Nominal Reasonable Royalties for Patent Infringement

In recent years, government officials, legislators, industry executives, and academic commentators have all raised questions about excesses of the patent system, particularly with respect to damage awards. In 2003, the Federal Trade Commission issued a broad report on suggested patent reforms, noting the negative economic effects of overvalued patents: “Poor patent quality and legal standards and procedures that inadvertently may have anticompetitive effects can cause unwarranted market power and can unjustifiably increase costs.” In the years following this report, Congress has drafted, but not yet passed, patent reform bills modifying postgrant opposition procedures, increasing funding for the US Patent and Trademark Office (PTO) to improve patent prosecution, revising the standard for willful infringement, and addressing other patent system issues. Proposed legislation further includes a requirement that the PTO conduct a study of reasonable royalty damages, looking for patterns of “excessive and inequitable damage awards,” but not suggesting any immediate reforms on this issue. Technology industry executives, in particular, have supported patent reform legislation and publicly questioned the current system’s large damage awards. Legislative and industry reformers draw support from academic commentary criticizing court-determined reasonable royalty rates as overcompensating patent holders. Despite some court-initiated reform on patent remedies, courts appear hesitant to reform reasonable royalty damages.