Oskar Liivak, ‘When Nominal is Reasonable: Damages for the Unpracticed Patent’

To obtain a substantial patent damage award via reasonable royalties, a patentee need not commercialize the patented invention; infringement is all that is needed. This surely incentivizes patenting but it disincentivizes innovation. Why commercialize yourself? The law allows you to wait for others to take the risks, and then you emerge later to lay claim to “in no event less than a reasonable” fraction of other people’s successes. Today, it is rational to be a patent troll rather than an innovator.

This troll enabling interpretation of reasonable royalties is wrong as a matter of patent policy and, surprisingly, it is also wrong as a matter of patent history and statutory interpretation. The creation of reasonable royalties by the courts in the nineteenth century did mark a significant change to patent damages but it was nowhere near as sweeping as today’s interpretation would suggest. Up to the mid-1800s, the existing routes to patent damages were stringent, available only to patentees who had already commercialized their patented invention. Courts developed reasonable royalties for budding innovators who were laying the groundwork for innovation but who could not yet satisfy the existing strict routes to patent damages. Those cases never extended reasonable royalties to those who simply sat on their patents waiting to extract payment from others. Starting in the 1970s, reasonable royalties came unmoored from that foundation. Infringement alone, without any commercialization efforts, now creates a presumption of compensable harm and the near guarantee of a substantial payout. Today’s view of reasonable royalties is unsupported by patent history and it in fact sits in tension if not outright conflict with binding Supreme Court cases. Properly understood, some efforts to commercialize are still a necessary element for substantial reasonable royalties. As a result, nominal damages are reasonable for infringement of an unpracticed patent.

Liivak, Oskar, When Nominal is Reasonable: Damages for the Unpracticed Patent (August 28, 2014).

First posted 2014-08-30 09:07:30

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