COMPENSATION DAMAGE FOR PATENT INFRINGEMENT(TEXAHOMA HIGHWAY CONSTRUCTION CASE) Texahoma highway is fast growing state in the american southwest. The fast growing make it necessary for the texahouse state development of highway to construct new highway and widden existing highway. the DOH carries out highway construction by mean of competitive bidding by qualified highway construction companies. One of the qualified highway constructin companies in salsa inc. salsa has developed and registered a patent for containing noise by highway construction. This noise is very loud , and DOH has to pay compensation to homeowner and business located near highway construction projects .The salsa patent effectively contains construction noise, and significantly lowers the amount of compensatin paid by DOH to the home - owner and business distributed by the din of highway construction The salsa patent is fr a containing wall that is built on both side of a highway under construction. the containg wall is 16 feet high,and consist of reinforced concrete posts that are grooved to accept concrete panels with matching tongues. Starting on 30 june,year 3 , some contractor won highway contract by infringing the salsa patent . Each time ,salsa sent lawyers letters to the infringers to cease and desist .but none of these letter had any effect . in order to protect its patent rights, salsa was compelled to sue the infringers. Salsa sued the infringers ceased by December 31, of year 5. After the defendants field their response , there were the usual written interrogatories , depositions of the expert witness and pretrail motions. The trail was scheduled to begin on june 1 , year 6 and was expected to end june 30 , 6 year.therefore the damage awarded by the court would be payable on 30 june year 6, so salsa,would not recover osts profit for year 3 through 5 until june 30 year6, Salsa lawyer to prepare its study to be filed with the court , For this engagement you hae hgathered the following informatin

Note: Any damages awareded at trail for loss profits are subject to taxation. Therefore when calculating damages, you need to do so on a before-tax basis. Salsa cost of equity since year 2 has been 16%, and cost of long-term debt since year 2 has been 12%. Salsa's tax rate is 35%. Salsa capital structure is 60% equity and 40% debt. The purpose of compensotory damages is to put the paintiff back into the same financial position that would have been the case if no infringement has taken place. so calculation of compensatory damages requires an estimate of what did not actually happen because infrigement prevented it from occurring? We can use information from periods before infringement occurred, because those periods were unaffected by infringement. This known as "before and after method". The law on patent infringement allow recovery of damages for lost profits on convoyed sales. Convoyed sales are usually sold along with the infringed product For Example:- Sales of desktop computers are usually accompanied by sales of computer monitor and printers.That make sales of computer monitors and printers conveyed sales of desktop computers .by the same token covoyed sales for cellphones and sales of car chargers ,erapieces and belt clips for cell phones. This approach is known as "Entire maket value" The panduit 1 test for lost profit by reason of patent infringebenefit requires the plaintiff to show folowing condition:- There is demand for the patented product Accepted non infringing substitutes for the patented product for available there is sufficient manufacturing and marketing capability to satisfy the demand. there is reasonable computaion of the profit that would have been earned,but fot the infringement of the patented product. 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.

Contracts With Infringing noise walls All figures in '000, except percentages. Total Contract Award Date Total Contract Revenue DOH Contract Total Contract Direct Cost Total Gross Profit Gross Noise wall Revenue Profit % 6/29/03 20204 $38,371 $33,965 $4,406 11.5% $3,931 12/30/03 20788 $107,063 $97,702 8.7% $10,373 $9,361 $3,397 20877 $33,398 $30,001 10.2% $3,489 21215 $38,576 $34,867 $3,709 9.6% $3,977 1/02/04 6/02/04 1/03/05 Total 21321 $678,690 $600,560 $78,130 11.5% $70,982 $896,098 $797,095 $99,003 11.0% $92,752 Contract Award Date DOH Contract Noise wall Direct Cost Noise wall Gross Profit Noise wall Gross Profit % Noise wall Square Feet Noise wall Revenue per Square Foot 6/29/03 20204 $3,293 $638 16.2% 301 $13.06 $12.95 12/30/03 20788 $8,183 21.1% 801 $2,190 $758 1/02/04 20877 $2,731 21.7% $13.32 $13.17 6/02/04 21215 $3,281 $696 262 302 5,214 17.5% 1/03/05 21321 $56,421 $14,561 20.5% $13.61 Total $73,909 $18,843 20.3% 6,880 $13.48 Salsa Income Statements All figures in $'000, except per square foot and (continued)percentages. Noise wall Noise wall Noise wall Noise wall Noise wall Gross Profit Noise wall Revenue per Revenue** Direct Cost Gross Profit % Square Feet Square Foot Year mo negrini 59 $987 $339 $648 $16.73 $393 $493 $732 $100 $145 34.3% 20.3% 19.8% $13.32 $13.07 56 $587 Total $2,212 152 The Salsa year 3 noise wall revenu loise wall revenue is from a Texahoma highway contract awarded on February 12, year 3. Pretax Profit $1,589 Salsa Income Statements All figures in $'000, except per square foot and percentages. Cost of Gross Gross Profit SG&A* Year Revenues Sales Profit % of Sales Expenses $21,193 $18,387 $2,806 13.2% $1,217 $15,878 $14,586 $1,292 8.1% $1,096 $14,471 $12,880 $1,591 11.0% $1,200 $12,056 $10,928 $1,128 9.4% $1,081 $9,706 $8,593 $1,113 11.5% $1,251 $14,386 $13,137 $1,249 8.7% $1,166 $16,220 $13,857 $2,363 14.6% $1,022 $9,091 $8,424 $667 7.3% $1,061 $3,248 $ 2,792 $456 14.0% $1,018 $7,761 $6,894 $867 11.2% $1,123 Total $124,010 $110,478 $13,532 10.9% $11,235 * SG&A = Selling, General and Administrative $196 $391 $47 -$138 $83 $1,341 -$394 -$562 -$256 $2,297 Contracts With Infringing noise walls All figures in '000, except percentages. Total Contract Award Date Total Contract Revenue DOH Contract Total Contract Direct Cost Total Gross Profit Gross Noise wall Revenue Profit % 6/29/03 20204 $38,371 $33,965 $4,406 11.5% $3,931 12/30/03 20788 $107,063 $97,702 8.7% $10,373 $9,361 $3,397 20877 $33,398 $30,001 10.2% $3,489 21215 $38,576 $34,867 $3,709 9.6% $3,977 1/02/04 6/02/04 1/03/05 Total 21321 $678,690 $600,560 $78,130 11.5% $70,982 $896,098 $797,095 $99,003 11.0% $92,752 Contract Award Date DOH Contract Noise wall Direct Cost Noise wall Gross Profit Noise wall Gross Profit % Noise wall Square Feet Noise wall Revenue per Square Foot 6/29/03 20204 $3,293 $638 16.2% 301 $13.06 $12.95 12/30/03 20788 $8,183 21.1% 801 $2,190 $758 1/02/04 20877 $2,731 21.7% $13.32 $13.17 6/02/04 21215 $3,281 $696 262 302 5,214 17.5% 1/03/05 21321 $56,421 $14,561 20.5% $13.61 Total $73,909 $18,843 20.3% 6,880 $13.48 Salsa Income Statements All figures in $'000, except per square foot and (continued)percentages. Noise wall Noise wall Noise wall Noise wall Noise wall Gross Profit Noise wall Revenue per Revenue** Direct Cost Gross Profit % Square Feet Square Foot Year mo negrini 59 $987 $339 $648 $16.73 $393 $493 $732 $100 $145 34.3% 20.3% 19.8% $13.32 $13.07 56 $587 Total $2,212 152 The Salsa year 3 noise wall revenu loise wall revenue is from a Texahoma highway contract awarded on February 12, year 3. Pretax Profit $1,589 Salsa Income Statements All figures in $'000, except per square foot and percentages. Cost of Gross Gross Profit SG&A* Year Revenues Sales Profit % of Sales Expenses $21,193 $18,387 $2,806 13.2% $1,217 $15,878 $14,586 $1,292 8.1% $1,096 $14,471 $12,880 $1,591 11.0% $1,200 $12,056 $10,928 $1,128 9.4% $1,081 $9,706 $8,593 $1,113 11.5% $1,251 $14,386 $13,137 $1,249 8.7% $1,166 $16,220 $13,857 $2,363 14.6% $1,022 $9,091 $8,424 $667 7.3% $1,061 $3,248 $ 2,792 $456 14.0% $1,018 $7,761 $6,894 $867 11.2% $1,123 Total $124,010 $110,478 $13,532 10.9% $11,235 * SG&A = Selling, General and Administrative $196 $391 $47 -$138 $83 $1,341 -$394 -$562 -$256 $2,297