Corporate Reorganization Absent Assignment or License of Patent Rights Results In Preclusion Of Patentee’s Lost Profits Damages

In a decision that highlights the import of assigning or licensing intellectual property assets during corporate reorganization, a district court recently ruled that a plaintiff patentee was not entitled to lost profit damages based on the patent at issue in an infringement action. In Duhn Oil Tool, Inc. v. Cooper Cameron Corporation (CAED January 24, 2011) Duhn Oil Tool, Inc. filed suit against Cooper Cameron Corporation alleging patent infringement. Following discovery, the defendant filed a motion for partial summary judgment arguing that the plaintiff patentee was not entitled to lost profits damages.

In considering the defendant’s motion, the court considered the implications of corporate reorganization involving the plaintiff patentee. As a result of a stock acquisition and restructuring of operations, all of the plaintiff patentee’s operations were transferred to a non-party parent. Although the plaintiff patentee continued to operate as a business entity post-acquisition, it was no longer involved in the business operations relating to the goods and services subject to the patent at issue in the litigation.

The district court ruled for the defendant and granted partial summary judgment on grounds that, as of the date of transfer of operations, the non-party parent alone incurred business expenses, made profits and suffered losses. The court found that the plaintiff patentee had neither “assigned the patent-in-suit to [non-party parent] nor granted a license to [non-party parent].” As such, plaintiff patentee was not entitled to lost profits damages after the date of reorganization, the time at which its parent took over operations relating to the patent at issue.

The court went on to hold that, as a matter of law, the plaintiff patentee’s lost profits damages for any alleged infringement of its patent should be limited to the time period it “…proves it actually practiced the invention and earned or lost income from these operations.” The further held that the precise date of transfer of operations was a question of fact.

The outcome in this case is illustrative of the pitfalls which await patentees, and intellectual property owners in general, who do not consider the implications corporate reorganization may have on their ability to protect and enforce intellectual property assets.