Thanks to a concept known as convoyed (or collateral) sales, plaintiffs in intellectual property disputes may be able to recover lost profits on items related to the infringed patented product as well as the product itself.

"Lost profits on related unpatented products can be even more significant than lost profits from the actual patent," says Ivan Hofmann, senior manager at Gleason & Associates.

Consider a patent holder of a new razor that develops and sells the shaver with the expectation that customers will purchase not only the razor but also replacement blades, now and into the future. If an infringer on the design of the razor takes away the patent holder's razor sales, the plaintiff may be also entitled to damages for lost profits on convoyed sales of blades and other accessories.

Establishing Linkages
To successfully claim damages from lost convoyed sales, the intellectual property owner's analysis must demonstrate a functional relationship between the potentially convoyed products and the patented product. "The products can't be merely sold together for business convenience or a marketing advantage," Hofmann explains.

In addition, the patent holder must show that it would have made the sales of the related unpatented products or services "but for" the infringement. "The determination of 'but for' causation requires a deep understanding of the products at issue, the market and demand for the products, typical sales terms and the capacity of the patent holder to have made the lost sales," says Hofmann.

Recently, Gleason & Associates served as the damages expert for the plaintiff in an intellectual property case that resulted in an award for lost profits on lost convoyed sales. The client's patented product was a key component in a complex system that relied on a combination of devices, including two additional non-patented components, to operate successfully. To secure sales of the related unpatented products, which were sold in high volumes with significant profits, the patent holder priced the patented product for a low profit. Consequently, the lost profits on the patented product itself were nominal.

"Because the profits on the lost convoyed sales were significantly greater than the lost profits on the patented product, it was important to substantiate the linkage," notes Hofmann. Market research, interviews with the patent holder's technical and marketing personnel, discussions with independent technical experts and a thorough analysis of volumes of discovery documents conducted by Gleason & Associates established the relationship between the patented and unpatented products.

"Our extensive experience in intellectual property litigation enabled us to properly analyze the issue of convoyed sales in this complicated case," says Hofmann.