License Agreements
Straight licenses to the patented technology may be especially informative for a reasonable royalty calculation.
Actual licenses to the patented technology are highly probative as to what constitutes a reasonable royalty for those patent rights because such actual licenses most clearly reflect the economic value of the patented technology in the marketplace.
— LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 79 (Fed.Cir.2012).
In some cases, straight licenses are not available, and parties use other evidence to make inferences about licensing. Examples of potentially related evidence includes:
royalties received by the patentee that set an established royalty;
The royalties received by the patentee for the licensing of the patent in suit, proving or tending to prove an established royalty.
— Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y., 1970).
rates paid by the licensee for technologies that are comparable to the patents-in-suit;
[t]he rates paid by the licensee for the use of other patents comparable to the patent in suit.
— Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y., 1970).
settlement agreements;
Despite the longstanding disapproval of relying on settlement agreements… we recently permitted such reliance under… limited circumstances.
— LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F. 3d 51 (Fed. Cir. 2012).
proposed agreements that were never executed; and
We acknowledge that proposed licenses may have some value for determining a reasonable royalty in certain situations. Their evidentiary value is limited, however, by, inter alia, the fact that patentees could artificially inflate the royalty rate by making outrageous offers.
— Whitserve, LLC v. Computer Packages, Inc., 694 F. 3d 10, 29–30 (Fed. Cir. 2012).
the patentee’s usual licensing policies.
The patentee's usual licensing approach should be considered in assessing a reasonable royalty.
— Studiengesellschaft Kohle, m.b.H. v. Dart Indus., Inc., 862 F.2d 1564, 1568 (Fed.Cir.1988).
Basis for Comparison
Licenses should be sufficiently comparable both in terms of the technology and the economic relationship between parties.
As we have held many times, using sufficiently comparable licenses is a generally reliable method of estimating the value of a patent.[...] This approach is generally reliable because the royalty that a similarly-situated party pays inherently accounts for market conditions at the time of the hypothetical negotiation, including a number of factors that are difficult to value, such as the cost of available, non-infringing alternatives.
— Apple Inc. v. Motorola, Inc., 757 F. 3d 1286, 1325-26 (Fed. Cir. 2014).
The basis for comparison is easily established when the facts and circumstances surrounding a license comport with the facts and circumstances surrounding hypothetical negotiation.
Prior licenses, however, are almost never perfectly analogous to the infringement action. VirnetX, 767 F.3d at 1330. For example, allegedly comparable licenses may cover more patents than are at issue in the action, include cross-licensing terms, cover foreign intellectual property rights, or, as here, be calculated as some percentage of the value of a multi-component product. Testimony relying on licenses must account for such distinguishing facts when invoking them to value the patented invention.
— Ericsson, Inc. v. D-Link Systems, Inc., 773 F. 3d 1201, 1228 (Fed. Cir. 2014).
Licenses must be but sufficiently comparable–vague comparability is not enough.
When relying on licenses to prove a reasonable royalty, alleging a loose or vague comparability between different technologies or licenses does not suffice.
— LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F. 3d 51, 79 (Fed. Cir. 2012).
Licenses may be inadmissible when there is no relationship with the claimed technology.
ResQNet's five re-bundling licenses are absolutely silent on any relation to the patents in suit. Dr. David did not even attempt to show that these agreements embody or use the claimed technology or otherwise show demand for the infringed technology.
— ResQNet. com, Inc. v. Lansa, Inc., 594 F. 3d 860, 871 (Fed. Cir. 2010).
License agreements may not be admissible when they pose a substantial risk of misleading the jury.
[I]t was abuse of discretion under Rule 403 to admit a settlement agreement having probative value that was greatly outweighed by the risk of unfair prejudice, confusion of the issues, and misleading the jury.
— Frolow v. Wilson Sporting Goods Co., 710 F. 3d 1303, 1315 (Fed. Cir. 2013).
For example, licenses that involve multi-component products must be analyzed with care in order to avoid improper consideration of the entire market value of accused products.
When licenses based on the value of a multi-component product are admitted [or referenced] the court should give a cautionary instruction regarding the limited purposes for which such testimony is proffered…
— Ericsson, Inc. v. D-Link Systems, Inc., 773 F. 3d 1201, 1228 (Fed. Cir. 2014).
A court will generally weigh probative value against prejudice considerations in deciding whether a particular license is admissible.
The probative value of the BenQ settlement agreement is dubious in that it has very little relation to demonstrated economic demand for the patented technology, and its probative value is greatly outweighed by the risk of unfair prejudice, confusion of the issues, and misleading the jury.
— LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F. 3d 51, 78 (Fed. Cir. 2012).
Analyzing Differences
An analysis of past agreements should do more than simply recite royalty numbers.
a lump-sum damages award cannot stand solely on evidence which amounts to little more than a recitation of royalty numbers, one of which is arguably in the ballpark of the jury's award, particularly when it is doubtful that the technology of those license agreements is in any way similar to the technology being litigated here.
— Lucent Technologies, Inc. v. Gateway, Inc., 580 F. 3d 1301, 1329 (Fed. Cir. 2009).
Analyses of past agreements must account for any technological or economic differences from hypothetical negotiation.
[C]omparisons of past patent licenses to the infringement must account for "the technological and economic differences" between them.
— Wordtech Systems, Inc. v. Integrated Networks Solutions, Inc., 609 F. 3d 1308, 1320 (Fed. Cir. 2010).
Economic differences arise either when the commercial situation that led to the license does not reflect hypothetical negotiation, or when a license is not a bare license for the claims at issue. Examples of economic differences include differences in:
royalty structure;
to use a running-royalty agreement as a basis to award lump-sum damages, however, some basis for comparison must exist.
— Lucent Technologies, Inc. v. Gateway, Inc., 580 F. 3d 1301, 1330 (Fed. Cir. 2009).
[L]ump sum payments similarly should not support running royalty rates without testimony explaining how they apply to the facts of the case.
— Whitserve, LLC v. Computer Packages, Inc., 694 F. 3d 10, 30 (Fed. Cir. 2012).
the scope of rights granted;
The court, however, failed to consider all of the evidence in the record, some of which tends to negate reliance on the Bewator license fee as a reasonable royalty. For instance, the evidence suggests (1) that the Bewator agreement was an exclusive license and conveyed rights more broad in scope than those covered by Trell's patent
— Trell v. Marlee Electronics Corp., 912 F. 2d 1443, 1446 (Fid. Cir. 1990).
the relationship between parties;
Finally, the hypothetical negotiation is deemed to be an arm's length transaction. Rite-Hite, 56 F.3d at 1576. Courts should not, therefore, accept as conclusive the royalty arrangement between the patent owner and the single licensee, a close corporation owned by the inventor's family.
— Minks v. Polaris Industries, Inc., 546 F. 3d 1364, 1373 (Fed. Cir. 008).
compensation for rights unrelated to the claims at issue;
Here, the parties are related. As we discussed above, the true-up payments have no relevance to the calculation of the reasonable royalty because Warsaw made no effort to determine what percentage of these payments represented royalties for the asserted patents.
— Warsaw Orthopedic, Inc. v. NuVasive, Inc., 778 F. 3d 1365, 1378 (Fed. Cir. 2015).
information available to the parties;
The significance of these royalties is largely neutralized by the credible evidence that these licenses were granted by USP outside the United States, in areas where USP itself had no established sales facilities. As to the Australian and New Zealand licenses, USP had no idea what kind of a market could be established there for Weldtex, which was a new product in those remote countries; and, therefore, USP fixed a minimum royalty.
— Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1139 (S.D.N.Y., 1970).
uncertainty surrounding validity and infringement; and
Teva's settlement and Andrx's offer both arose only after the district court had held the patents valid and had made a finding of infringement as to both defendants. The setting in which those events took place was therefore similar to the setting of a hypothetical negotiation in which infringement and patent validity are assumed.
— AstraZeneca AB v. Apotex Corp., 782 F. 3d 1324, 1336 (Fed. Cir. 2015).
the extent of use.
the more frequently most inventions are used, the more valuable they generally are and therefore the larger the lump-sum payment. Conversely, a minimally used feature, with all else being equal, will usually command a lower lump-sum payment.
— Lucent Technologies, Inc. v. Gateway, Inc., 580 F. 3d 1301, 1327 (Fed. Cir. 2009).
Technological differences arise when available licenses are not for the exact claims at issue in a patent suit. For example, the analysis of a portfolio licenses, which grants rights to a patent bundle, must apportion the royalty to the claims at issue.
We agree with the district court that Donohoe's testimony is insufficient to support an award of damages. Indeed, the district court would have been justified in excluding Donohoe's testimony as inherently unreliable based on his failure to tie the 40%-50% rate to the technological contribution of the patent to the standard-essential patent portfolio.
— Apple Inc. v. Motorola, Inc., 757 F. 3d 1286, 1324 (Fed. Cir. 2014).
Lump-Sum Agreements
Past lump-sum licenses are sometimes used to calculate a lump-sum royalty (see discussion below). This approach is most common in cases when a large number of past settlement agreements exist. Analyses of this type are flawed when they do not sufficiently account for economic differences that exist in spite of the common royalty structure.
Lump-sum licenses may be more useful than running royalty licenses in proving a lump-sum reasonable royalty.
We explained in Lucent that lump-sum licenses are generally more useful than running-royalty licenses for proving a hypothetical lump sum because certain fundamental differences exist between lump-sum agreements and running-royalty agreements.
— Wordtech Systems, Inc. v. Integrated Networks Solutions, Inc., 609 F. 3d 1308, 1320 (Fed. Cir. 2010).
However, a basis for comparison must exist when comparing a lump-sum reasonable royalty with past lump-sum licenses.
In Wordtech Systems ... two licenses, although in the form of lump sums, were also rejected for not describing how the lump sums were calculated or the type and volume of products intended to be covered by the licenses.
— LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F. 3d 51, 80 (Fed. Cir. 2012).
Sales figures or projections may provide sufficient grounds to establish a basis for comparison.
We agree with Interactive that Martin's testimony was not speculative by virtue of its reliance on Infinite's 1996 business plan. We have previously upheld awards of damages premised on a lump sum royalty payment based on an infringer's expected sales.
— Interactive Pictures v. Infinite Pictures, 274 F. 3d 1371, 1384 (Fed. Cir. 2001).
A lump-sum reasonable royalty analysis must account for economic differences between past lump-sum licenses and hypothetical negotiation.
This averaging theory is flawed because the two lump-sum licenses provide no basis for comparison with INSC's infringing sales. Neither license describes how the parties calculated each lump sum, the licensees' intended products, or how many products each licensee expected to produce.
— Wordtech Systems, Inc. v. Integrated Networks Solutions, Inc., 609 F. 3d 1308, 1320 (Fed. Cir. 2010).
Past lump-sum licenses do not put a ceiling on a reasonable royalty.
As a final matter, we do not hold that LaserDynamics' past licenses create an absolute ceiling on the amount of damages to which it may be entitled, see 35 U.S.C. § 284, or that its history of lump sum licenses precludes LaserDynamics from obtaining damages in the form of a running royalty.
— LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F. 3d 51, 81 (Fed. Cir. 2012).