Using Regression Analysis of Observed Licenses to Calculate a Reasonable Royalty for Patent Infringement

2 The Criterion Journal on Innovation 501 (2017)

21 Pages Posted: 29 May 2018

Date Written: 2017

Abstract

Patent licenses reveal information about how the market values a patented technology and how the market values new information concerning the probability of a patent’s validity and infringement. One can use that information to determine the value of the patent in suit under the assumed conditions in the Georgia-Pacific hypothetical negotiation that the patent is absolutely valid and infringed. Using regression analysis, an expert economic witness can use the change in royalty rates that occurs after pretrial rulings (by district courts, by the PTAB, or by the ITC or its individual administrative law judges) to calculate the market value of the increasing probability that the patent in suit is valid and infringed, and to predict the outcome of the hypothetical negotiation on the eve of the defendant’s first infringement of the patent in suit. The line of best fit might predict a gradually increasing royalty over time, as uncertainty about the patent’s validity and scope decreases. If so, extending the line of best fit to the trial date would provide a conservative (lower-bound) calculation of a reasonable royalty under the assumptions of absolute validity and infringement that apply in Georgia-Pacific’s hypothetical negotiation. This methodology enables the calculation of a reasonable royalty for the patent in suit that incorporates both the underlying legal assumptions of the hypothetical-negotiation framework and the market-disciplined prices that one subsequently observes in actual patent licenses voluntarily negotiated at arm’s length between the licensor and willing third parties.

Keywords: Patents, ITC

Suggested Citation

Sidak, J. Gregory, Using Regression Analysis of Observed Licenses to Calculate a Reasonable Royalty for Patent Infringement (2017). 2 The Criterion Journal on Innovation 501 (2017). Available at SSRN: https://ssrn.com/abstract=3179157 or http://dx.doi.org/10.2139/ssrn.3179157

J. Gregory Sidak (Contact Author)

Criterion Economics, L.L.C. ( email )

1717 K Street, N.W.
Washington, DC 20006
United States
(202) 518-5121 (Phone)

HOME PAGE: http://www.criterioneconomics.com

Register to save articles to
your library

Register

Paper statistics

Downloads
19
Abstract Views
131
PlumX Metrics