Page 92 - Intellectual Property Disputes

Although the Georgia-Pacific and Honeywell factors provide guidelines when determining a reasonable
royalty, they do not represent the only viable approaches to determining a reasonable royalty. "The
amount of a reasonable royalty after infringement turns on the facts of each case, as best they may be
determined." fn 119 For assistance in the establishment of a royalty rate, the expert may want to consult
searchable databases such as those identified in appendix A, "Intellectual Property Print and Electronic
Resources," of this practice aid.

Entire Market Value Rule — Reasonable Royalty

The entire market value rule, discussed in the section, "Lost Profits," may also apply to the
determination of a reasonable royalty if the patented component is included in a larger device. In that
context, the reasonable royalty rate may be applied or apportioned to the sales of the larger device, not
just the patented component. However, care should be taken to develop a royalty rate consistent with the
underlying facts. If an analysis of comparable licenses suggests a royalty rate of, for example, 5%
applied to sales of the patented component, it may be improper to conclude that the 5% should be
applied to sales of the larger device containing the patented element. Rather, it may be appropriate to
reduce the royalty rate to compensate for the increased royalty base.

An instance when the patented feature was deemed to be part of a single functioning unit was in Bose
Corp. v. JBL, Inc. fn 120 In this case, the patentee brought suit against a seller of loudspeaker systems for
infringing its patent relating to ports inside loudspeaker enclosures. Reasonable royalties were calculated
based on the entire value of the loudspeaker systems incorporating the accused ports, even though an
accused port comprised only a small component of the system.

The Federal Circuit affirmed the district court’s award noting that the district court found the patented
invention "inextricably worked with other components of loudspeakers as a single functioning unit to
provide the desired audible performance." fn 121 The Federal Circuit also noted that the patented
invention "improved the performance of the loudspeakers and contributed substantially to the increased
demand for" them, and Bose "provided testimony on its increase in sales in the year following the
introduction of its speakers containing the invention." The district court noted that the patented feature
"is an integral part of the speaker units sold by Bose, and the port is an integral part of the speaker
systems sold by JBL," and it "worked in tandem with other design features and improvements in the
Bose products." Bose submitted evidence that the improved performance allowed by the patent was a
factor in the defendant’s decision to go forward with manufacturing certain speakers, and that Bose’s
sales had increased in the year following incorporation of the invention in its own speakers. The district
court also noted that, with a minor exception, JBL sold all of its infringing products as "complete
systems," and Bose also sold its patented products "as systems, not as separate pieces." The Federal
Circuit, however, did not address whether the patented feature was "the" basis for demand or a
"predominant" factor, as it has in other cases. fn 122

fn 119 Panduit Corp., 575 F.2d 1152 (6th Cir. 1978).

fn 120 Bose Corp. v. JBL, Inc., 274 F.3d 1354 (Fed. Cir. 2001).

fn 121 Bose Corp., 274 F.3d 1354 (Fed. Cir. 2001).

fn 122 Bose Corp. v. JBL, Inc., 112 F. Supp. 2d 138 (D. Mass. 2000).

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