There have been several high profile cases involving patent damages in recent years. At issue is the determination of lost profits or that of a reasonable royalty rate to be used for the damages valuation. The more difficult analysis pertains to the determination of the royalty rate. What previously was a widely used and customary valuation technique in patent litigation cases, the 25 percent rule, essentially was abolished in the case of Uniloc USA v. Microsoft Corp.
The 25 percent rule provided for a return to the patentee of a royalty rate equivalent to 25 percent of the licensee’s expected profits for the product incorporating the technology at hand. The remaining 75 percent would presumably compensate the licensee for the manufacture, marketing and sale of the product, and related risk. The royalty rate is then determined by applying the 25 percent to the profits, with the result expressed as a percentage of sales.
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