Finding a comparable license to assess damages can be tough

Assessing damages in any type of legal case can be a tricky proposition. Often the amount sought tries to encompass not only actual damages, but projected losses. In a personal injury case, the physical evidence can go a long way toward proving the loss. But damages in patent law can be harder to quantify.

Federal patent law clearly states that when infringement of a patent is determined, the claimant is entitled to “damages adequate to compensate for the infringement, but in no event less than a reasonable royalty.” The issue then becomes, how do you determine adequate compensation? A loss of profits can be difficult to prove making the royalty option more common. But then, what constitutes a reasonable royalty?

It’s not like comparing residential real estate

Common practice in the real estate world for setting the asking price for a residential property is to assemble a list of comparable listings. If you have a two-story home with three bedrooms, you look at the records in your area for what similar homes have sold for and gauge from that what you think you can get from a prospective buyer.

In patent law, the courts often attempt to gauge what’s fair in setting damages by looking at comparable licenses. But, when you consider that a patent by its nature defines something unique, comparisons can be hard to come by.

The framing of one license might be much like that of another, making comparisons seem rational. But the environment in which the licenses were issued might differ. For example, one might represent a cross-licensing situation between partnering companies. Another license might have resulted from a desire to avoid costly litigation between disputing parties.

Context can bring comparability into question. Also, license agreements usually get hammered out in private, so context can be impossible to establish. Indeed, the license itself may contain confidentiality provisions. These concerns spark the view in some quarters about whether setting damages based on comparing licenses is ever valid.

It is not the point of this post to answer that question. Rather, our purpose is to highlight that the complexities inherent in intellectual property litigation are such that they demand the engagement of skilled legal counsel to achieve optimal outcomes.

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