IP Experts Question Use of Hypothetical Negotiation in Patent Cases

January 10, 2014

In "Problems with Hypothesizing a Reasonable Royalty Negotiation" (Law360, January 7, 2014), Analysis Group Managing Principal John Jarosz and Vice President Michael Chapman acknowledge assertions that "the patent protection system is out of control" and outline the concepts and history behind a widely employed construct used for the determination of reasonable royalty damages in patent infringement cases, known as the hypothetical negotiation. The authors examine the various elements of the hypothetical negotiation construct that have invited increasing controversy in recent years, including issues related to the relative bargaining power of the parties involved, negotiation objectives, and the relative timing of the negotiation. Noting the increasing reliance on the hypothetical negotiation, and the unresolved and inherent issues associated with the construct, the authors recommend focus on more economically sound and traditional valuation methodologies to determine appropriate compensation for patent infringement.

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