Patent Infringement and Royalty Rates: Is Litigation a 'Deterrent'?

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Patent infringement cases require that a damages expert put forth a reasonable royalty calculation to assist the trier of fact in determining damages absent the ability of the patent holder to make the sales that the infringer made. Numerous factors affect the calculation of a reasonable royalty including the industry in which the patent holder operates, the market size for the product, the growth potential of the product, and so forth. Industry-wide averages can be a useful starting point in calculating a reasonable royalty as royalty rates in various industries exhibit distinctly different central tendencies. In this paper, we compare the results of recent Federal Appeals Court decisions involving royalty rate awards with royalty rate data from arm’s-length non-litigation sources to see if litigation results in higher royalty rates.