How Patent Damages Skew Licensing Markets *

By Hovenkamp, Erik; Masur, Jonathan | The Review of Litigation, January 1, 2017 | Go to article overview

How Patent Damages Skew Licensing Markets *


Hovenkamp, Erik, Masur, Jonathan, The Review of Litigation


I. INTRODUCTION....................379

II. PATENT LICENSING MARKETS....................385

A.Anatomy of an Efficient Licensing Market....................387

III. COLLATERAL EFFECTS OF PATENT LICENSING....................396

A. Reduced Future Damages....................396

B. Distorted Fees in Future Licensing....................399

IV. IMPACT ON LICENSING INCENTIVES....................403

A. Diminished Licensing....................403

B. Royalty Gamesmanship....................406

C. Confidentiality in Patent Licensing....................409

V. CONCLUSION: PROPOSED REFORM....................413

I. INTRODUCTION

As a first principle, the role of patent damages is to compensate patentees for past or future infringement. But this simplistic characterization provides little guidance for constructing effective remedial standards. The truth is that patent remedies are far less consequential within the courtroom than outside of it. Private dealings vastly outnumber litigated disputes,1 but they all occur in the proverbial "shadow of litigation." Incentives to invent are similarly colored by expectations about the remedies that support patent enforcement. And these expectations are formed by observing the calculus with which the courts compute damages. Thus, as a policy issue, what matters most is not the number of dollars awarded in a particular case, but rather the legal standard used to choose that amount. Such standards have a substantial impact on the private exchange of patent rights and should therefore be viewed as an important policy lever for encouraging the efficient dissemination and commercialization of patented technologies.

This article addresses a particularly problematic standard for computing patent damages-which we call "licensing-based damages." Under this standard, damages are based on the monetary terms of prior licensing agreements involving the litigated patent. We are particularly interested in damages awards based on prior agreements in which the present plaintiff licensed the now-disputed patent. The licensing-based damages standard is perhaps best known as the first of the fifteen Georgia-Pacific factors,2 which provide guidance for computing patent damages consisting in a "reasonable royalty."3 However, its use dates back as far as the late nineteenth century.4

Today, licensing-based damages are commonly used in disputes involving patents that have been licensed in the past.5 The courts tend to view this standard as not only convenient, but also accurate. For instance, the Federal Circuit has remarked that, "[w]here an established royalty rate for the patented invention is shown to exist, that rate will usually be adopted as the best measure of reasonable and entire compensation."6 In the courts' view, the royalty rate from a prior agreement is a strong indicator of what the defendant in suit would have paid for the same rights. Indeed, it is thought to "remove[] the need to guess at the terms to which the parties would hypothetically agree."7 The implication is that the defendant would have paid the same amount as the prior licensee, notwithstanding that the litigants reached no such agreement on their own.

The problem with licensing-based damages is that they tether patentees to the terms of their prior dealings, and this distorts both litigation outcomes and licensing behavior in a number of harmful ways. Perhaps the most serious problem is that it undermines efficient patent licensing and hence prevents patented inventions from being efficiently disseminated and commercialized.8 When a patentee licenses its patent, this standard forces it to hedge against the possible future consequences of the present agreement on its future dealings and disputes. This discourages patent holders from licensing at anything less than a high royalty rate-even if additional mutually beneficial agreements could be reached at lower rates-due to the fear that anything less would weaken its patent by limiting its future recovery. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

How Patent Damages Skew Licensing Markets *
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.