What Happened
When a company infringes a patent, they owe damages. The law says "adequate to compensate," but what does that mean in practice? Usually, it's either lost profits (what the patent owner would have made) or a reasonable royalty (what a license should have cost). Most cases end up with reasonable royalty.
Why It Matters
Calculating a reasonable royalty sounds straightforward but isn't. Courts use a framework from a 1970 case called Georgia-Pacific that lists 15 factors to consider. The centerpiece is the "hypothetical negotiation"—what would a willing licensor and willing licensee have agreed to just before infringement started?
The biggest fights are about the "damages base." Should royalties be calculated on the entire product, or just the component that uses the patented technology? If a smartphone infringes a patent on one feature, do you get a percentage of the whole phone price, or just the chip that implements that feature? Courts generally say you need to apportion—calculate based on the value of the patented feature, not the whole product.
Expert witnesses play a huge role. Both sides hire damages experts who apply different methodologies and reach wildly different numbers. Juries then pick a figure somewhere in between.
What You Should Know
If you're enforcing patents, document your licensing program. Comparable licenses are the best evidence of what's reasonable. Track your profits and market share for lost profits arguments. And hire a qualified damages expert early.
If you're defending, challenge the damages base. Push for apportionment. Attack the expert's methodology. Question the comparability of any licenses they cite. A strong damages defense can reduce exposure even if liability is clear.
Damages are where patent cases get real. Injunctions stop future sales; damages punish past conduct. Both matter, but damages are what keep CEOs up at night.