Page 102 - Intellectual Property Disputes

adjusting it based on legitimate considerations specific to the facts of the case nevertheless
results in a fundamentally flawed conclusion. fn 158

Although this ruling does not preclude the use of the 25 percent rule, its application must "carefully tie
proof of damages to the claimed invention’s footprint in the market place." fn 159 Citing Kumho Tire Co.,
Ltd. v. Patrick Carmichael, General Electric Co. v. Joiner, and ResQNet.com, the U.S. Court of Appeals
stated that "one major determinant of whether an expert should be excluded under Daubert is whether he
has justified the application of a general theory to the facts of the case. Consistent with this conclusion,
this court has held that ‘[a]ny evidence unrelated to the claimed invention does not support
compensation for infringement but punishes beyond the reach of the statute.’" The U.S. Court of
Appeals further stated that

[t]his court’s rejection of the 25 percent rule of thumb is not intended to limit that application of
any of the Georgia-Pacific factors . . . looking at royalties paid or received in licenses . . . and
looking at the portion of profit that may be customarily allowed in the particular business for the
use of the invention . . . remain valid and important factors in the determination of a reasonable
royalty rate. However, 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. fn 160

Although the Federal Circuit in 2011 levied its harsh criticism of the 25 percent rule, its application has
still been encountered in the calculation of royalty damages. For example, in 2015, the Federal Circuit in
Info-Hold, Inc. v. Muzak, LLC excluded the plaintiff’s expert’s opinion, stating (among other things), the
"damages analysis was also deficient because he relied on the 25-percent rule, which this court
discredited as ‘fundamentally flawed’ in Uniloc...(deeming evidence relying on the 25-percent rule as
inadmissible for failing to tie the royalty base to evidence in the case)." fn 161 Therefore, any current use
of the 25 percent rule will likely be disallowed.

The Analytical Method

Another measurement methodology is the analytical method. The royalty calculation under this method
can be based on the infringer’s own internal profit projections for the infringing item at the time the
infringement began compared to standard or normal profit margins. This approach may also consider the
profit margins recognized on sales of patented products compared to the next best alternative, non-
patented products. The analytical method is based on the premise that any rate of return in excess of a
normal rate of return may be attributed to the patent. This method takes the profits of the infringer,
subtracts the infringer’s normal profit, and awards some portion of the remainder to the patent owner. In
describing the analytical method, the district court in Metaswitch Networks LTD. v. Genband US LLC, et
al. concluded, "The difference between the standard profit an infringer can expect to obtain from the
sale of non-patented articles and the profit it obtains from the sale of a patented article should, ceteris

fn 158 Uniloc USA, 10-1035 (Washington).

fn 159 Id. The Uniloc court noted that Uniloc’s expert "did not testify that the parties here had a practice of beginning negotiations with a
25%/75% split, or that the [patented technology] justified such a split," which may be interpreted to suggest actual application of the
25 percent rule by the parties may serve as a relevant factor in assessing a royalty rate.

fn 160 Id.

fn 161 Info-Hold, Inc. v. Muzak, LLC, No. 14-1167 (Fed. Cir. 2015).

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