The 25 Percent Rule in Patent Damages: Dead and Now Buried

10 June 2011
By Dr. David Blackburn et al.

The United States Court of Appeals for the Federal Circuit's (CAFC) 4 January 2011 ruling in Uniloc USA, Inc. v. Microsoft Corp. ("Uniloc") marked an important change in patent infringement litigation. The CAFC ruling unequivocally rejected use of the long-standing 25 Percent Rule in determining reasonable royalty patent damages, calling it "a fundamentally flawed tool," the application of which "fails to meet the Daubert standard for admissibility." Many economists have criticized the continued use of the rule in determining reasonable royalty damages, but NERA economists, in particular, have strongly advocated abandoning fact-free shortcuts such as the 25 Percent Rule in favor of a structured and rigorous approach to damages estimation. Following the CAFC's ruling, in January 2011 Uniloc petitioned the court for a panel rehearing and rehearing en banc, and filed an amici curiae brief from ten patent damages experts, but in May 2011, the CAFC summarily rejected Uniloc's petition, affirming the Court's prior ruling and thus burying the 25 Percent Rule for good. In this NERA paper, the authors applaud the CAFC's continued rejection of ad hoc methods and its desire for more rigorous economic analysis in the determination of patent damage awards, and note that the Uniloc decision clearly reaffirms the need for case-specific analysis of reasonable royalty damages.