All Your Base Are Belong to Us: Towards an Appropriate Usage and Definition of the 'Entire Market Value' Rule in Reasonable Royalties Calculations

Abstract:     
Heated scholarly debate has accompanied the importation of the “entire market value” rule into reasonable royalties awards. The rule’s natural ambit lies within lost profits calculations; indeed, the very definition of the entire market value rule is unclear within the reasonable royalties context. Yet the Federal Circuit has applied, or claimed to have applied, the rule in the reasonable royalties context. But when that court has invoked the rule, it was, in actuality, merely calculating a reasonable royalty as a percentage of a 100% royalty base. This Note proposes a new name for such use: the “entire market base” rule. The traditional “entire market value” rule appellation, accordingly, should be used exclusively in lost profits calculations. Further, the purpose of the entire market base rule is to avoid juror prejudice, as is clear from the Federal Circuit’s 2011 decision in Uniloc USA, Inc. v. Microsoft Corp. and the Federal Trade Commission's March 7, 2011 report. Thus, this Note proposes that the entire market base rule be recast by the Federal Circuit as a specific application of Federal Rule of Evidence 403 on avoiding unfairly prejudicing the jury. Properly defining and distinguishing the entire market base rule will enable courts to tailor the rule to incentivize innovation and further the proper purposes of patent law.

Number of Pages in PDF File: 32

Keywords: entire market value rule, reasonable royalties, patent, intellectual property, damages, royalty base

JEL Classification: O34, K00

Accepted Paper Series