One of Law360's Most Read Articles the Week of 8/24: Managing Principal John Jarosz and Vice President Michael Chapman Publish on Reasonable Royalty Determination in Patent Litigation
August 31, 2015
Determining incremental benefits is at the heart of reasonable royalty estimation in patent litigation. In their article, "REBUTTAL: It's Not An Inappropriate Reasonable Royalty Rule" (Law360, August 21, 2015), Managing Principal John Jarosz and Vice President Michael Chapman take issue with a recent Law360 guest article's argument "that potentially awarding 100 percent of incremental profits generated by the [smallest saleable patent practicing unit ("SSPPU")] is impermissible," because it is at odds with reasonable royalty calculations that allow for hypothetical negotiations to provide the suppositious licensee with incremental benefits after the royalty payment. In fact, Chapman and Jarosz note that accurately capturing the incremental benefits of the patented technology at issue is precisely aligned with the "purpose and spirit of the hypothetical negotiation construct."
In their article, Chapman and Jarosz note that the hypothetical negotiation approach is not required in the determination of reasonable royalty damages; rather, it "was developed as a heuristic that could be used to assist in the determination of such damages." They also explain that "awarding 100 percent of the incremental benefits (profits) to the party responsible for those benefits generated by the SSPPU" is a reasonable method to ensure that the benefits "exclusively attributable to the unlawful activity" are given to the patent holder. This provides for appropriate compensation to the patent owner, while allowing "the alleged infringer to continue to operate in the business and obtain a reasonable profit" associated with its own contributions to product success. Ensuring that this compensation is equal to (but no greater than the) contributions that it has made to a product's value also promotes innovation incentives more generally. That is, a patent owner should be awarded no more and no less than it has contributed to product success. To do otherwise would create perverse incentives. And while the authors acknowledge that specific measurements of contributions are sure to be matters of dispute, the rule for their assessment "is good law, and good economics."
The article was one of the most read expert analyses on Law360 the week of August 24, 2015.
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