at 1545, 35 USPQ2d at 1069. We agree with Fonar that the jury’s award of lost profits was supported by substantial evidence. Dr. Damadian testified that there was no acceptable alternative to MAO imaging. He testified that the available alternatives would have led to a significant compromise in speed and quality in comparison to using MAO. One alternative, according to Dr. Damadian, would have been 3D imaging. He testified, however, that in using 3D imaging, the amount of time required to collect the data would have resulted in a prohibitively long time for a patient to remain in a scanner. Other techniques referred to as “fast imaging techniques such as fast spin echo or echo plane” would have involved obtaining single scanned “slices” at a high speed and converting them into an assembly of multiple angles; however, Dr. Damadian testified that these techniques would have resulted in an unacceptable image quality. In addition to this evidence that no acceptable alternative to MAO imaging existed, Dr. Christensen testified that all competing machines with the MAO capability infringed the ’966 patent. There was also substantial evidence that Fonar had the capacity to manufacture machines whose sales it lost. Through the testimony of Dr. Damadian, Fonar proved that in 1988 it could manufacture eight machines per month. He testified that in 1989, Fonar had 600-650 employees and a fast growth rate, having appeared for two consecutive years on Inc. magazine’s list of the fastest growing companies. Based on Fonar’s growth rate, Dr. Damadian testified that Fonar’s capacity would have increased to 500 machines per year by 1992. Accordingly, the district court did not err in denying GE’s motion for JMOL concerning damages for direct infringement of the ’966 patent.