Federal Circuit Criticizes Ninth Circuit Damages Ruling. Double Recovery Must Be Avoided

November 2006

In Aero Products vs. Intex Recreation (no. 05-1283, Fed Cir. October 2, 2006), the Court held that damages arising from the same sales is an impermissible double recovery, even if multiple causes of action are involved. The instant case involved both patent and trademark infringement.

The Federal Circuit concluded that, in determining whether there has been an impermissible double recovery of damages, “the inquiry focuses on whether the damages issue arose from the same set of operative facts.”  In this case, the damage calculations for the multiple causes of action all started with the defendant’s sales, and then applied alternate calculations of profits. The two calculations were a reasonable royalty for the patent infringement, and disgorgement for the trademark infringement. The Court acknowledged that damages could be calculated on different causes of action, so long as an adjustment is made to the damage calculations to prevent double recovery.

The Federal Circuit cited the following cases in concluding that a double recovery is impermissible: 

1. Junker vs. Eddings (396 F.3d 1359 (Fed Cir 2005))
   
2. Bowers vs. Baystate Techs (320 F.3d 1317 (Fed Cir 2003))
   
3. Catalina Lighting vs. Lamps Plus (295 F.3d 1277 (Fed Cir 2002))
   
4. Celeritas Techs vs. Rockwell International (150 F 3d 1354, 1362 (Fed Cir 1998))
   
5. CPG Products vs. Pegasus Luggage (776 F.2d 1007, 1007, 1004 n.4 (Fed Cir 1985))

A Ninth Circuit case (Nintendo vs. Dragon Pacific, 40 F.3d 1007 (9th Cir 1994)) is sometimes cited for contrary authority. In Nintendo, both trademark and copyright damages were allowed from the same sales of video cartridges. The Aero Court concluded that the Nintendo finding was contrary to established Federal Circuit law that disallows double recovery. The Federal Circuit concluded, “even though damages are claimed based on separate statutes or causes of action, when the claims arise out of the same set of operative facts, … there may be only one recovery.”

The Aero Court ruling follows the general damages principle that prohibits double recoveries. Generally, the proper measure of damages is to put the plaintiff in the position he would have been in if not for defendant's conduct. When the law provides multiple methods of calculating monetary remedies, the plaintiff generally has an election of remedies to prevent a windfall from occurring. The notable exceptions to this are:

1. The collateral source rule, under which a plaintiff may recover damages from a tortfeasor, even though the plaintiff has received money or services from another source -- the collateral source rule is most commonly applied to insurance proceeds, employment benefits, and gifts.
   
2. Punitive damages, which have as their purpose the punishment of unlawful conduct and deterring its repetition.

Fulcrum Inquiry performs damages analysis in litigation using economics, accounting, and valuation skills.