CBA Record

Y O U N G L A W Y E R S J O U R N A L

of a “hypothetical negotiation,” a meeting between the two parties on the eve of the first infringement at which the parties agree to a royalty to compensate the patentee for the infringement. The decision describes this negotiation in terms that are consistent with factor 15 above: “Where a willing licensor and a willing licensee are negotiating for a royalty, the hypothetical negotiations would not occur in a vacuum of pure logic. They would involve a market place confrontation of the parties, the outcome of which would depend upon such factors as their relative bargaining strength; the anticipated amount of profits that the prospec- tive licensor reasonably thinks he would lose as a result of licensing the patent as compared to the antici- pated royalty income; the anticipated amount of net profits that the pro- spective licensee reasonably thinks he will make; the commercial past performance of the invention in terms of public acceptance and prof- its; the market to be tapped; and any other economic factor that normally prudent businessmen would, under similar circumstances, take into consideration in negotiating the hypothetical license.” The language above suggests a general, practical definition of a reasonable royalty as the amount the parties would have found acceptable given their business needs and limitations, and assuming a mutual desire to reach an agreement. With this goal laid out, damages experts and finders of fact can look to the other 14 factors to help determine the proper amount of such a royalty. These factors can be grouped in a number of different ways: some are quali- tative while others are quantifiable; some relate to technological benefits while others look to economic considerations; some relate to licensing behavior while others relate to more general business dynamics. The table above summarizes the 15 factors and groups them into categories: It is important to note that not every factor carries equivalent weight in every

Licensing Factors

Financial/ Business Factors

Technical Factors

Other Factors

1. Licensor’s rates received for licenses to the patents-in-suit 2. Licensee’s rates paid for compa- rable technol- ogy

5. Commercial relationship between parties 6. Effect of sell-

9. Advantages of patented product over old devices 10. Nature and

14. The opinion/ testimony of qualified experts 15. The amount that a licen- sor (such as

ing patented technology in promoting the sale of other products

character of the patented invention, and the benefits to those who use it

the patentee) and a licensee (such as the infringer) would have agreed upon at the time the infringement began, if both had been rea- sonably and voluntarily trying to reach an agreement

3. Nature and

8. Established profitability of patented product

scope of license

4. Licensor’s

11. Extent

established licensing policy

to which infringer has used invention

“The amount that a licensor (such as the patentee) and a licensee (such as the infringer) would have agreed upon (at the time the infringement began) if both had been reasonably and voluntarily trying to reach an agreement; that is, the amount which a prudent licensee–who desired, as a business proposition, to obtain a license to manufacture and sell a particular article embodying the patented invention–would have been willing to pay as a royalty and yet be able to make a reasonable profit and which amount would have been acceptable by a prudent patentee who was willing to grant a license.” Georgia-Pacific also posits the construct

(1971), provides a general framework that is commonly accepted as relevant to the determination of a reasonable royalty. The Georgia-Pacific case identified 15 fac- tors (the “ Georgia-Pacific factors”) that the court found pertinent to the determination of a reasonable royalty, while suggesting that the list was likely not comprehensive for all matters. Still, this framework has endured for over 40 years as a mainstay for patent damages analysis. The last of the 15 Georgia-Pacific fac- tors generally summarizes the task placed before damages experts in the calculation of a reasonable royalty. Factor 15, in full, reads:

46 SEPTEMBER 2016