Calculating Economic Damages in Intellectual Property Disputes: The Role of Market Definition
1 June 1994
By Dr. Marion Stewart
When a valid patent, copyright or trademark is infringed, its owner is entitled to relief. In many cases, that relief will include a monetary award. Depending upon the circumstances of the infringement, the award may include a "reasonable royalty" on an infringer's sales, any profits lost as a result of the infringement and—in some cases—the defendant's "ill-gotten" gains.
All contested patent-infringement judgments are reviewed in the Court of Appeals for the Federal Circuit (CAFC), which in recent years—as Dr. Stewart discusses below—has relied upon increasingly sophisticated economic analysis to support a "make-whole" standard for patent damages. Briefly stated, such a standard seeks to ensure that an infringer's monetary payment fully compensates a successful plaintiff for economic damages suffered as a result of the infringement. If evidence establishes that a patent holder would willingly have licensed its invention in arm's length negotiations, without using the invention itself, then an award equal to the lost royalty revenue, plus appropriate interest, will make the plaintiff whole. If, instead, the plaintiff used (or would have used) the invention to increase its sales, lower its costs, or both, then it can be made whole only by an award that properly accounts for the profits lost as a result of the infringement.
