My last “damages” blog post presented the 16 Georgia Pacific factors that can be considered by a jury in determining a reasonable royalty award in a patent infringement case. The Georgia Pacific factors may not be the only issues that arise in determining a reasonable royalty.
The Court of Appeals for the Federal Circuit approved another method of determining a reasonable royalty, which was based upon cost savings, in Hanson v. Alpine Valley Ski Area, Inc., 718 F. 2d. 1075 (Fed. Cir. 1983).
Two other important issues include attribution/apportionment and the entire market-value rule. Attribution or apportionment refers to the fact that royalty award must reflect the value of the patented features, as opposed to the unpatented features, of the infringing product.
As a result of the attribution/apportionment principle, accused infringer will often try to attribute the success of their product to unpatented features. Conversely, patent owners will emphasize the value of patented features in litigation to increase damage awards.
The entire market-value rule is a rule that allows a patent owner to obtain damages for the entire market value of a multicomponent product that includes both patented components and unpatented components. The entire market-value rule represents an exception to the general rule that a royalty award must be based upon the “smallest salable unit” that practices the patent and has a close relation to the claimed invention in such a multicomponent product.
For example, suppose a patent owner has a patent with claims that cover a pencil but not an eraser. If an accused infringer sells a kit that includes a pencil with a removable eraser and the kit is found to be infringing the patent, the accused infringer will argue that the royalty should only be based on the value of the pencil alone.
The patent owner would use the entire market value rule to argue that the pencil is the component of the product that is driving the demand for the product, so that the royalty should be based upon the value of both the pencil and the eraser.