Words Matter: Economics & A Literal Reading of Mars, American Seating, and Monsanto-Ralph -- Potholes Along the Road to Economic Rationality?

10 March 2009
By Dr. David Blackburn

There have been several recent decisions that relate to the issue of acceptable non-infringing alternatives. Some rulings have language that potentially constrains which alternatives are properly considered when evaluating damages, while others have language that potentially constrains the role those alternatives play in determining reasonable royalties. More precisely, in Mars and American Seating, the US Court of Appeals for the Federal Circuit (CAFC) stated that an alternative should not be considered "available" -- in the Grain Processing sense -- unless it is as good as the accused product. That is, the alternative must be acceptable to all purchasers and/or must have all of the important features of the accused product. In Monsanto-Ralph and Mars, the CAFC rejected the notion that a reasonable royalty award should be capped by the cost to the infringer of turning to an available, non-infringing alternative to the patented technology. Because of their sometimes straightforward and plain language, these cases threaten to create potholes along the road to rational and appropriate damages awards. In this working paper, NERA Vice President Dr. David Blackburn and former Senior Vice President Dr. Phillip Beutel review certain language from these decisions that relates to how economic damages should properly be determined and conclude that, if their plain language is interpreted wrongly, the resulting damage awards to patent owners may not properly measure the economic contribution of the patented technology.