Reasonable Royalty and the Infringer’s Profits

In patent infringement damages, one approach to the determination of a reasonable royalty is to apply the hypothetical negotiation framework. To determine a reasonable royalty under this framework, it can be instructive to compare the licensee’s willingness to pay and the licensor’s willingness to accept. Where there is an overlap in these two positions, it is possible to determine a reasonable royalty that is generally consistent with each party’s position. In certain instances, there may be no such overlap. This dynamic can occur when the licensor’s minimum willingness to accept exceeds the licensee’s actual or anticipated profits associated with the sale of the accused product. This article explores Federal Circuit decisions addressing the circumstances under which a reasonable royalty may exceed the infringer’s profits. The Federal Circuit has generally upheld royalty rates in district court rulings where the royalty rate exceeds the infringer’s claimed profits, although in doing so the Federal Circuit has often drawn attention to the specific facts and circumstances of the licensee’s position.

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