{"id":189887,"date":"2025-04-18T00:42:16","date_gmt":"2025-04-18T00:42:16","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/legal\/face-the-inmusic-a-corporate-patent-owner-cannot-yet-recover-the-lost-profits-of-a-subsidiary\/"},"modified":"2025-04-18T00:42:16","modified_gmt":"2025-04-18T00:42:16","slug":"face-the-inmusic-a-corporate-patent-owner-cannot-yet-recover-the-lost-profits-of-a-subsidiary","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=189887","title":{"rendered":"Face the inMusic: A Corporate Patent Owner Cannot (Yet?) Recover the Lost Profits of a Subsidiary"},"content":{"rendered":"


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The Federal Circuit has long held that \u201cthe general rule\u201d of patent infringement damages law is \u201ca patentee may not claim, as its own damages, the lost profits of a related company.\u201d More than 15 years ago, one patent owner argued that an exception to this general rule should be<\/em> when a subsidiary\u2019s profits \u201cflow inexorably\u201d to the parent patent owner. In that case, the Federal Circuit avoided deciding the legal question, concluding that the patent owner had failed to prove that its wholly owner subsidiary\u2019s profits flowed inexorably to it. The same legal question came before the Federal Circuit again in Roland Corp. v. inMusic Brands, Inc.<\/em><\/a> and the result was, well, the same: no dice.<\/p>\n

The circumstances were as follows. Roland sued inMusic for infringement of several patents relating to electronic drums and cymbals. Roland, the sole plaintiff, is a Japanese company that does business directly in the U.S. and through its wholly owned U.S. subsidiary, Roland U.S. (Roland U.S. buys product from Roland and then resells it in the U.S.). Roland\u2019s case against inMusic went to trial and the jury returned a verdict in Roland\u2019s favor, awarding $2.7 million in lost profits to Roland (and an additional $1.9 million in reasonable royalties). The jury rendered a single lost profits verdict, i.e., one that that did not separate out Roland\u2019s lost profits from Roland U.S.\u2019s lost profits. inMusic appealed the judgment entered on the verdict.<\/p>\n

On appeal, the Federal Circuit vacated the entire damages award and remanded the case to the district court for a new trial on damages. With respect to lost profits, after reciting the \u201cgeneral rule\u201d of lost profits recovery noted above, the court held that Roland had failed to introduce substantial evidence that Roland U.S.\u2019s profits \u201cinexorably flowed\u201d to Roland. The only evidence introduced was testimony from an executive of both Roland and Roland U.S. that Roland U.S. was a wholly owned subsidiary, and the court held this to be conclusory and insufficient. The court noted the absence of any evidence of (1) who controlled Roland\u2019s U.S.\u2019s distribution of profits, (2) corporate controls to ensure that Rolan U.S.\u2019s profits became those of its corporate parent, Roland, or (3) \u201chistorical financial information showing an unwavering flow of profits\u201d from Roland U.S. to its parent. Moreover, because the jury did not render a Roland-only lost profits finding, the Federal Circuit vacated the jury\u2019s lost profits award.<\/p>\n

Though designated nonprecedential, Roland <\/em>is yet another example of the Federal Circuit demanding rigor from patent owners and their damages experts in supporting patent damages claims. See my recent post<\/a> for other examples. The key takeaways from Roland<\/em> are as follows. First<\/em>, the Federal Circuit has yet to embrace the legal principle that patent owners can recover lost profits of a non-party subsidiary. (This is to be contrasted with the court\u2019s acceptance of the notion that a subsidiary with an exclusive license under the corporate parent\u2019s patent is eligible to recover its lost profits.) Second<\/em>, an \u201cinexorable flow\u201d theory of damages is unlikely to succeed in the future unless a patent owner pursuing this theory of recovery proves that it has structured its financial arrangement with its U.S. subsidiary such that, in fact, the subsidiary\u2019s profits from the sale of the patented product systematically flow to the parent patent owner.<\/p>\n

\n\t\t\t<\/p><\/div>\n\n","protected":false},"excerpt":{"rendered":"

The Federal Circuit has long held that \u201cthe general rule\u201d of patent infringement damages law is \u201ca patentee may not claim, as its own damages, the lost profits of a related company.\u201d More than 15 years ago, one patent owner argued that an exception to this general rule should be when a subsidiary\u2019s profits […]<\/p>\n","protected":false},"author":1,"featured_media":189888,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[97],"tags":[11520,844,74160,5516,11121,19737,13014,16872,74161],"dealstore":[],"offerexpiration":[],"class_list":["post-189887","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-legal","tag-corporate","tag-face","tag-inmusic","tag-lost","tag-owner","tag-patent","tag-profits","tag-recover","tag-subsidiary"],"yoast_head":"\nFace the inMusic: A Corporate Patent Owner Cannot (Yet?) 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