A Theory of Patent Damages

Abstract:

This article summarizes the law on calculating reasonable royalties and identifying non-infringing alternatives in patent litigation. It shows that much of the court’s analysis on these points is inconsistent with awarding damages, meaning the amount that the plaintiff would have received in the hypothetical world where there was no infringement. Instead, it suggests that courts are in fact granting reasonable compensation. It argues that courts should embrace this framing and adopt a legal fiction that the most probable hypothetical world is the one where parties agreed to a royalty on terms reflecting the true value of the invention. Doing so would avoid logical inconsistencies and simplify the analysis of patent damages, eliminating confusing references to reconstructing hypothetical negotiations, marginal willingness to accept, and marginal willingness to pay.