Order Forensic Accounting Assignment

Order Forensic Accounting Assignment
The purpose of compensatory damages is to put the plaintiff back into the same financial position that would have been the case if no infringement had taken place. So calculation of compensatory damages requires an estimate of what did not actually happen because infringement prevented it from occurring. But how can we know what should have happened, but was prevented from hap- pening? We can use information from periods before infringement occurred, because those periods were unaffected by infringement. This is known as the “before and after method.”
The law on patent infringement allows recovery of damages for lost profits on “convoyed” sales. Convoyed sales are items that are usually sold along with the infringed product. For example, sales of desktop computers are usually ac- companied by sales of computer monitors and printers. That makes sales of computer monitors and printers “convoyed” sales of desktop computers. By the same token, convoyed sales for cellphones are sales of car chargers, home chargers, earpieces and belt clips for cell phones. This approach is known as the “entire market value” rule.
The Panduit1 test for lost profit by reason of patent infringement requires the plaintiff to show that the following conditions apply:
1. 1) There is demand for the patented product.
2. 2) Acceptable non-infringing substitutes for the patented product are available.
3. 3) There is sufficient manufacturing and marketing capability to satisfy the
demand.
Order Forensic Accounting Assignment
4. 4) There are reasonable computations of the profits that would have been
earned, but for the infringement of the patented product.
You may safely assume that all Panduit tests are fully satisfied. The Georgia-
Pacific factors do not apply because lost profits are being sought, rather than a reasonable royalty.
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ASSIGNMENT
1. Estimate damages for lost operating profit for years 3 through 5 from lost sales due to infringement as of June 30, year 6, which is the estimated date of the completion of the patent infringement trial.
2. Estimate damages for lost operating profit for years 3 through 5 from margin erosion as of June 30, year 6, which is the estimated date of the completion of the patent infringement trial.
3. Should there be damages for lost profits on “convoyed” sales in this case? This is a complex legal issue, and we are not asking you for a professional legal analysis. We simply want you to apply critical thinking as best you can. Explain your answer clearly and completely, with reasoning to support your points.
4. You should calculate lost profit damages on convoyed sales, so that the court can consider them, if it wishes.
5. Calculate the total value of all the damages as of June 30, year 6, which is the estimated date of the completion of the patent infringement trial. You may assume that profits are earned equally throughout the year, which is equivalent to assuming that each year’s profits are earned on June 30 of that year.
REFERENCE
For background information on patent infringement damages and the relevant law, the following link is provided:
http://www.cornerstone.com/files/Publication/d966ee4a-8495-4603-8168- 383ffeb7ed95/Presentation/PublicationAttachment/28f8ece0-38b2-4ab8-a7a9- 5faa0574eb8c/Estimating Damages in Patent Infringement Cases.pdf