Rite-Hite v. Kelley: Foreseeable Lost Profits and the Limits of Convoyed Sales

Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538 (Fed. Cir. 1995) (en banc), decided June 15, 1995, marks the outer boundary of patent damages under 35 U.S.C. § 284. The en banc court, in an opinion by Judge Lourie, answered two questions that recur in nearly every substantial damages trial: whether a patentee can recover lost profits on sales of a product that the asserted patent does not cover, and when it can recover lost profits on unpatented items sold together with the patented device. The answers, foreseeability for the first and functional relationship for the second, define how far the compensation principle reaches.

The case matters because real markets are messy. Patentees sell product lines, not isolated inventions, and infringement ripples across the line. Rite-Hite addresses that reality by grounding damages in proximate cause and reasonable foreseeability rather than in a mechanical rule that limits recovery to the patented article alone.

At a glance

• Case: Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538 (Fed. Cir. 1995) (en banc)
• Decided: June 15, 1995; opinion by Judge Lourie; affirmed in part, vacated in part, remanded
• Holding: Lost profits are recoverable on the patentee’s competing product not covered by the asserted patent when the losses were reasonably foreseeable, but not on convoyed goods that lack a functional relationship to the patented device.
• Significance: Sets the proximate-cause outer boundary of § 284 compensation and the functional-unit rule for convoyed sales.

The products and the claim

Rite-Hite made devices that secure trucks to loading docks during loading and unloading, preventing dangerous trailer creep. Two Rite-Hite products were central. The “Manual Dok-Lok” model 55 (MDL-55) was a manual restraint that incorporated the invention covered by the asserted patent, U.S. Patent 4,373,847 (the ‘847 patent). The “Automatic Dok-Lok” model 100 (ADL-100) was a motorized restraint that competed directly with Kelley’s infringing “Truk Stop” device, which was itself electrically powered and automatic, but the ADL-100 was not covered by the ‘847 patent; it was covered by one or more other Rite-Hite patents not asserted in the case. The two motorized devices sold for roughly $1,000 to $1,500 at wholesale, while the MDL-55 sold for a third to a half of that.

When Kelley’s infringing Truk Stops took sales, Rite-Hite lost sales of both the patented MDL-55 and the unpatented-by-the-asserted-patent ADL-100. Rite-Hite also sold dock levelers, the bridging plates that span the gap between dock and truck bed, often bundled with the restraints in a single sale. Rite-Hite sought lost profits on all three: the MDL-55, the ADL-100, and the dock levelers.

The reasoning: foreseeability as the measure of § 284

The court began with the statute’s command that damages be “adequate to compensate for the infringement.” Full compensation, it reasoned, means putting the patentee in the position it would have occupied but for the infringement, subject to the ordinary limits of proximate cause. The relevant question is not whether the lost sales were of a product covered by the asserted patent, but whether they were a reasonably foreseeable consequence of the infringing competition.

On that logic, the ADL-100 sales were recoverable. Kelley’s infringing device competed directly with the ADL-100, and it was entirely foreseeable that infringement would divert ADL-100 sales as well as MDL-55 sales. The court rejected the argument that lost profits are limited to the patented product. Nothing in § 284 confines recovery to sales of the invention itself; the measure is the foreseeable economic harm the infringement caused. Because the ADL-100 losses were foreseeable and proven in fact, they were compensable.

The court did impose the proximate-cause limit as a real constraint, not a formality. Remote, unforeseeable, or purely speculative losses fall outside § 284. Foreseeability is what separates the compensable ADL-100 losses from harms too attenuated to charge to the infringer.

The convoyed-sales limit: functional relationship required

The dock levelers came out differently, and the distinction is the case’s second major holding. Rite-Hite argued that because it typically sold dock levelers together with the restraints, the lost restraint sales carried lost leveler sales with them, and both should be recoverable as part of the “entire market value.”

The court disagreed. Lost profits on unpatented items sold alongside a patented device, so-called convoyed sales, are recoverable only where the unpatented and patented items together constitute a functional unit. The test is functional, not commercial. If the items work together to serve a single purpose, as components of one assembly or system, the unpatented item is part of the compensable base. But if they are sold together merely for convenience or business advantage, without functioning together as a unit, the unpatented item’s sales are not recoverable.

Dock levelers and vehicle restraints, the court found, do not function together as a single unit. They are separate devices, each performing its own task, that happen to be marketed together. That commercial pairing was not enough. The court vacated the award based on dock-leveler sales. It thus drew a bright methodological line: convenience bundling does not expand the damages base; functional integration does. The court also vacated the separate awards to the independent sales organizations that had intervened, holding that their exclusive sales territories did not make them exclusive licensees of the ‘847 patent and that they therefore lacked standing to sue for infringement. It remanded for dismissal of their claims and for a redetermination of Rite-Hite’s damages.

The lineage and the entire-market-value rule

Rite-Hite refines the entire-market-value rule, the principle that a patentee may sometimes recover damages based on the value of an entire product rather than just the patented component. The functional-relationship requirement it articulates for convoyed sales became a cornerstone of later apportionment law. In cases like Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011), and LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51 (Fed. Cir. 2012), the Federal Circuit tightened the entire-market-value rule further, requiring that the patented feature drive consumer demand for the whole product before its full value can form the royalty base. Rite-Hite’s insistence that only functionally related items count is the ancestor of that stricter apportionment jurisprudence.

Open questions

Rite-Hite leaves the foreseeability inquiry deliberately open-textured, and its boundaries are still contested. How foreseeable a loss must be, and how directly the infringing product must compete with the unpatented product, are questions decided case by case. The functional-relationship test for convoyed sales, though clearer, produces close calls for integrated systems, software suites, and products sold in ecosystems where the line between “functions together” and “sold together” blurs. The relationship between Rite-Hite foreseeability and the later, stricter entire-market-value apportionment rule also generates tension: a loss can be foreseeable yet still require apportionment when the patented feature is one of many. Damages practice continues to work at these seams.

Implications for inventors and businesses

• Lost profits can reach beyond the patented product. If an infringing product foreseeably diverts sales of your competing item, even one the asserted patent does not cover, those losses may be recoverable. Map the full competitive impact of infringement, not just sales of the invention.
• Bundling is not enough for convoyed damages. To recover on accessory or companion products, be prepared to show they function together with the patented device as a unit. Marketing them together will not carry the damages claim.
• Foreseeability must be built into the proof. Because recovery turns on proximate cause, develop evidence that the specific lost sales were a foreseeable result of the infringing competition, not a remote or speculative consequence.
• Expect apportionment scrutiny. Even foreseeable losses on multi-component products face the entire-market-value and apportionment rules that grew out of Rite-Hite. Tie damages to the value of the patented contribution.

Frequently asked questions

What did Rite-Hite decide about lost profits? The en banc Federal Circuit held that a patentee can recover lost profits on sales of its own competing product that is not covered by the asserted patent, when those lost sales were a reasonably foreseeable result of the infringement. Foreseeability, grounded in proximate cause, is the touchstone for recovery under 35 U.S.C. § 284.

Why were the dock-leveler sales denied? The dock levelers were “convoyed” goods sold alongside the patented restraints for convenience, not because they functioned together as a single unit. The court held that convoyed sales are recoverable only when the unpatented item has a functional relationship to the patented device, not when they are merely sold together.

What is the functional-relationship rule for convoyed sales? Lost profits on unpatented items sold with a patented product are recoverable only if the items constitute a functional unit, working together to serve a common purpose, rather than being sold together for business or convenience reasons. Items grouped only for marketing convenience are not part of the compensable base.

Authorities and sources

• Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538 (Fed. Cir. 1995) (en banc). Full opinion via the NYU Law posted PDF.
• 35 U.S.C. § 284, the patent damages statute.
• Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011), on the entire-market-value rule.
• LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51 (Fed. Cir. 2012), tightening entire-market-value apportionment.
• Quimbee, “Rite-Hite Corporation v. Kelley Company, Inc.” case brief, for holding and procedural posture.