Canada Adopts the Anticipated Profits Approach for Calculating a Reasonable Royalty Rate

Abstract:

Under the Patent Act, a successful plaintiff may be entitled to compensation arising from two distinct periods: (1) after patent grant; and (2) before patent grant, but after publication. With respect to the former, courts have quantified and awarded damages on several bases, including lost profits of the plaintiff and a reasonable royalty. With respect to the latter, s. 55(2) of the Patent Act contemplates “reasonable compensation” as the liability of an infringer. In a recent decision by the Federal Court, the phrase “reasonable compensation” was equated with “reasonable royalty.” To determine a “reasonable royalty,” the court will construct a hypothetical negotiation, and assess various factors to determine the appropriate amount of a hypothetical licensee’s—that is, an infringer’s—anticipated profits that should be paid to the hypothetical licensor—that is, the plaintiff—as a result of the patent infringement.