Under Uniloc USA, Inc. v. Microsoft Corp.,372 “[e]vidence relying on the 25 percent rule of thumb is thus inadmissible under Daubert and the Federal Rules of Evidence, because it fails to tie a reasonable royalty base to the facts of the case at issue.”373 The 25 percent rule of thumb is a rule commonly applied to estimating a
366 See id. at 852-53.
367 See id. at 853-54.
368 Id. at 854.
369 Id. at 856.
370 Id.
371 Id.
372 Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011).
373 Id. at 1315.
reasonable royalty.374 The rule states that “the licensee pay[s] a royalty rate equivalent to 25 per cent of its expected profits for the product that incorporates the [patent] at issue.”375 By citing several scholarly articles, the Federal Circuit con-cluded three major flaws of the 25 percent rule: (1) “it fails to account for the unique relationship between the patent and the accused product”; (2) “it fails to account for the unique relationship between the parties”; (3) “the rule is essentially arbitrary and does not fit within the model of the hypothetical negotiation within which it is based.”376 Thus, the Federal Circuit held that “the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation.”377
Because “the 25 percent rule of thumb in a reasonable royalty calculation is far more unreliable and irrelevant than reliance on parties’ unrelated licenses,”378 the Federal Circuit even rejected the 25 percent rule as “a starting point to which the Georgia-Pacific factors are then applied to bring the rate up or down.”379
With respect to a proper standard for determining a sound methodology for damages calculations under a hypothetical negotiation, the Federal Circuit did pro-vide some guidance. The “patentee bears the burden of proving damages,”380 Un-der Daubert, the FeUn-deral Circuit held that “the patentee must ‘sufficiently [tie the expert testimony on damages] to the facts of the case.’”381 By relying on three
374 See id. at 1314.
375 Id. at 1312 (citation omitted).
376 Id. at 1313-14 (citation omitted).
377 Id. at 1315.
378 Id. at 1317.
379 Id.
380 Id. at 1315.
381 Id.
prior cases regarding damages calculations based on a reasonable royalty,382 the Federal Circuit concluded that “there must be a basis in fact to associate the royalty rates used in prior licenses to the particular hypothetical negotiation at issue in the case.”383 So, when using prior licenses as a basis for estimating a reasonable roy-alty, a damages expert must compare the factual scenarios of prior licenses to the scenario that fits to the present case. In addition, it is necessary to address “a par-ticular hypothetical negotiation or reasonable royalty involving any parpar-ticular tech-nology, industry, or party.”384
Regarding the Georgia-Pacific factors, the Federal Circuit held that they are still applicable.385 However, the Federal Circuit requires a trial judge to determine whether “expert testimony opining on a reasonable royalty rate [is] ‘carefully tie proof of damages to the claimed invention’s footprint in the market place.’”386 When applying the Georgia-Pacific factors, a trial judge must determine whether expert testimony on any Georgia-Pacific factor is “tied to the relevant facts and circumstances of the particular case at issue and the hypothetical negotiations that would have taken place in light of those facts and circumstances at the relevant time.”387
After Uniloc, the Georgia-Pacific factors are still good guidance for calculat-ing a reasonable royalty. When a damages expert follows the fifteen factors to form
382 See id. at 1316 (discussing ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860 (Fed. Cir. 2010);
Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009); Wordtech Sys., Inc. v.
Integrated Networks Solutions, Inc., 609 F.3d 1308 (Fed. Cir. 2010); see also Anthony D.
Raucci, Notes, A Case Against the Entire Market Value Rule, 69 WASH. & LEE L. REV. 2233, 2253-54 (2012).
383 Uniloc USA, Inc., 632 F.3d at 1317.
384 Id.
385 See id.
386 Id.
387 Id. at 1318.
his negotiation theory,388 he must tie his theory to the factual pattern of the
388 See Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970),
stating:
1. The royalties received by the patentee for the licensing of the patent in suit, proving or tending to prove an established royalty.
2. The rates paid by the licensee for the use of other patents comparable to the patent in suit.
3. The nature and scope of the license, as exclusive or non-exclusive; or as restricted or non-restricted in terms of territory or with respect to whom the manufactured product may be sold.
4. The licensor’s established policy and marketing program to maintain his patent monop-oly by not licensing others to use the invention or by granting licenses under special conditions designed to preserve that monopoly.
5. The commercial relationship between the licensor and licensee, such as, whether they are competitors in the same territory in the same line of business; or whether they are inventor and promoter.
6. The effect of selling the patented specialty in promoting sales of other products of the licensee; that existing value of the invention to the licensor as a generator of sales of his non-patented items; and the extent of such derivative or convoyed sales.
7. The duration of the patent and the term of the license.
8. The established profitability of the product made under the patent; its commercial suc-cess; and its current popularity.
9. The utility and advantages of the patent property over the old modes or devices, if any, that had been used for working out similar results.
10. The nature of the patented invention; the character of the commercial embodiment of it as owned and produced by the licensor; and the benefits to those who have used the invention.
11. The extent to which the infringer has made use of the invention; and any evidence pro-bative of the value of that use.
12. The portion of the profit or of the selling price that may be customary in the particular business or in comparable businesses to allow for the use of the invention or analogous inventions.
13. The portion of the realizable profit that should be credited to the invention as distin-guished from non-patented elements, the manufacturing process, business risks, or
sig-sent dispute before him.389 This task is not simple because the 25% rule is not valid any more. As Epstein & Malherbe have pointed out, the challenge caused by Uniloc is “how a reasonable royalty might be determined when no comparable li-cense is available.”390
In a case where some prior, comparable licensing cases do exist, a damages expert may use those historic facts to form his baseline theory of damages calcula-tion of the present case.391 For cases where there is no comparable licensing case, Uniloc does not teach how to form “a basis in fact to associate the royalty rates used in prior licenses to the particular hypothetical negotiation at issue in the case.”392 The Federal Circuit failed to answer what analogous feature can be drawn from prior licensing and then applied to the existing case. Thus, the damages calculation based on a reasonable royalty becomes unstable.
nificant features or improvements added by the infringer.
14. The opinion testimony of qualified experts.
15. The amount that a licensor (such as the patentee) and a licensee (such as the infringer) would have agreed upon (at the time the infringement began) if both had been reasona-bly and voluntarily trying to reach an agreement; that is, the amount which a prudent li-censee—who desired, as a business proposition, to obtain a license to manufacture and sell a particular article embodying the patented invention—would have been willing to pay as a royalty and yet be able to make a reasonable profit and which amount would have been acceptable by a prudent patentee who was willing to grant a license.
389 See Roy J. Epstein & Paul Malherbe, Reasonable Royalty Patent Infringement Damages
After Uniloc, 39 AIPLA Q.J. 3, 6 (2011) (“Uniloc makes it clear that patent damages meth-odology requires an economically coherent hypothetical negotiation tied to the Georgia-Pacific factors and grounded in the facts of the particular case.”).
390 Id. at 25.
391 See John C. Jarosz & Michael J. Chapman, The Hypothetical Negotiation and Reasonable
Royalty Damages: The Tail Wagging the Dog, 16 STAN. TECH. L. REV. 769, 818-19 (2013).
392 See Edward Torous, Unknotting Uniloc, 27 BERKELEY TECH. L.J. 381, 397-98 (2012).