Patent infringement, broadly speaking, occurs where a party makes, sells, uses, offers to sell, or imports into the United States a product that is covered by a patent. Such actions can cause significant economic loss to the holder of the patent at issue because it deprives him or her of the opportunity to license the patent and to receive the profits from selling the product at issue. The purpose of a patent infringement lawsuit for the plaintiff, therefore, is to recover those losses in court through a damages award. There are several types of damages available in patent infringement actions, but the most common are reasonable royalties and lost profits, as an Alabama patent litigation attorney explains.
Section 284: The Statutory Basis for Patent Damages
Section 284 of the Patent Act establishes the statutory authority for awarding damages in patent infringement actions: “Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.” Notably, § 284 sets a floor for patent damages (reasonably royalty), but not a ceiling, which allows courts some leeway when calculating damages in individual cases.
One of the ownership rights associated with patents is the right to license the patent. When a patent holder licenses his or her patent to a third party, the third party typically pays a fee to the patent holder in exchange for permission to use the patent in a certain way, thereby avoiding an infringement claim. That fee is known as a royalty. Reasonable royalty damages are the amount of money the patent holder and the infringer would have negotiated as a fee for a license had the infringer licensed the patent through the proper channels.
Lost profits damages refer to the amount of money the patent holder lost in theoretical sales due to the actions of the infringer. They are usually (but not always) more substantial than reasonable royalty damages. To recover lost profits, the plaintiff must show that “but for” the defendant’s patent infringement, the patent holder would have made the sales that the defendant made.
How Courts Calculate Patent Damages
Calculating patent damages is a complex undertaking — so complex, in fact, that litigants in patent infringement cases often hire expert witnesses to testify on that subject alone. To calculate a reasonable royalty, courts look to a number of factors, including (non-exhaustive):
- Royalties the patent holder receives from other licenses of the same patent
- Royalties paid for similar patents
- Whether the patent holder has previously licensed the patent to others
- How much the defendant used the patented product
- The commercial success of the product covered by the patent
- Expert testimony
- Whether the plaintiff and defendant are competitors in the same field
- How long the patent would last
Calculating lost profits can be even more challenging, and generally requires the plaintiff to prove to the court the amount of the profits it lost using a variety of theoretical methods. As such, these determinations tend to be highly speculative and hotly contested.
Get More Information from an Alabama Patent Litigation Attorney
If you suspect that your patent is being infringed, you may be entitled to a variety of damages. For more information, please contact an Alabama patent litigation attorney at AdamsIP by calling 251-289-9787 or by using our online contact form. We serve clients throughout Alabama including Mobile, Huntsville, and Birmingham.