Background
Cyntec Company, Ltd. is a Taiwanese manufacturer of electronic inductors — passive components used in power conversion circuits in electronics. Cyntec sued Chilisin Electronics Corp. and its U.S. affiliate for infringing patents covering power inductor designs. After a jury trial, Cyntec obtained a damages award, supported by the testimony of its damages expert who calculated lost profits and reasonable royalties attributable to Chilisin’s infringing sales.
The core of Chilisin’s appeal was that Cyntec’s damages expert had used an unreliable methodology to calculate the royalty base — specifically, the amount of infringing sales subject to damages. The expert sought to determine how much of Chilisin’s foreign revenue from 27 customer companies ultimately resulted in infringing inductors being imported into the United States. To do this, the expert calculated an “importation rate” for each customer by dividing the customer’s U.S. revenue by its worldwide revenue, then applied that rate to Chilisin’s foreign sales to that customer. The problem: the customer financial filings used to derive these importation rates included revenue from products that had nothing to do with inductors or the accused products — irrelevant products that inflated the royalty base.
The Court’s Holding
The Federal Circuit reversed the district court’s decision to admit the expert testimony and vacated the damages award. Under the Daubert standard, expert testimony must rest on a reliable methodology; an expert may not use a calculation method that systematically inflates the royalty base by incorporating unrelated, non-infringing sales data. The court held that the district court abused its discretion by admitting testimony that relied on data files clearly containing irrelevant products — products that had no connection to the accused inductors — to derive the importation rate.
The Federal Circuit emphasized that the apportionment principle in patent damages requires that the royalty calculation isolate the value attributable to the patented features. When an expert’s royalty base includes revenue from both infringing and non-infringing products without appropriate filtering or adjustment, the resulting damages figure is unreliable as a matter of law. The court remanded for further proceedings on damages, requiring Cyntec to reconstruct its damages case with a properly scoped and supported expert analysis.
Key Takeaways
- A patent damages expert’s royalty base calculation must be limited to revenue from infringing products — including revenue from unrelated products in the royalty base renders the methodology unreliable under Daubert.
- District courts have a gatekeeping obligation to exclude damages expert opinions that rely on data known to include irrelevant, non-infringing sales; admitting such testimony is an abuse of discretion.
- The apportionment requirement in patent damages is not merely about the value of the patented feature versus the whole product — it also applies at the threshold stage of identifying what products are even in the royalty base.
- When damages are predicated on foreign revenue (e.g., sales to foreign customers that import products into the U.S.), the methodology for determining the “importation rate” must carefully segregate relevant from irrelevant products.
Why It Matters
Patent damages litigation is increasingly complex, and this case adds to a growing body of Federal Circuit precedent demanding methodological rigor from damages experts. Courts have become progressively more willing to exclude or decertify damages experts who take shortcuts — treating broad revenue figures as a proxy for infringing sales without careful filtering. For patent holders, the decision is a reminder that even a solid infringement case can collapse on damages if the expert’s royalty base is methodologically unsound.
For defendants in patent cases, the ruling provides a useful roadmap for challenging damages experts at the Daubert stage: show that the expert’s data sources include products outside the scope of infringement, and argue that the methodology does not adequately account for this overbreadth. The Federal Circuit’s willingness to vacate a full damages award — and require the plaintiff to start over — underscores that these challenges can be dispositive to the outcome of the case.