Nash bargaining solution in patent damages is not always a 50%/50% split

shutterstock_2541043The Federal Circuit ruled in Uniloc USA, Inc. v. Microsoft Corp. that the widely used (but fatally flawed) 25 percent rule can no longer be part of reasonable royalty damages calculations. This article provides the details of this reasonable royalty damages decision. Since that time, plaintiffs have advanced the Nash Bargaining Solution, a theoretical mathematical construct that argues (under certain conditions) that a reasonable royalty rate should be an even split of the infringer’s profits. If so, the Nash Bargaining Solution would replace the 25% rule of thumb rejected in Uniloc, with an even higher rule of thumb.

Those advocating the 50%/50% profit split have not looked at the details of the mathematical constraint within the Nash Bargaining Solution that provides this simplistic result. Specifically, the 50% split is based on the input that both parties have an equal bargaining position, which is what provides the equal profit division.

However, equal bargaining position is rarely the case. The 15 Georgia Pacific factors are intended to address a hypothetical negotiation and the respective bargaining strength of the patentee and infringer. When the patentee is capable of producing products using the patented technology, or the infringer has non-infringing alternative(s), the results of the Nash Bargaining solution will not necessarily result in a 50/50 split.

In short, plaintiffs do not have the favorable rule of thumb answer that some are suggesting.


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