Commentary: Estimating Patent Infringement Damages. A CRITIQUE OF THE YARDSTICK APPROACH

Pages4-9
Published date01 April 1993
Date01 April 1993
DOIhttps://doi.org/10.1108/10610429310047651
AuthorE.K. Valentin
Subject MatterMarketing
JOURNAL
OF
PRODUCT
&
BRAND
MANAGEMENT
Commentary: Estimating
Patent Infringement Damages
A CRITIQUE OF THE YARDSTICK APPROACH
E.K.
Valentin
When a patent is infringed, the patentee
is
entitled to claim compensation from
infringers for damages arising from lost
profits from lost sales, price erosion resulting
from illegal competition, and lost royalties.
Accordingly, the process
of
estimating
damages typically includes dividing
infringers' sales into two categories:
(1) sales that, but
for
infringement, would
have accrued to the patentee; and
(2) other sales, which would not have accrued
to the patentee, but which are subject
to
royalty payments (Frank and Wagner,
1987).
Reasonable estimates of the profit (or
contribution margin) per unit commonly
exceed estimates
of
a reasonable royalty per
unit; therefore,
it
is often
in
the patentee's
interest
to
make the first category
sales lost
to infringers
appear as large as possible.
However, to be awarded
a
claim based partly
or entirely on estimated lost profits from lost
sales,
the plaintiff's estimate
of
lost sales and
profits must be grounded
in
cogent reasoning
and/or valid empirical data.
If
the
infringer/defendent can show that the
plaintiff's estimate
of
lost profits from lost
sales is based on unfounded assertions, then
it
is too speculative to be admissible and
all
infringing sales are lumped into the second
category, which
is
what the infringer usually
prefers.
This note informs product managers whose
responsibilities may include assisting legal
counsel
in
preparing patent infringement suits
or defenses. However, even though its content
may be
of
greater value to defendants than
to
plaintiffs,
it is
not to be viewed as endorsing
patent infringement. Three bases
for
estimating lost profits from lost sales are
noted along with their shortcomings. One
basis,
called yardstick assessment,
is
examined extensively because judges and
juries,
whose understanding
of
marketing
phenomena and long-term sales forecasting
is
usually limited, are apt to find
it
appealing
despite its serious flaws.
ESTIMATING LOST PROFITS FROM
LOST SALES
According to Wagner (1990), who has written
extensively about damage assessment and
frequently appears as an expert witness
in
Journal
of
Product
&
Brand Management, Vol.
2
No. 4, 1993, pp. 4-9,
© MCB University Press,
1061-0421.
Financial support, which is greatly appreciated,
was provided by the Willard L. Eccles Fund.
4

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