September 12, 2012 Articles

Use-Based Damage Theory Garners an Unreasonable Royalty

Use-based theories can not only assess royalties, but they can lead to significantly higher dollar awards than sales-based theories or lost profits.

By Konrad Sherinian

A reasonable royalty for the use of an invention by an infringer sets the floor for damages that a patent holder can recover, but the recent case of Michael S. Powell v. The Home Depot USA, Inc., 663 F.3d 1221 (Fed. Cir. 2011), conclusively demonstrates that a reasonable royalty is not always less than what would be recovered by way of lost profits. Powell also demonstrates the power of use-based theories in assessing a reasonable royalty, and how in certain circumstances, it can lead to significantly higher dollar awards than sales-based theories or lost profits.

In Powell, the patentee had a long-standing business relationship with Home Depot. He was the company's point of contact for the installation and maintenance of radial saws in each of its stores. Home Depot used the radial saws—as did many of their competitors—to cut lumber to customer-specified dimensions. Cut lumber was, in many ways, integral to Home Depot's strategy to be a "one-stop shop" for contractors.

But the company had a very serious problem. The radial saws at its stores resulted in numerous injuries to employees—with lacerations and finger amputations being most common. In addition to harm caused to employees, the number of lawsuits filed and the subsequent compensation employees were paid had grown significantly.

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