Estimate damages for lost operating profit for years 3 through 5 from margin erosion as of June 30th , year 6, which is the estimated date of the completion of the patent infringement trial. This question is from the Texahoma Highway Construction case

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

SALSA income statement all figures in $'000 ,except per square foot and percentage.

GROSS

COST GROSS PROFIT %SG&A*PRETAX

YEAR	revenue of sales			profit of sales	expense	profit
-4	$ 21,193	18387	2806	13.2%	1217	1598
-3	$15,878	14586	1292	8.1%	1096	196
-2	$14,471	12880	1591	11.0%	1200	391
-1	$12,056	10928	1128	9.4%	1081	47
0	9706	8593	1113	11.5%	1251	-138
1	14386	13137	1249	8.7%	1166	83
2	16220	13857	2363	14.6%	1022	1341
3	9091	8424	667	7.3%	1061	-394
4	3248	2792	456	14%	1018	-562
5	7761	6894	867	11.2%	1123	-256
total	124,010	110,478	13532	10.9%	11235	2297

*SE&A = Selling , General and administrative

NOTE all values are in $ except %

Salsa Income statements all figures in $'000, except per square foot and (Continued) percantages.

Noisewall

year	revenue			cost profit	profit%	square foot
-4
-3
-2
-1
0
1
2
3	987	648	339	34.3%	59	16.73
4	493	393	100	20.3%	37	13.32
5	732	587	145	19.8%		13.07
total	2212

the salsa year noisewall revenue from a texahoma highway contract awarded on FEB 12,YEAR 3

CONTRACT WITH INFRINGING NOISEWALL AL FIGURE IN '000 EXCEPT %.

DATE	CONTRACT	REVENUE	DIRECT COST	PROFIT	PROFIT%	REVENUE
6/29/03	20204	$38371	33965	$4406	11.5%	$3931
12/30/03	20788	107063	97702	9361	8.7%	10373
1/02/04	20877	33398	30001	3397	10.2%	3489
6/02/04	21215	38576	34867	3709	9.6%	3977
1/03/05	21321	678690	600560	78130	11.5%	70982
		896098	797095	99003	11.0%	92752

NOISEWALL

DATE	CONTRACT	COST	PROFIT	PROFIT%	FEET SQUARE	FOOT
6/29/03	20204	3293	638	16.2%	301	13.06
12/30/03	20788	8183	2190	21.1%	801	12.95
1/02/04	20877	2731	758	21.7%	262	13.32
6/02/04	21215	3281	696	17.5%	302	13.17
1/03/05	21321	56421	14561	20.5%	5214	13.61
		73909	18843	20.3%	6880	13.48

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.

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