Michael Risch, ‘(Un)reasonable Royalties’

… Part I explores the slow development of the reasonable royalties remedy. This detailed analysis provides new insights into the history that is missing in contemporary analysis. It shows that the goal of reasonable royalties was to be compensatory, applying when plaintiffs could not show other types of damages. It concludes that the calculation of reasonable royalties was meant to be flexible and imprecise, though time-tested evidentiary methods ensured that patent damages remained within a reasonable band of compensation. Part II explains why this history matters. Those who support a departure from history, yet still cite to it, have the burden of showing that traditional methods were insufficient to determine reasonable royalties. Given the weak economic rationale for many of the new rules, this is a tall order. Part III examines many recent and proposed changes to the reasonable royalty framework. An historical examination shows that lost profits and reasonable royalties are different, and for that reason they should be treated differently. Reasonable royalties were intended to compensate the patentee for harm when other proof was unavailable. The remedy was not created to mimic some sort of hypothetical negotiation. Indeed, the Supreme Court made clear early on that hypothetical negotiation was not the proper approach, but this seems to have been long forgotten. So too with other recent elements of reasonable royalty analysis, whether from the last ten years or from the last forty-five years. For the most part, the analyses are inconsistent with traditional application and do not offer an economically rational justification for change.

This Article concludes that courts should return to the roots of reasonable royalty analysis by focusing on a patent’s value above all else. The fact that the most salient, recent cases may involve difficult factual scenarios is no reason to change how the law should be applied. Additionally, there is no reason to believe that traditional methods of calculating royalties would lead to overcompensatory or undercompensatory awards. In other words, one can assess damages reasonably without favoring either party … (more)

Michael Risch, ‘(Un)reasonable Royalties’, Boston University Law Review volume 98:187 (2018).

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