Finding Reasonable Royalty Damages: A Contract Approach to Patent Infringement 

Intellectual Property, Patents, Interoperability and Standards

Article Snapshot

Author(s)

Daniel Spulber

Source

University of Illinois Law Review, Vol. 2019, No. 2, pp. 615-700 (2019)

Summary

Courts differ as to how to calculate damages for patent infringement. The best approach would be for courts to construct an “informed contract” between the parties to the dispute.

Policy Relevance

In patent infringement cases, courts should fully compensate the patent holder. Basing damages on benefits to the infringer is flawed.

Main Points

  • To calculate damages in patent infringement cases, courts imagine a “hypothetical negotiation” between the patent holder and the infringer; this speculative approach is flawed, as the patent holder is not compensated for loss of his right to refuse a license request.
     
  • A patent license is a cooperative technology transfer that benefits both patent holder and licensee; patent infringement is a non-cooperative transfer that harms the patent holder.
     
  • In infringement cases, the court should construct an “informed contract” between patent holder and infringer, based on evidence about their conduct during and after the infringement; the court should not assume a willing licensor and willing licensee.
     
  • The informed contract provides a context for calculation of reasonable royalty damages.
     
    • To avoid encouraging infringement, damages should be adjusted for imperfections in enforcement and the risks of the legal process.
       
    • Courts should be willing to enjoin future infringement.
       
  • The informed contract should include typical elements of a patent license, such as a description of the relationship of the parties and the rights conveyed by the contract.
     
    • The informed contract’s start date will be the date infringement began.
       
    • If the patent owner does not license the patent, the informed contract should be exclusive.
       
  • If no comparable licenses are available, courts should begin by ascertaining the patent’s market value; reasonable royalty damages should amount to the estimated market price of the patent plus licensing and legal costs.
     
  • Assessing royalties for the informed contract should begin by identifying comparable licenses.
     
    • Comparable licenses should be for similar technologies.
       
    • Reasonable royalties for SEPs should be set on the basis of comparable contracts negotiated after the standards were set.
       
  • Basing reasonable royalty damages on the infringer's benefits from infringement (such as a share of the infringer’s returns or profits) is problematic, and does not fully compensate the patent holder.
     

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