Page 70 - Intellectual Property Disputes

A seminal case for determining a reasonable royalty rate is Georgia-Pacific Corp. v. U.S. Plywood
Corp., fn 16 which identified 15 factors that are relevant to a reasonable royalty rate calculation. These
factors are discussed in the following sections.

When measuring reasonable royalty rates under a hypothetical negotiation approach, the courts have
looked to the date when infringement first began. As noted, the courts have found that the date of the
hypothetical negotiation is the first step in a reasonable royalty calculation and is "essential for properly
assessing damages." fn 17

In Harris Corp. v. Ericsson, Inc., the Federal Circuit affirmed that royalty rates determined using the
hypothetical negotiation framework may vary over the damages period. In this case, the reasonable
royalty rate was determined to decrease over the damages period from 1.75% for the first 5 years and a
renewal rate of 0.5% thereafter. In this case, the notice date of August 17, 1998, is the date on which this
lawsuit was filed. Ericsson relied on the undisputed fact that the statutory damages period did not begin
until this date when it received notice of the patent. Ericsson argued that royalty rates prior to the
beginning of the statutory damages period are immaterial. "Where we part company with the district
court is over the understanding that it is permissible to use a blended royalty rate when all of the
infringement for which damages are available took place after the lower rate would have come into
effect." Because the damages period began at a much later date than the hypothetical negotiation (on the
date Ericsson received notice of the patent at issue), the Federal Circuit ruled that the lower rate of 0.5%
was the appropriate rate on which to base damages because that rate would have been in effect during
the damages period. fn 18

Georgia-Pacific Factors

Georgia-Pacific provided a list of 15 factors that the court considered important in determining a
reasonable royalty rate. These factors have been widely adopted by the courts for use in calculating a
reasonable royalty rate in a patent case. All the factors may not be relevant in each case, nor will they all
have the same level of importance in each case. In discussing the 15 factors, the court indicated that ". . .
there is no formula by which these factors can be rated precisely in the order of their relative importance
or by which their economic significance can be automatically transduced into their pecuniary
equivalent." fn 19

The 15 Georgia-Pacific factors are as follows:

1. The royalties received by the patent holder for the licensing of the patent in suit, proving or
tending to prove an established royalty

fn 16 Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), modified, 446 F.2d 295 (2d Cir. 1970), cert.
denied, 404 U.S. 870 (1971).

fn 17 Integra Lifesciences I, Ltd. v. Merck KGaA, 331 F.3d 860, 870 (Fed. Cir. 2003).

fn 18 Harris Corp. v. Ericsson, Inc., 417 F.3d 1241 (Fed. Cir. 2005). The patent at issue relates to a particular way of processing
wireless signals in such devices as cellular phones and base stations. The jury awarded $61.3 million in reasonable royalty damages,
based upon the plaintiff’s expert’s royalty rate of 1.75%. The trial court found that the evidence did not support the damages award
and gave Harris the choice between a remitted amount to $43,270,150 (using a blended royalty rate) and a new trial, recognizing that a
reasonable royalty rate could be modified over time by subsequent events.

fn 19 Id.

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