Comparable Licenses Often Aren’t

One of the more complicated issues in patent law is the issue of damages—the determination of how much money a patent owner receives when they prove infringement and validity.  A patent owner, under 35 U.S.C. § 284, will be awarded “damages adequate to compensate for the infringement, but in no event less than a reasonable royalty.”

That can mean the patent owner’s lost profits—though those are frequently difficult to prove.  Because of this difficulty, patent owners usually ask for damages in the amount of a reasonable royalty.

But what is a reasonable royalty?  A lot of factors can go into helping determine what’s reasonable, but one favorite tool of the Federal Circuit is looking at “comparable licenses.”  The problem, of course, is in determining what is “comparable.”

Comparability

For a license to be considered as reliable evidence of what a reasonable royalty might be, it must be “sufficiently comparable” to the situation in litigation.  But licenses are often highly individualized to fit particular situations, making comparability hard to find.  

For example, one license might incorporate a portfolio cross-license where two companies want access to each other’s technology, including technological assistance.  Another license might have been taken under the threat of litigation to avoid litigation fees, rather than based on any evaluation of the value of the technology or a need to use it.  A third license might have been taken, but the patent owner might have been under an obligation to license the patent. A license from a competitor isn’t necessarily comparable to a license from a non-practicing entity, and both might be different from a practicing entity that competes in a different space.

These individualized differences can make it very difficult to define what a comparable license might be.

Context

Even if the factors that go into comparability are agreed on, it might not be possible to determine whether a license is comparable.  That’s because the context of a license matters to comparability.

Licenses are usually negotiated in private, and the context of that negotiation is often absent from the license document itself.  Looking inside of the four corners of the license won’t tell you about litigation threats, business discussions, and other things that influence whether to license a patent and the licensing terms.  And it may not be possible to obtain information about these sorts of undocumented license contexts.

Confidentiality

An additional problem is that licenses are often confidential.  The amount you pay a competitor to access their technology (or the amount you receive from a licensee) is information that you don’t necessarily want to share with other participants in the industry.  As a result, the licensee or licensor (or both) might object to making public—or even just sharing with their competitor—the terms of their license. At the same time, without knowing the terms of the license (and who the license is with) it can be hard to determine comparability.  

Contraindication

These difficulties throw into question the notion of whether comparable licenses ever truly exist.1  The Federal Circuit prefers to use comparable licenses to avoid doing the difficult work of setting a reasonable royalty—but all too often, doing so takes licenses that aren’t truly comparable as evidence, leading to inappropriate royalties.

  1.  There are a few situations in which comparability is trivial to show—in particular, when a uniform non-negotiated license offer is made to the public.  If the patent owner only ever licenses on particular terms, and those terms are identical to all licensees, then a comparable license might exist—unless the patent owner creates parallel contracts that provide incentives to particular licensees, in which case those parallel contracts might be relevant to the comparability of the license.

Joshua Landau

Joshua Landau is the Patent Counsel at the Computer & Communications Industry Association (CCIA), where he represents and advises the association regarding patent issues.  Mr. Landau joined CCIA from WilmerHale in 2017, where he represented clients in patent litigation, counseling, and prosecution, including trials in both district courts and before the PTAB.

Prior to his time at WilmerHale, Mr. Landau was a Legal Fellow on Senator Al Franken’s Judiciary staff, focusing on privacy and technology issues.  Mr. Landau received his J.D. from Georgetown University Law Center and his B.S.E.E. from the University of Michigan.  Before law school, he spent several years as an automotive engineer, during which time he co-invented technology leading to U.S. Patent No. 6,934,140.

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