Using Reasonable Royalties to Value Patented Technology

In the last several years, commentators have expressed serious concerns with the state of the law governing awards of reasonable royalties as damages in patent infringement cases. Given these concerns, the proper assessment of royalties has been a recent, frequent topic for debate among economists and legal scholars. At the same time, all three branches of the federal government have studied ways to improve the law governing reasonable royalties. In this Article, I reframe the ongoing debate by identifying and exploring two basic paradigms for calculating reasonable royalties: valuing patent rights and valuing patented technology.

The traditional paradigm, valuing patent rights, reflects a tort law make-whole conception of compensatory damages. Notably, however, the alternative paradigm, valuing patented technology, in various respects explains the course of the common law governing the method for calculating reasonable royalties, comports with the public policies identified by courts as guiding the award of reasonable royalties, and, moreover, if fully adopted may have significant benefits. I therefore consider several reforms that would tie the law governing reasonable royalty determinations even closer to the value of patented technology, and I highlight several open questions related to full adoption of this alternative paradigm.