The answer depends largely on the patented item’s contribution to the overall value of the product, Erstling says. Does it represent the primary or sole reason why customers buy the product? If so, the court may start with the “entire market value” of the product in determining a reasonable royalty. Otherwise, the court would start with the patented item’s relative contribution to the product’s value.
In theory, Erstling says, a calculation beginning from either starting point can produce the same figure for a reasonable royalty. A 2009 Federal Circuit Court decision in Lucent Technologies v. Gateway essentially pointed that out, he says. But in practice, the “entire market value” approach is at the center of a long-running dispute that has helped to delay patent reform in Congress.
In oversimplified terms, Erstling says, the argument tends to pit the high-tech industry against the pharmaceutical industry. High-tech companies make products that can incorporate a lot of patented components, and they generally dislike the entire-market-value approach, feeling that it leads to higher damage awards. Drug companies patent specific formulas. As far as a pharmaceutical maker is concerned, in cases where lost profits aren’t the issue, the entire market value of a patent infringer’s product ought to be the basis for calculations of damage awards.
But these are issues that explain why people hire IP lawyers. For the patent holder—or patent buyer—trying to estimate the value of IP as a legal weapon in a case where the infringement involves only part of a larger product, attorneys say that the money question boils down to this: How central is your patented innovation to the infringer’s ability to sell the product?
If a patent gathering dust in your company’s safe covers a $10 innovation that represents the key selling feature of an infringer’s $100,000 product, you may be sitting on a gold mine.
