Simple fix for a faulty patent royalty system?

Royalty damages for patent infringement are supposed to be reasonable and predictable, but most often they are neither. According to Dan McManus (Patterson + Sheridan LLP), a recently minted intellectual property lawyer, the problem is simple—and so is the solution. Patent valuation is an opaque endeavor, but the current system asks juries, and the court, to assess expert testimony and arrive at a royalty award that’s justified under the law. McManus’s study of numerous recent royalty awards shows that the jury often simply splits the difference between the two opposing values as a compromise. This approach, he explains, gives each side an incentive to argue for damages as far away from the opposing party’s position as possible and thus to skew the midpoint as much as possible to its side. The simple solution, says McManus, lies in changing the parties’ incentive—propelling them to argue in favor of the most reasonable, rather than the highest or lowest, amount possible.

He develops a six-step approach that also addresses the problem of nonpracticing entities, (NPEs), or patent trolls.  Detractors of NPEs claim they hurt innovation and the economy because they don’t produce products or services, but acquire—often very broad—patents with the express purpose of threatening or suing companies whose products might have some relationship to the patent. Under McManus’s proposal, the NPEs have an incentive to license rather than hold out for a potential lawsuit.


To learn about the proposed steps and the study, click here