Monday, 10 January 2011

The end of the American (damages) dream?

Most of the times a patent case is ruled in the US I’m surprised with the amount of damages award. I usually have the impression that more than damage repair, US Courts apply punitive damages.

The situation may change with the decision of the US Court of Appeals of the Federal Circuit in Uniloc v. Microsoft, rejecting a very popular damages calculation rule (the 25% rule of thumb). We read uin the ruling:

“Section 284 of Title 35 of the United States Code provides that on finding infringement of a valid patent, damages shall “in no event [be] less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.” In litigation, a reasonable royalty is often determined on the basis of a hypothetical negotiation, occurring between the parties at the time that infringement began.

The 25 percent rule of thumb is a tool that has been used to approximate the reasonable royalty rate that the manufacturer of a patented product would be willing to offer to pay to the patentee during a hypothetical negotiation.

there must be a basis in fact to associate the royalty rates used in prior licenses to the particular hypothetical negotiation at issue in the case. The 25 percent rule of thumb as an abstract and largely theoretical construct fails to satisfy this fundamental requirement. The rule does not say any-thing about a particular hypothetical negotiation or reasonable royalty involving any particular technology, industry, or party. Relying on the 25 percent rule of thumb in a reasonable royalty calculation is far more unreliable and irrelevant than reliance on parties’ unrelated licenses, which we rejected in ResQNet and Lucent Technologies.

evidence purporting to apply to these, and any other factors, must be tied to the relevant facts and circumstances of the particular case at issue and the hypothetical negotiations that would have taken place in light of those facts and circumstances at the relevant time”.

It seems to me that from now on it will be difficult to reach figures we have seen in the past.

1 comment:

The Bright Spark said...

As I understand it, the 25% rule related not to 25% of sale price, it was 25% of the infringer's profit.

Obviously that would be silly in the case of (for example) a mobile phone, which could be covered by thousands of patents each of which contributes a tiny amount to the value of the product.

But the judgment in Uniloc now opens the way for patentees to claim a much larger slice of the infringer's profits in cases where the value of the product is largely derived from the patent (e.g. pharmaceutical cases)