A patentee can seek money damages and/or an injunction against companies that infringe their patent. Damages are calculated as the dollar value that the patentee suffered due to the infringement. However, in certain situations, the patentee may not have suffered any damage or the damage suffered by the patentee was de minimus. For example, the patentee may be a university, a patent holding company, a start up, etc. with few or no sales of the patented product or method. Sales by the infringer did not divert sales away from the patentee. In this case, the court does not set damages to zero but sets damages equal to a reasonable royalty rate which provides the floor or the lowest damage calculation. Unfortunately, the difficulty in determining the reasonable royalty rate is that the rate is based on a hypothetical negotiation between the patentee and the infringer.
The seminal case in determining the reasonable royalty rate is Georgia-Pacific Corp. v U.S. Plywood Corp, 318 F. Supp. 1116 (SDNY 1970) in which the Court held that in calculating the reasonable royalty rate, a party may rely upon comparable licenses entered into by the patentee. In particular, a party may rely on royalty rates paid in connection with other actual licenses for the use of the infringed patent or sufficiently similar patents.
The following case further elaborates on which licenses are “comparable” and could be used to establish a reasonable royalty rate. In ResQNet.com v. Lansa (Fed. Cir. Feb. 5, 2010), the patentee’s expert used licenses which did not involve the patent at issue to establish the reasonable royalty rate that the hypothetical negotiation would have produced. Also, the patentee’s expert used licenses which were bundled with other services and products which would have had a higher than normal royalty rate to establish what was reasonable.
The Court held that the patentee’s expert used unrelated past licenses with no relationship to the patented technology. The past licenses used to determine the reasonable royalty rate did not mention the patent at issue in the present litigation. Additionally, the past licenses referred to by the expert included additional elements such as software products, source code, training, maintenance, marketing and upgrades. Hence, the Court vacated the damages award based on the reasonable royalty rate set by the lower court.
Based on this case, licenses including the patent at issue and not bundled with other services, products or patents should be used as “comparable” licenses to establish the reasonable royalty rate.
I invite you to contact me with your patent questions at (949) 433-0900 or [email protected]. Please feel free to forward this article to your friends. As an Orange County Patent Attorney, I serve Orange County, Irvine, Los Angeles, San Diego and surrounding cities.