Thursday, August 12, 2021

Two New Damages Articles in the Journal of Intellectual Property Law

 1. Taorui Guan has published an article titled Evidence-Based Patent Damages, 28 J. Intell. Prop. 1 (2021).  From the introduction:

. . . this Article has carefully analyzed 400 patent licensing agreements that are the “material contracts” of publicly traded companies (meaning that their business substantially depends on them). These contracts reveal how patent licensing parties calculate royalties for the use of patents. This Article tests the doctrines of the hypothetical negotiation against them to see whether the doctrines reflect actual patent licensing practices. While this set of contracts might not represent the overall population of patent licensing contracts, many being contracts between small private companies and possibly not significant enough to be regarded as material contracts, it is the best evidence available to the public. These contracts reveal how parties calculate royalties for high-value patents that are important to their businesses.

After a systematic examination of these patent licensing contracts and the doctrines of the hypothetical negotiation, this Article finds divergences between them in at least three areas. . . . The divergences and the corresponding suggestions for potential reform are as follows:

First, in actual patent licensing, parties can adjust the royalty payments based on information that develops after the date of the licensing contract. The licensing contract might incorporate a royalty adjustment clause that allows parties to adjust the royalties in response to specified later events. Or parties might renegotiate to modify the royalties. In litigation, however, royalty adjustment is not available. Courts do not allow parties to adjust the reasonable royalty based on the information ex post the date of the hypothetical negotiation. This Article suggests that courts should recognize the possible need for adjustments to the reasonable royalty. In cases of patent infringement, the value of the patent might become clearer only after the date on which the infringement began. Allowing litigants to adjust reasonable royalty based on ex post information would make the assessment of patent damages more fair and complete.

Second, courts and patent licensing parties use different means to determine the royalties on a patent incorporated into a multi-component product. Usually, a royalty equals a royalty base multiplied by a royalty rate. . . . But to calculate the royalty for a patent used in a product consisting of the patented component and other components, parties might multiply the royalty by a formula and retain the value of the multi-component product as the royalty base. . . . But in litigation, the use of formulas is not available. Instead, courts tend to apportion the value of a multi-component product between the patented component and other components by reducing the royalty base to the value of the patented component and applying a royalty rate to it. This Article suggests that courts should allow litigants to use the formulas, while retaining the value of multi-component products as the royalty base, because doing so can keep economically irrelevant data from entering the calculation of reasonable royalties and can weigh economically relevant criteria for apportionment.

Third, parties in patent licensing have a more sophisticated method for dealing with royalty stacking than courts do. Specifically, if the relevant products involve not only the patentee’s patent but also third parties’ patents, the licensee needs to pay royalties to both the patentee and the third parties. Parties want to avoid a situation where aggregate royalties become so excessive the licensee no longer implements the patent. This situation is called royalty stacking. To avoid royalty stacking, patent licensing parties employ anti-royalty-stacking clauses, which allow third-party royalties to offset the royalties payable to the patentee. . . . This Article suggests that courts and litigants can learn ways to deal with royalty stacking in litigation from these anti-royalty-stacking clauses.

2. Also in the same issue, Ioana Vasiu and Lucian Vasiu have published an article titled Cross-Jurisdictional Analysis of Damage Awards in Copyright Infringement Cases, 28 J. Intell. Prop. L. 93 (2021).  The article addresses the calculation of damages for copyright infringement in the U.S., Canada, Singapore, and Italy.

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