The Impact of Confidentiality on Reasonable Royalty Determinations in Patent Disputes
Under 35 U.S. Code § 284, a patentee involved in patent infringement litigation is entitled to recover damages “adequate to compensate for the infringement.” The minimum level of damages the patentee may receive is a “reasonable royalty” on the invention. To compute a reasonable royalty, courts analyze what royalty would have resulted if the two parties had entered into a hypothetical negotiation on the eve of infringement.
The best evidence for a reasonable royalty includes the established royalty rates for the patent-in-suit. If the patentee has existing or prior licenses for the patent-in-suit, a court can apply the same rate as the reasonable royalty. While this solution seems simple, the Federal Circuit has recognized the factual context surrounding each licensing agreement may impact the royalty rate. Because of this, the Federal Circuit requires a higher level of proof that established royalties may be used as the reasonable royalty. For instance, a single documented royalty is insufficient to establish there is general acceptance that the royalty is reasonable. Thus, it can be very difficult to use established royalties, standing alone, as sufficient proof of the reasonable royalty rate. Nevertheless, established royalties are still an important consideration when determining what constitutes a reasonable royalty.