The Misuse of Reasonable Royalty Damages as a Patent Infringement Deterrent

Abstract:     
This Article studies the Federal Circuit's use of excessive reasonable royalty awards as a patent infringement deterrent. I argue against this practice, explaining that properly viewed in context of the patent system as a whole, distorting the reasonable royalty measure of damages is an unnecessary and ineffective means of ensuring an optimal level of reward for inventors and deterrence for infringers. First, I introduce cases in which the Federal Circuit and other courts following its lead have awarded punitive reasonable royalty awards and explain the Federal Circuit's professed rationale for doing so. Next, I demonstrate that this practice makes little sense, given the number of other powerful deterrents already present in the patent system. I also explain that any additional deterrence-related benefits attributable to excess damages are not realized when courts impose those damages against innocent infringers-a group that likely makes up the lion share of patent infringers. I further explain that there is good reason to believe that the patent system already over-deters infringement without the added burden of inflated royalties, because accused infringers participating in a competitive market face strong incentives not to challenge patents asserted against them. Finally, I propose several patent reforms for efficiently deterring deliberate copyists, while sparing innocent infringers from that threat.

Number of Pages in PDF File: 40

Keywords: patent law, reasonable royalty, willful infringement, patent holdup, independent invention

JEL Classification: 034

Accepted Paper Series