I've just picked up this item on Lexology: it's a note ("Parent company denied recovery for lost profits of subsidiary") by Philip C. Canelli, from the New York office of McDermott Will & Emery. This note explains the reasoning of the US Court of Appeals for the Federal Circuit in upholding a summary judgment in Mars, Inc. v. Coin Acceptors, Inc.,Case No. 07-1409,-1436 in which a patent infringement claim for damages in respect of a subsidiary's lost profits was dismissed (pdf of full 26-page decision here).Mars claimed, as long ago as January 1990, that certain products made by Coin Acceptors infringed its coin authentication patents. Coin Acceptors was found to have infringed and was ordered to pay a reasonable royalty of 7 percent from 1996 till the expiry of the last Mars patent in 2003. The court however refused to allow Mars to recover profits lost by its former subsidiary/non-exclusive licensee Mars Electronics International, Inc. since that company lacked standing to seek damages in its own right.
On the issue of lost profits the Federal Circuit, noting that Mars did not make or sell any of the patented machines and that its subsidiary paid it on a straight per-use basis rather than on the basis of any profits, found that its profits did not flow inexorably to Mars.
The Federal Circuit also upheld the 7 percent reasonable royalty rate even though it was higher than the cost that Coin Acceptors would have incurred if it had used non-infringing alternatives. This is because reasonable royalty damages are not capped at the cost of implementing the cheapest available, acceptable, non-infringing alternative.
The notion that a subsidiary's loss of profits cannot be recovered unless it flowed inexorably from licensee to licensor would seem broadly analogous to the position in the UK after Gerber Garments v Lectra, in which the Court of Appeal appeared to require a clear causative link between the infringement and the subsidiary's loss.
