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(1971), provides a general framework
that is commonly accepted as relevant to
the determination of a reasonable royalty.
The
Georgia-Pacific
case identified 15 fac-
tors (the “
Georgia-Pacific
factors”) that the
court found pertinent to the determination
of a reasonable royalty, while suggesting
that the list was likely not comprehensive
for all matters. Still, this framework has
endured for over 40 years as a mainstay for
patent damages analysis.
The last of the 15
Georgia-Pacific
fac-
tors generally summarizes the task placed
before damages experts in the calculation
of a reasonable royalty. Factor 15, in full,
reads:
of a “hypothetical negotiation,” a meeting
between the two parties on the eve of the
first infringement at which the parties agree
to a royalty to compensate the patentee for
the infringement. The decision describes
this negotiation in terms that are consistent
with factor 15 above:
“Where a willing licensor and a
willing licensee are negotiating for a
royalty, the hypothetical negotiations
would not occur in a vacuum of pure
logic. They would involve a market
place confrontation of the parties,
the outcome of which would depend
upon such factors as their relative
bargaining strength; the anticipated
amount of profits that the prospec-
tive licensor reasonably thinks he
would lose as a result of licensing
the patent as compared to the antici-
pated royalty income; the anticipated
amount of net profits that the pro-
spective licensee reasonably thinks
he will make; the commercial past
performance of the invention in
terms of public acceptance and prof-
its; the market to be tapped; and any
other economic factor that normally
prudent businessmen would, under
similar circumstances, take into
consideration in negotiating the
hypothetical license.”
The language above suggests a general,
practical definition of a reasonable royalty
as the amount the parties would have
found acceptable given their business needs
and limitations, and assuming a mutual
desire to reach an agreement. With this
goal laid out, damages experts and finders
of fact can look to the other 14 factors to
help determine the proper amount of such
a royalty. These factors can be grouped in a
number of different ways: some are quali-
tative while others are quantifiable; some
relate to technological benefits while others
look to economic considerations; some
relate to licensing behavior while others
relate to more general business dynamics.
The table above summarizes the 15 factors
and groups them into categories:
It is important to note that not every
factor carries equivalent weight in every
“The amount that a licensor (such
as the patentee) and a licensee (such
as the infringer) would have agreed
upon (at the time the infringement
began) if both had been reasonably
and voluntarily trying to reach an
agreement; that is, the amount which
a prudent licensee–who desired, as
a business proposition, to obtain
a license to manufacture and sell
a particular article embodying the
patented invention–would have been
willing to pay as a royalty and yet
be able to make a reasonable profit
and which amount would have been
acceptable by a prudent patentee
who was willing to grant a license.”
Georgia-Pacific
also posits the construct
Licensing
Factors
Financial/
Business
Factors
Technical
Factors
Other
Factors
1. Licensor’s rates
received for
licenses to the
patents-in-suit
5. Commercial
relationship
between
parties
9. Advantages
of patented
product over
old devices
14. The opinion/
testimony
of qualified
experts
2. Licensee’s rates
paid for compa-
rable technol-
ogy
6. Effect of sell-
ing patented
technology in
promoting the
sale of other
products
10. Nature and
character of
the patented
invention, and
the benefits
to those who
use it
15. The amount
that a licen-
sor (such as
the patentee)
and a licensee
(such as the
infringer)
would have
agreed upon
at the time the
infringement
began, if both
had been rea-
sonably and
voluntarily
trying to reach
an agreement
3. Nature and
scope of license
8. Established
profitability
of patented
product
4. Licensor’s
established
licensing policy
11. Extent
to which
infringer has
used invention