Patent Infringement Damage Calculation In The United States
A legal process terminology known as “patent litigation” is initiated when the owner of a patent for a specific invention seeks redress from a third party for making or offering the invention for sale without authorization. Patent lawsuits tremendously took a hike in 2020 as compared to the previous year’s lawsuit counts. In 2020, courts awarded patent damages of $4.67 billion which is a hike of $1.5 billion as compared to the patent damages award in 2019.
In the United States, the cost of litigation is estimated between $3 million to $4 million where the damages are awarded up to $8.9 million on average, and to date, the biggest award that has been settled is $2.5 billion. The trial period is almost 24 to 36 months in the US.
So how are these awards been decided or calculated by the court, or it has been suggested by the attorneys or based on calculation that can be done to decide the damage amount of patent infringement?
Before starting with the approach of calculation of patent damages, we should know the type of patent infringement damages based on which court determines the award of patent infringement.
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Patent Infringement Damage Types
- In this scenario, an accuser must show a relation between the infringing product and the suffered loss in business of the accuser which is difficult to show but results show more compensation. The accuser has to prove how the invention differentiates the accuser's product and infringing/competitor's product. For example, imagine your invention was the sole feature that set your product apart from those of competitors. Customer chooses your product because of the sole feature that makes it unique or distinctive. You may have a compelling argument that the profits from your competitor's increased sales should belong to you if they do so after incorporating your idea into their own products.
- It is the most common type of patent infringement damages where the fair market value of a license that the infringer would have bought from the patent holder, who would have received royalties for the use of the invention, is a reasonable royalty. In the case of indirect infringement, when a patent owner is not able to prove, the damages have been done to the infringed product sale. In that case, the patent owner is authorized to press the damages has been done from the sale of the related infringing product under the category of “non-legal fiction”.
The fair market value of a license will be determined by the court once it has been determined that a person or organization has violated another's patent. The fair value of a single item will normally be determined by the court, who will then multiply that number by the number of items the defendant infringed (for example, $500 (product amount) x $1000 (sales amount) = $500,000).
- In circumstances of design patent infringement, the plaintiff may also be entitled to either receive Reasonable Royalty or loss of profits damages. The law is aware that the development cost of any invention come under the patentee’s profit which makes the profit lesser overall. On the other hand, the infringer is free from these kinds of costs, so they make more money with high-profit rates compared to the patentee.
Not all instances of patent infringement are ill-intentioned or malevolent. The infringer may be subject to willful damages if the court determines that a violation was intentional. In order to get increased damages by the patent owner, then it can be proven that the infringers performed the act willingly. Due to this, they can recover three times as much in damages. Also, it's not even essential to demonstrate actual knowledge of the infringement to establish intentional intent. This means many businesses have adopted a technique called "willful blindness" policy in which they deliberately choose not to look up patents in the database so that a court cannot later rule that their infringement was purposeful. But because of recent court judgments, omitting to check patents as a practice might now be considered intentional infringement, making willful damages possible.
Patent Infringement Damage Calculation Approaches
An appropriate patent infringement damages calculation is mandatory when it comes to award to the patentee. There are some widely used standards that are used by the court to calculate these damages. Some of the most common approaches are –
Hypothetical Negotiation standard comes from the matter of Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970) and its used by the court to calculate reasonable royalties. This is due to the “legal fiction” that an infringer and patent holder had a license agreement in place before an infringement occurred. In Georgia-Pacific Corp. v. United States Plywood Corp., 15 criteria were established, and they are still in use today.
The 15 criteria are as under:
- Proven royalties as evidenced by earlier patent licences.
- The licensee pays the cost of other licences for comparable patents.
- The form and parameters of the licence (e.g., limitations? exclusivity?).
- The patent holder’s present marketing and policy, as well as the degree of monopoly it upholds as a result of its licencing tactics.
- How do the parties’ business dealings stand? Are they opponents?
- Sales of non-patented goods are priced according to the patented good’s worth. taken into account for both parties.
- The term of the licence and the patent.
- The commercial success, present appeal, and proven profitability of the patented items.
- The patented property’s advantages and usefulness in comparison to earlier technologies that produce equivalent effects.
- The nature, the commercial viability, and the user advantages of the innovation.
- How extensively did the infringer exploit the invention? Is there proof that its use has been beneficial?
- Amount of sales or profit that is typical for the company in issue or comparable brands.
- What percentage of the earnings is attributable to the patent as opposed to unpatentable features? Were there commercial risks, production expenses, or substantial upgrades/features the infringer added?
- Expert testimony,
- What sum would the parties have agreed upon if they had entered into a voluntary and reasonable agreement?
By using the approach, a royalty rate percentage is decided based on 15 criteria, then multiple dollar amounts with the infringed product sale amount to calculate the reasonable royalty damages amount.
This is another way to figure out patent damages. The court examines all the evidence to determine the profits earned by the accuser or infringer from the time since infringing started. The prospective expenditures and expenses are also considered as they might have an impact on profitability. The appropriate royalty damages are calculated by multiplying the percentage of the patent owner by the actual infringing sales’ dollar sales. When all the necessary details and evidence are determined, a decision is made on the profit percentage assigned to the patented technology.
In many cases, when a patent is registered then only the patent infringement damages can be recovered. But due to the 1999 changes to the Patent act, some solutions become accessible before a patent is granted.
The owner may be entitled to fair royalties if it can be demonstrated that (1) the infringing party had “actual notice” of a published application and (2) the ultimately issued patent is “substantially identical” to the published application. This holds true for any infringement that takes place between the patent’s publication and the issue.
One another approach to determine the lost profits are the Panduit factors. The Panduit factors has been used previously by the Federal Circuit in the courts to determine awards. An accuser may be eligible for compensation based on actual profit losses by indicating the following factors:
- How popular is the patented product at the present time?
- What would have been the profit made by the product?
- Evidence that there were no suitable alternatives that were not infringing
- Marketing and production capacity existed to meet the demand.
Based on the research and analysis, we are sure now that there is not a single mathematical formula or computation that can be used to explain the significance of an award in a patent infringement litigation case, despite all the rules and approaches that have been defined. If someone asks how the damages are calculated in patent infringement litigation, the answer would be “it will vary, based on a lot of factors which present in front of court”.
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