Patent

Patent Law Damages: Reasonable Royalty

After a finding of infringement has been established, the analysis shifts to the appropriate scope and nature of damages.  Under 35 U.S.C. § 284, a patent holder whose patent is infringed is entitled to at least a reasonable royalty.  Absent sufficient proof supporting a claim for lost profits, the patent holder is entitled to a reasonable royalty for all infringing sales.  See Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1340 (Fed. Cir. 2009); Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1554 (Fed. Cir. 1995) (en banc).

What Is A Reasonable Royalty?

In the context of patents, a royalty can be defined as payment(s) made to a patent holder in exchange for the right to make, use, or sell the claimed invention.  A reasonable royalty is the amount of royalty payment that a patent holder and the infringer would have agreed to in a hypothetical negotiation taking place at a time prior to when the infringement first began.  See, e.g., Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011); ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860 (Fed. Cir. 2010); Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1340 (Fed. Cir. 2009), cert. denied, 130 S. Ct. 3324 (2010).

In considering this hypothetical negotiation, the focus remains on the expectations of the patent holder and the infringer had they entered into an agreement for a valid and enforceable patent, assuming that both parties would have acted reasonably in their negotiations. See Golight, Inc. v. Wal-Mart Stores, Inc., 355 F.3d 1327, 1338 (Fed. Cir. 2004); Maxwell v. J. Baker, Inc., 86 F.3d 1098, 1108-10 (Fed. Cir. 1996); Mahurkar v. C.R. Bard, Inc., 79 F.3d 1572, 1579-81 (Fed. Cir. 1996).

In determining the reasonable royalty, courts consider all the facts known and available to the parties at the time the infringement began, and, specifically, the following factors (known as the Georgia-Pacific factors):

  1. The royalties received by the patentee for the licensing of the patent-in-suit, proving or tending to prove an established royalty.
  1. The rates paid by the licensee for the use of other patents comparable to the patent-in- suit.
  1. The nature and scope of the license, as exclusive or nonexclusive, or as restricted or non-restricted in terms of territory or with respect to whom the manufactured product may be sold.
  1. The licensor’s established policy and marketing program to maintain his or her patent monopoly by not licensing others to use the invention or by granting licenses under special conditions designed to preserve that monopoly.
  1. The commercial relationship between the licensor and licensee, such as whether they are competitors in the same territory in the same line of business, or whether they are inventor and promoter.
  1. The effect of selling the patented specialty in promoting sales of other products of the licensee, the existing value of the invention to the licensor as a generator of sales of his non-patented items, and the extent of such derivative or convoyed sales.
  1. The duration of the patent and the term of the license.
  1. The established profitability of the product made under the patents, its commercial success, and its current popularity.
  1. The utility and advantages of the patented property over the old modes or devices, if any, that had been used for working out similar results.
  1. The nature of the patented invention, the character of the commercial embodiment of it as owned and produced by the licensor, and the benefits to those who have used the invention.
  1. The extent to which the infringer has made use of the invention and any evidence probative of the value of that use.
  1. The portion of the profit or of the selling price that may be customary in the particular business or in comparable business to allow for the use of the invention or analogous inventions.
  1. The portion of the realizable profits that should be credited to the invention as distinguished from non-patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer.
  1. The opinion and testimony of qualified experts.
  1. The amount that a licensor (such as the patentee) and a licensee (such as the infringer) would have agreed upon (at the time the infringement began) if both had been reasonably and voluntarily trying to reach an agreement.

See Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970); see also Interactive Pictures Corp. v. Infinite Pictures, Inc., 274 F.3d 1371 (Fed. Cir. 2001); Trans-World Mfg. Corp. v. Al Nyman & Sons, Inc., 750 F.2d 1552 (Fed. Cir. 1984).

No single Georgia-Pacific factor is dispositive.  Rather, all factors must be considered and weighed in light of the facts of each case.

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