A Primer On Patent Apportionment

Introduction

35 U.S.C. § 284 provides that, where infringement is found, "the court shall award . . . damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer." What is a reasonable royalty?

Typically, a reasonable royalty is estimated using the "hypothetical negotiation approach," which "attempts to ascertain the royalty upon which the parties would have agreed had they successfully negotiated an agree- ment just before the infringement began."² While a reasonable royalty may be a lump sum, most commonly it is calculated as the product of two values: a royalty base and a royalty rate. The royalty base reflects the revenue netted by sale of an infringing product, while the roy- alty rate indicates the percentage of each product sale that would, in the hypothetical negotiation, be paid to the patentee.