Damages: "Built-In" Apportionment Using Comparable License Agreements

• Published date: 26 October 2022
• Subject Matter: Intellectual Property, Patent
• Law Firm: Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
• Author: Mr Daniel Cooley and Kathleen Hanley

Daniel Cooley and Kathleen Hanley¹

Calculating patent damages is "not an exact science."² This is especially true when addressing principles of apportionment. The principle of apportionment seeks to ensure that the patent holder does not obtain an unfair benefit by receiving value for features of the infringing product that are not covered by the asserted patent. It does so by requiring that the patentee "apportion" the damages between the patented feature and all other non-patented features. But determining how to apportion, especially when there is evidence of comparable license agreements, requires careful analysis.

I. Background of Apportionment in Patent Infringement Damages

Under the Patent Act, a court "shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty, for the use made of the invention by the infringer."³ The principle of apportionment was explained in the 1884 Supreme Court case Garretson v. Clark in which the Court stated that a patentee must "in every case give evidence tending to separate or apportion the defendant's profits and the patentee's damages between the patented feature and the unpatented features."⁴ The Federal Circuit has emphasized that "a reasonable royalty analysis requires a court to carefully tie proof of damages to the claimed invention's footprint in the marketplace."⁵

Calculating damages in patent infringement cases "necessarily involves an element of approximation and uncertainty."⁶ The Federal Circuit has provided guidance related to applying apportionment principles to calculate reasonable royalty damages as part of the hypothetical negotiation analysis of GeorgiaPacific Corp. v. U.S. Plywood Corp.⁷ If the entire value of the marketed product is attributable to the patented feature of that product, then no apportionment is required. To apply the entire-market value rule and thus avoid an apportionment analysis, the patentee must show that the patented feature of the product is the "basis for customer demand."⁸

An apportionment analysis should be conducted if the patented feature does not drive the market demand for the product. One method for calculating a reasonable royalty is to look to comparable license agreements to derive a royalty rate and royalty base. In some cases, a comparable license may have "builtin apportionment."⁹ In other cases, a comparable license agreement is useful evidence, but a separate apportionment analysis should still...