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In a prior article, we talked about determining lost profits damages in patent infringement cases. As discussed there, patent owners are to be compensated if their rights are infringed; and the compensation is to be no less than a reasonable royalty. However, a patent owner instead may be entitled to the “lost profits” that it would have made had there been no infringement, if certain criteria are met.
But, what happens if those criteria are not met? How then is a reasonable royalty determined?
There is no one specific or required methodology for determining a reasonable royalty. However, most analyses at least consider the 15 factors outlined in the Georgia-Pacific Corp. v. United States Plywood Corp. case, known as the “Georgia-Pacific Factors.”
The most critical Georgia Pacific Factor is the last one, or what’s known as the “hypothetical negotiation.” This factor requires the consideration of the amount a licensor and licensee would negotiate had they both been reasonably and voluntarily trying to reach an agreement. Therefore, in determining a reasonable royalty, an analyst needs to put him or herself in the shoes of the licensor and licensee and analyze what factors would influence an actual negotiation. The remaining 14 factors essentially provide a guideline for issues that would be part of this “hypothetical negotiation”:
Consistent with the lost profits analysis, the theory behind the determination of a reasonable royalty is simple. However, the quantification of a reasonable royalty requires a significant amount of effort, experience and knowledge. The professionals at Schneider Downs have been involved in numerous cases quantifying damages, including reasonable royalty damages in patent infringement cases. If you have any questions, please contact Steve Thimons at 412-697-5281.
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