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Determinants of Patent Value in U.S. Litigation

By Kevin Arst and Michael Milani
March 27, 2007

Part One of this series discussed reasonable royalty damages and the questions that a prospective litigant can ask to evaluate its litigation exposure. This month's installment continues the discussion of those questions.

3) To what extent would the accused infringer expect to make additional profits if it were granted a license to the patented technology? In addition to non-infringing alternatives and historical license agreements, the courts often allow evidence on both: a) the amount of profit that the alleged infringer stands to earn as a result of employing the patented technology, and b) the portion of that realizable profit that should be credited to the patented invention as distinguished from non-patented elements (e.g., the manufacturing process, business risks, or significant features or improvements added by the alleged infringer). If the profitability of the accused products is unknown to the prospective litigant, an estimate of firm and/or industry profitability may be obtained from EDGAR online (www.edgaronline.com), the Cost of Capital Yearbook published by Morningstar (www.morningstar.com), or Annual Statement Studies published by The Risk Management Association (www.rmahq.org). The portion of realizable profits that should be credited to the patented invention often requires an evaluation of qualitative business issues.

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