Innovation Factors for Reasonable Royalties

Abstract

Patentees who are successful in litigation are entitled to no less than a “reasonable royalty” for the infringing use of the patent. Currently, reasonable royalties are assessed by the fact-finder using the cumbersome, difficult-to-apply fifteen-factor Georgia Pacific test. The Georgia Pacific test has been widely and roundly criticized, and there is general agreement that it too often hinders patent law’s central goal: promoting technological innovation. To improve the reasonable royalty analysis, this Article proposes adding innovation-centric factors to the Georgia Pacific test, including the total amount spent on research & development and commercialization of the invention, taking into account opportunity costs and project-specific risk. Additionally, the Article suggests emphasizing a slightly modified version of one existing innovation-centric, Georgia Pacific factor: the technological benefits offered by the invention when compared to alternative approaches. Like the “objective” factors used to make determinations of whether a patent is obvious, these innovation factors will help fact-finders to make more accurate and more consistent reasonable royalty determinations while more ably advancing patent law’s goal of spurring innovation.

Keywords: patent remedies, Georgia-Pacific, reasonable royalty, opportunity cost, patent damages, innovation, R&D

JEL Classification: L5, L24, O3, O31