Page 67 - Intellectual Property Disputes

may be assumed to express, with reference to all similar articles, their salable value at the place
designated. In order that a royalty may be accepted as a measure of damages against an infringer,
who is a stranger to the license establishing it, it must be paid or secured before the infringement
complained of; it must be paid by such a number of persons as to indicate a general acquiescence
in its reasonableness by those who have occasion to use the invention, and it must be uniform the
places where the licenses are issued.

To recover an award of damages based on an established royalty rate, the patent owner needs to show
that a licensing agreement covering the patent was entered into with another party, typically prior to a
lawsuit or threat of a lawsuit. fn 3 The patent holder may have to demonstrate that multiple parties have
found the royalty rate to be reasonable. fn 4 Some courts have held that a single licensing agreement may
be insufficient and unreliable to prove an established royalty rate. fn 5 In addition, there is ambiguity
regarding the acceptability of settlement agreements, which is addressed in greater detail in the section,
"Date of Hypothetical Negotiation," in this chapter. In general, the expert should consider whether the
royalty rate was accepted by enough members in the industry to be considered reasonable. Additionally,
the expert should consider whether existing licenses are truly comparable to the patent in dispute.

In evaluating established or otherwise existing royalty rates for the purposes of determining the
reasonable royalty that an infringer should pay the patent holder, it is often appropriate to suggest
royalty adjustments to account for inherent differences between the existing agreement and the
hypothetical negotiation (for example, the certainty regarding infringement and validity or the perceived
threat of litigation). Although such differences may be real and suggest the need for an adjustment, the
expert should not fail to consider all the inherent differences between actual negotiations and
hypothetical negotiations. For example, actual negotiations usually include the transfer of knowledge
and know-how as well as documentation and continued support. These items, often of substantial value,
are normally not transferred to infringers. The expert should use caution when deciding how to properly
quantify the overall royalty adjustment. These and other factors are included in the discussion that
follows regarding the use of "comparable licenses" in connection with the hypothetical negotiation.

Royalty Structure

Lucent Technologies fn 6 discussed the differences in royalty structures, specifically a running royalty
compared to a lump-sum royalty, concluding that "[s]ignificant differences exist between a running
royalty license and a lump-sum license." Those differences should be considered as follows in a
hypothetical negotiation:

fn 3 Studiengesellschaft Kohle, m.b.h. v. Dart Indus., 862 F. 2d 1564, 1572 (Fed. Cir. 1988).

fn 4 Trell v. Marlee Elecs. Corp., 912 F. 2d 1443, 1446 (Fed. Cir. 1990).

fn 5 Hanson v. Alpine Valley Ski Area, 718 F. 2d 1075, 1078 (Fed. Cir. 1983); Wang Labs., Inc. v. Mitsubishi Elec. Am., Inc., 860 F.
Supp. 1448, 1452 (C.D. Cal. 1993).

fn 6 Lucent Techs., Inc. v. Gateway Inc., 580 F.3d 1301 (Fed. Cir. 2009). The patent at issue, known as the "Day patent" or "date
picker functionality," relates to a method that allows the user to enter data into fields on a computer screen without using a keyboard.
This case was first filed by Lucent in 2002 against Gateway and, subsequently, Microsoft intervened. Three actions were filed in the
Eastern District of Virginia, Southern District of California, and Delaware that were subsequently consolidated in the Southern
District of California. The court severed the Day patent from four other patents that were consolidated in the action. The jury found
that the Microsoft products that feature a date selection pop-up tool, including Money, Outlook, and Mobile, infringed the patent at
issue.

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