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Patent Infringement Damages: Riding The Wine Railway Can Be Expensive

By Joseph R. DelMaster
May 01, 2003

When the plaintiff in a patent litigation contends that it has never made or sold the product protected by its patent, alarm bells should start clanging in the ears of defense counsel. For the odds are that the plaintiff is angling to take advantage of a little-used aspect of the law of patent damages that can lead to a windfall recovery for patent infringement. It is the Wine Railway exception to the well-known “notice” provision of the patent statute. Created by the Supreme Court in Wine Railway Appliance Co. v. Enterprise Railway Equipment Co., 297 U.S. 387 (1936), the exception can lead to catastrophic and unforeseen patent damage awards. Such damages are unforeseen (and, some would argue, unfair and undeserved) because they arise without any notice of infringement, actual or constructive.

With the enactment of 35 U.S.C. '287(a), Congress limited the time period during which patent damages may be assessed against an infringer. The statute prevents the assessment of damages for any time before the patentee either a) gives notice of the patent to the public by marking the patent number on his product (constructive notice of the patent), or b) provides direct notice of infringement to the infringer (actual notice). The Supreme Court decided that there was an exception to the rule in cases where the patentee had not made a product under the patent. In such cases, the patentee can collect damages for the entire six year (prior to the filing of the complaint) statutory limitations period for patent damages, unrestricted by the '287(a) notice requirement.

In Texas Digital Systems, Inc. v. Telegenix, Inc., 308 F.3d 1193 (Fed.Cir. 2002), the Federal Circuit reaffirmed the Wine Railway exception in the face of a direct challenge by Telegenix. The court stated that there is no limit on the recovery of damages without notice where there is no “failure to mark.” In the absence of products made under the patent there is no opportunity to mark, thus no failure to do so, the same premise advanced by the Supreme Court in 1936. Demonstrating the power ' and the danger ' in the Wine Railway exception, Telegenix was assessed damages from 1992 through its 2001 trial, rather than commencing damages in 1998 when actual notice of infringement was delivered by Texas Digital Systems. (Telegenix's liability was vacated when the Federal Circuit reversed the district court's claim construction and remanded for a new trial on infringement and damages.)

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