Page 66 - Intellectual Property Disputes

Chapter 4

Reasonable Royalty Damages

Reasonable Royalty

Once infringement has been proven in patent cases, the patent holder is entitled to "damages adequate to
compensate for the infringement, but in no event less than a reasonable royalty." fn 1

In the event lost profit damages cannot be proven for any or all the alleged infringing sales, then the
patent owner is still entitled to reasonable royalties from use of the patented technology either for the
entirety of the units sold or the remaining units sold by the infringer that are not included in the lost
profits calculation. In other words, the patent holder is entitled to some form of damages on all the
infringing sales.

In non-patent intellectual property disputes, reasonable royalty is neither the base case nor the minimum
award. However, it remains an alternative measure of damage and is available under appropriate
circumstances. For example, the UTSA and DTSA state that as an alternative to other forms of damages,
plaintiffs in trade secrets cases may seek damages in the form of "imposition of liability for a reasonable
royalty for a misappropriator’s unauthorized disclosure or use of a trade secret." fn 2

The case law on reasonable royalty for non-patent intellectual property suits borrows from the more
developed body of case law from patent disputes. As a result, the subsequent discussion relating to the
parameters and guidelines provided for reasonable royalties in the context of patent disputes is generally
applicable to other types of intellectual property infringement, unless otherwise noted. Of course, in all
intellectual property disputes, the reasonable royalty to be paid to the plaintiff by the defendant is
governed by the particular facts of the case.

A starting point in determining a reasonable royalty is an established royalty — that amount paid by the
parties for the intellectual property in suit — as it is based upon the voluntary agreement of a licensor
and a licensee. When an established royalty does not exist or cannot be proven in sufficient detail, the
expert may need to calculate a royalty that would result from other methods, such as a hypothetical
negotiation between the parties. These alternatives are discussed in the following sections.

Established Royalty

One of the early cases outlining the criteria for an established royalty is Rude v. Westcott from the
Supreme Court, which stated the following:

It is undoubtedly true that where there has been such a number of sales by a patentee of licenses
to make, use, and sell his patents as to establish a regular price for a license, that price may be
taken as a measure of damages against infringers...Like sales of ordinary goods, they must be
common – that is, of frequent occurrence – to establish such a market price for the article that it

fn 1 35 USC 284.

fn 2 UTSA with 1985 Amendments, 11 and DTSA, Section 2(b)(3)(B)(ii).

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