The world of patent damages is in a state of flux. We know that the Federal Circuit now calls for a greater degree of specificity and rigor in presenting or rebutting claims for patent infringement damages. But while old "rules" are dead and buried, no worthy successors have yet found their assured place in the sun. In the wake of Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011), navigating hitherto unchartered waters of the new damages regime has been fraught with uncertainty.
Rate and Base, Done Right
There is heightened scrutiny of the reasonable royalty and its nexus with the contribution of the patented invention to the claimed royalty base. And rightly so. Conceptually, as a matter of economics, the royalty rate and the royalty base are not independent variables. This is because any royalty rate that is the outcome of a hypothetical negotiation is necessarily a function of the patentee's profit stream, which is itself a function of the patentee's relevant revenue (the "royalty base"). Therefore, damages approaches in which royalty rates (from comparable license agreements, industry data, or other sources) are unlinked from the revenue bases in question are likely to run into trouble. And indeed they have. Linking the royalty rate to the proper base is precisely the motivation behind Judge Rader's decision in Cornell University v. Hewlett-Packard Co., 609 F. Supp. 2d 279 (N.D.N.Y. 2009). In Cornell, Judge Rader identified the processor's revenue as the royalty base because the patented technology was "a small part of the IRB, which is a part of a processor, which is part of a CPU module, which is part of a 'brick,' which is itself only part of the larger server." Id. at 283.