Document Type

Article

Publication Date

2015

Keywords

Patents, Reasonable royalties

Disciplines

Intellectual Property Law

Abstract

To obtain a substantial patent damage award a patentee need not commercialize the patented invention; the patentee need only show that its patent was infringed. This surely incentivizes patenting but it dis-incentivizes innovation. Why commercialize yourself? The law allows you to wait for others to take the risks, and then you emerge later to lay claim to “in no event less than a reasonable” fraction of other people’s successes. It is rational to be a patent troll rather than an innovator. This troll-enabling interpretation of patent law’s reasonable royalty provision, however, is wrong as a matter of patent policy. Surprisingly, it is also wrong as a matter of patent history. The courts created the basis for reasonable royalties in the nineteenth century, thereby marking a significant change to patent damages. But this precedent was nowhere near as sweeping as today’s interpretation would suggest. Up to the mid-1800s, the existing routes to patent damages were strict, available only to patentees who had already commercialized their patented invention. Budding innovators who were starting to commercialize but who could not yet prove an established royalty or lost profits were left out. Courts developed reasonable royalties for them. Those cases never extended reasonable royalties to those who simply sat on their patents waiting to extract payment from others. Starting in the 1970s, however, reasonable royalties came unmoored from that historical foundation. Infringement alone, without any evidence of commercialization, now creates a presumption of compensable harm. Today’s view of reasonable royalties is unsupported by patent history and sits in tension—if not outright conflict—with binding Supreme Court cases. Properly understood, some efforts to commercialize or some evidence of copying are still necessary for significant reasonable royalties. As a result, nominal damages are still reasonable to compensate for infringement of an unpracticed patent when asserted against independent inventors.

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