Texahoma Highway Construction Assignment

You should calculate lost profit damages on convoyed sales so that the court can consider them if it wishes. This request is from the Texahoma Highway Construction case


Texhoma highway is fast-growing state in the American southwest. The fast-growing make it necessary for the teahouse state development of highway to construct a new highway and hidden existing highway.

the DOH carries out highway construction by means of competitive bidding by qualified highway construction companies.

One of the qualified highway construction 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 homeowners and businesses located near highway construction projects. The salsa patent effectively contains construction noise and significantly lowers the amount of compensation paid by DOH to the homeowner and business distributed by the din of highway construction The salsa patent is fr a containing wall that is built on both sides of a highway under construction. the containing 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 contractors 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 letters 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 filed their response, there were the usually written interrogatories, depositions of the expert witness and pretrial motions. The trail was scheduled to begin on June 1, year 6 and was expected to end June 30, 6 years. therefore the damage awarded by the court would be payable on 30 June years 6, so salsa, would not recover costs 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 have gathered the following information

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




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) percentages.

Noise wall

year revenue cost profit profit% square foot
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


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


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 awarded at the trail for lost profits are subject to taxation. Therefore when calculating damages, you need to do so on a before-tax basis. Salsa’s cost of equity since year 2 has been 16%, and the cost of long-term debt since year 2 has been 12%.

Salsa's tax rate is 35%. Salsa’s capital structure is 60% equity and 40% debt.

The purpose of compensatory damages is to put the plaintiff back into the same financial position that would have been the case if no infringement has taken place. so the calculation of compensatory damages requires an estimate of what did not actually happen because infringement prevented it from occurring? We can use information from periods before the infringement occurred because those periods were unaffected by the infringement. This is 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 monitors and printers. That makes sales of computer monitors and printers conveyed sales of desktop computers .by the same token convoyed sales for cellphones and sales of car chargers, earpieces and belt clips for cell phones. This approach is known as “Entire market value”

The Panduit 1 test for lost profit by reason of patent in fringe benefit requires the plaintiff to show the following condition:-

  • There is a 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 the reasonable computation of the profit that would have been earned, but for the infringement of the patented product.
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