Lost Royalties Offer a Third Path to Recover Patent Damages

Courts and litigants often assume there are two basic forms of damages available under patent laws: lost profits or a reasonable royalty. But the U.S. Court of Appeals for the Federal Circuit has made clear plaintiffs are not limited to these narrow categories and can recover damages on entirely different theories. One potentially important category of damages recognized by the Federal Circuit but frequently overlooked by courts and litigants is known as lost royalties.

Lost royalties compensate for the additional royalty revenue, rather than sales revenue, a patent owner would have received from its licensees if not for the defendant’s infringement. This can be important where the patent owner does not make and sell a product, but instead derives revenue from licensing the patent to other parties. Of course, a patent owner in these circumstances can always seek to recover a reasonable royalty, but lost royalties may lead to a greater recovery and be easier to prove.