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Accuracy or Efficiency: Has Grain Processing Made a Difference?

Since the Federal Circuit’s adoption of Panduit’s causation standard for establishing entitlement to lost profits damages in patent litigation, application of its noninfringing alternatives prong has lacked consistency. The court’s decision in Grain Processing Corp. v. American Maize-Products Co., however, created an additional contribution to the Panduit standard, thereby raising the evidentiary bar while significantly altering the noninfringing-alternative inquiry. Grain Processing has given the infringer a potentially powerful defensive mechanism in an area in which patentees are generally favored, even when some infringement may be socially desirable. Grain Processing allows for the potential avoidance of lost profit damages, so long as the alleged infringer shows that it had the necessary equipment, know-how, and experience to produce an acceptable, noninfringing substitute during the alleged infringement period. The Grain Processing decision, however, raises some debate. As a judicially interjected gloss on damages, the added ability to limit damage awards to a reasonable royalty could have been too drastic. A closer look demonstrates a precarious policy balance. On the one hand, increases in patent litigation might justify implementing an additional hurdle to potential damage awards in order to further incentivize innovation. Added rigor provided by Grain Processing may deter frivolous and expensive litigation that might be asserted by patentees to keep new innovators out of the market. But on the other hand, if a market participant does unlawfully infringe, it is certainly reasonable to believe that the infringer should pay appropriate damages for the encroachment on another’s intellectual property. Grain Processing’s lost-profit-limiting defense against a patentee’s claim of entitlement to lost profits damages may serve to deter potentially useful innovation by increasing costs shouldered by patentees in defending their patent rights. This Note analyzes six Federal Circuit cases appealing lost profits determinations, decided both before and after Grain Processing, and attempts to discern the impacts that Grain Processing has had on patentees’ entitlements to lost profits. This Note is organized in four parts. Part I provides the historical and substantive context necessary to understand the Grain Processing decision and examines important statutory changes, especially their subsequent interpretation, both before and after Grain Processing. Part II summarizes three pre-, as well as three post-Grain Processing cases. Parts III and IV dissect and analyze the holdings in these cases and evaluate Grain Processing’s impact on patent damages.