JOHN W. SCHLICHER

PATENTS, PATENT LITIGATION, PATENT DISPUTE RESOLUTION AND

SETTLEMENT, LICENSING, ANTITRUST, LAW AND ECONOMICS

 

 

Nine Things Wrong with the Law of Reasonable Royalty Damages

Congress is considering changing the law on reasonable royalty damages.  There are at least nine other things wrong with the law on reasonable royalty damages.  See John W. Schlicher, Patent Law, Legal and Economic Principles, 2nd Ed.  (Thomson/West 1992, 2006), Chapters 9 and 13.  The courts are more likely to correct them if the lawyers point them out.

1. Reasonable royalty damages should be based on the economic value of the invention the patent owner lost due to the infringement, not on consideration of the Georgia-Pacific factors.

 

2.   Reasonable royalty damages should not be the amount that would have been paid under a license resulting from a hypothetical negotiation.  There are three reasons the result of a hypothetical negotiation is unlikely to reveal the economic value of an invention.  The law attempts to correct for one of them.  Given these problems, measuring damages by the likely result of a hypothetical negotiation will distort the royalties paid in actual licenses, since expected damages influence royalties.

 

3.   Reasonable royalty damages should be based on the actual economic value of an invention during the period of infringement, not on the value a patent owner or an infringer expected the invention would have on the date infringement began.

 

4.   Reasonable royalty damages should not be based on historical prices, quantities, revenue and profits, when infringement by anyone influenced market prices.

 

5.   Reasonable royalty damages should not be based on historical prices, quantities, revenue and profits, when an infringer sold at prices other than those that would have maximized the infringer’s profits if it was operating as a licensee with a royalty obligation equal to the economic value of the invention.

 

6.   Reasonable royalty damages should not be based on the likely outcome of a hypothetical negotiation between the patent owner and one infringer, when a patent owner would have been unlikely to obtain a royalty equal to the economic value of the invention due to the lack of an alternative to that license for capturing the value of the invention.

 

7.   Reasonable royalty damages should not be based on the likely outcome of a hypothetical negotiation between the patent owner and the infringer, where the patent owner or someone else was more efficient than the infringer and it would not have been in the patent owner’s economic interest to grant a license.

 

8.   Reasonable royalty damages should not be based on the result of a hypothetical negotiation on the date infringement began, where the infringer had invested in assets useful only with the invention prior to that date.

 

9.   Reasonable royalty damages should not be awarded on an infringer’s unit sales that exceed the amount of patent owner sales on which lost profits were awarded, where infringement influenced market price.