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Federal Circuit Rejects 25 Percent Rule for Proving Reasonable Royalty

The 25 percent rule of thumb is often used for approximating the reasonable royalty rate manufacturers making a patented product would be willing to pay a patentee following a hypothetical negotiation.  In its recent Uniloc v. Microsoft decision, the Federal Circuit found it a fundamentally flawed tool for determining baseline royalty rates.  Uniloc’s expert used the 25% rule in calculating damages against Microsoft for infringing its anti-piracy software patent.  On appeal, the Federal Circuit held the expert’s evidence relying on the 25% rule inadmissible, failing to tie a reasonable base royalty to the facts at issue in the case.  The court found the rule impermissibly abstract and theoretical for not taking into account any hypothetical negotiation or reasonable royalty in any particular technology or industry.  According to the court, there must be some factual basis to associate royalty rates from prior licenses to a particular hypothetical negotiation at issue.

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