Can I be sued for unintentional patent infringement?
The short answer is yes.
Intent can change the precise remedies that are available, but it is not a defense to a patent infringement action.
The question in detail is as follows:
[I]f I am mistaken, and I make a business selling my device, what is
the worst case scenario?
For example, I get a cease and desist, have to stop my business but
keep my profits? Or can a patent-holder sue me?
If so, can I be made to hand over my profits from my business leading
up to that point? Or worse, can I be made to pay even more, like for
the patent-holder's other losses?
You have to stop your business upon receiving a cease and desist, or the patent-holder with get an injunction in most cases to force you to do so. This used to be automatic, but under recent case law from the U.S. Supreme Court is not subject to the same analysis as any other injunction request. eBay Inc. v. MercExchange, L.L.C. (U.S. 2006). As explained here:
The owner of a U.S. patent has the right to prevent others from
making, using, or selling the claimed invention. If the patentee
cannot obtain voluntary termination of an infringing activity or
settle the dispute by a license agreement, he or she may seek redress
by initiating litigation in a federal district court.
One of the remedies generally sought in such litigation is an
injunction. The injunction might be a preliminary injunction pending
the outcome of litigation and ultimately a permanent injunction
prohibiting infringement of the patent. Refusing to obey an injunction
opens one to penalties for contempt of court.
Time Period For Which Money Damages Can Be Awarded
General Rule: Limited To The Patent Term
The right to collect damages started no sooner than the date upon which the patent is granted. There can be no award of damages for activities prior to issuance. Similarly, there can be no award of damages for activities after the patent expires.
Limited Exception For Period Between Publication And Issuance
This is subject to a limited exception that allows for reasonable royalty damages, but not lost profits damages, in cases where the infringer makes a substantially identical invention after having actual knowledge of the published patent application under 35 U.S.C. § 154(d):
(d) PROVISIONAL RIGHTS.—
(1) IN GENERAL.— In addition to other rights provided by this section,
a patent shall include the right to obtain a reasonable royalty from
any person who, during the period beginning on the date of publication
of the application for such patent under section 122(b), or in the
case of an international application filed under the treaty defined in
section 351(a) designating the United States under Article 21(2)(a) of
such treaty, or an international design application filed under the
treaty defined in section 381(a)(1) designating the United States
under Article 5 of such treaty, the date of publication of the
application, and ending on the date the patent is issued—
(A)(i) makes, uses, offers for sale, or sells in the United States the
invention as claimed in the published patent application or imports
such an invention into the United States; or
(ii) if the invention as claimed in the published patent application
is a process, uses, offers for sale, or sells in the United States or
imports into the United States products made by that process as
claimed in the published patent application; and
(B) had actual notice of the published patent application and, in a
case in which the right arising under this paragraph is based upon an
international application designating the United States that is
published in a language other than English, had a translation of the
international application into the English language.
(2) RIGHT BASED ON SUBSTANTIALLY IDENTICAL INVENTIONS.— The right
under paragraph (1) to obtain a reasonable royalty shall not be
available under this subsection unless the invention as claimed in the
patent is substantially identical to the invention as claimed in the
published patent application.
(3) TIME LIMITATION ON OBTAINING A REASONABLE ROYALTY.— The right
under paragraph (1) to obtain a reasonable royalty shall be available
only in an action brought not later than 6 years after the patent is
issued. The right under paragraph (1) to obtain a reasonable royalty
shall not be affected by the duration of the period described in
(4) REQUIREMENTS FOR INTERNATIONAL APPLICATIONS—
(A) EFFECTIVE DATE.— The right under paragraph (1) to obtain a
reasonable royalty based upon the publication under the treaty defined
in section 351(a) of an international application designating the
United States shall commence on the date of publication under the
treaty of the international application, or, if the publication under
the treaty of the international application is in a language other
than English, on the date on which the Patent and Trademark Office
receives a translation of the publication in the English language.
(B) COPIES.— The Director may require the applicant to provide a copy
of the international application and a translation thereof.
Independent invention without knowledge of the patent holder's patent, and infringement in a manner that is not substantially identical are defenses to these provisional rights, even though they are not a defense to a patent that has already been issued. So, in the fact pattern of this question, there would not be a recovery available under 35 U.S.C. § 154(d).
The remedy of 35 U.S.C. § 154(d) is closer to a copyright infringement of a song that there is a right to cover in character, than an ordinary patent infringement claim.
Limited Exception For Failure To Mark Product With Patent Number
But, sometimes the right to collect damages can start later:
After issuance, the patentee is entitled to collect damages from the
date that the patented product is marked with a patent number.
Failure to mark the product results in damages not being available until the infringer receives actual notice of the patent.
Note, however, that if products are marked with a patent number, the infringer can be liable for money damages even prior to receiving actual knowledge of infringement. Independent invention of a patented idea is not a defense to patent infringement.
Statute of Limitations
The statute of limitations is six years for patent infringement. So, no damages can be awarded on the basis of a infringement by a particular defendant in a lawsuit against that defendant taking place more than six years before a lawsuit against that defendant is filed. The equitable doctrine of laches cannot be used to shorten that six year period. SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC (U.S. 2017)
Types Of Damages Available
Damages are not based upon the infringer's profits.
They are based on the greater of:
(1) a reasonable royalty for the use made of the invention by the infringer, or
(2) the profits lost by the patent holder.
Both kinds of damages are difficult to prove and generally require expert testimony and extensive discovery. Generally speaking, damages for patent holder lost profits, if proven, are greatly in excess of a reasonable royalty.
In the case of a multi-component product, this has to be localized to the profits lost or royalty that would be due on the component in question only. Samsung Electronics Co. v. Apple, Inc. (U.S. 2016).
Pre-judgment interest from the date of infringement to the date of judgment can be awarded. Post-judgment interest is also available.
Punitive Damages For Willful Infringement
Punitive damages can be awarded in addition to compensatory damages, set forth above, when the infringement is willful, in the amount of up to two times compensatory damages. One of the reasons to send a cease and desist letter is to attempt to cause post-receipt infringement count as willful for purposes of punitive damages.
Attorneys' Fees In Exceptional Cases
In exceptional cases, the court may award reasonable attorneys' fees to the prevailing party. The U.S. Supreme Court recently held that "exceptional" does not need to rise to the leave of groundless and frivolous or otherwise unethical conduct by the lawyer's for the non-prevailing party. Highmark Inc. v. Allcare Management Systems (U.S. 2014).
Patent Infringement Is An Insurable Risk
From a practical perspective, it is worth noting that it is possible to obtain patent infringement liability insurance, although it isn't cheap.