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7PatentTrollsContinuedfromPage1clinedfrom8.7millionto4.0millionfromthepriorfive-yearperiod5andthatofthetopthreecivilverdictsin2012allhappenedtobepatentcasesbutnoneoftheminvolvedaPAE.6Sothedebatecontinues.Butwhereveronecomesoutonthenetbenefitvs.netdetrimentissueitisclearPAEswillremainpartofthepatentlandscapeandwillcontinuetofundamentallyaffectwhatwedoaslawyersandjudges.ThisarticleconsiderssomeoftheissuesposedbyPAElitigationandsomeoftheon-goingeffortstoaddressthem.PatentDamages.BecausePAEsdonotpracticethepatentedinventiontheyhavenosalesandcan-notseeklostprofitsasameasureofinfringementdamagestheycanonlyseekdamagesintheformofareasonableroyalty.ConsequentlyajurythatfindsaPAEspatentinfringedisnotaskedtoconsiderdataonthePAEssalesprofitmarginsormarketsharetodeterminetheprofitsitwouldhavemadebutfortheinfringement.Insteadthejuryisin-structedtoimagineahypotheticalroyaltynegotia-tionbetweenthePAEandthedefendantjustbeforeinfringementbeganandtoawardasdamagesthereasonableroyaltytowhichtheywouldhaveagreed.AlthoughtheFederalCircuithasinsistedthatthehypotheticalroyaltyexercisemustrestonsoundeconomicandfactualpredicates7italsohasacknowledgedthatthereasonableroyaltycalcu-lusnecessarilyinvolvesanelementofapproxima-tionanduncertainty.8Onemightexpectthatthehypotheticalnegotia-tionconstructwouldyieldlowerdamagesthanalostprofitsanalysisorthatjurieswouldawardonaveragegreaterdamagestoacompetitor-plaintiffapracticingentitythatsuesacompetitorformakingorsellinginfringingproductsthantoaPAE.Notso.InfactaccordingtoarecentpatentlitigationstudyonaveragePAEplaintiffsrecoveredfarmoreoverthelastdecadeinreasonableroyaltydamagesthandidbusinessesthatsuedcompetitorsforpatentinfringementseekinglostprofits.9Evidentlywhenaskedtoimaginetheresultsofahypotheticalnego-tiationmanyjurorsareabletoimaginesomeheftysums.TheFederalCircuithasmadesignificanteffortsinrecentyearstoensurethatreasonableroyaltydam-agesreflecteconomicrealityorastheCourtputitthatdamagesproofistiedtotheclaimedinven-tionsfootprintinthemarketplace.10ForexampletheCourthasunderscoredthenarrownessoftheentiremarketvaluerulewhichpermitsapatenteetobaseroyaltydamagesontheentirerevenuesgen-eratedbyaninfringingproducteventhoughthepa-tentedfeatureisonlyoneofmanyincorporatedintotheproduct.Thinkofcellphonesorcomputerswhereonlyonefeatureorcomponentisaccusedofinfringingthepatent.TheCourthasputmoreteethintoitslong-standingrulethatpatenteesmayinvoketheentiremarketvalueruleonlyiftheyprovethepatentedfeaturewasthebasisforcustomerde-mandfortheproduct.11IndeedtheCourtrecentlyunderscoredthatitisnotenoughtomerelyshowthatapatentedfeatureormethodisvaluableim-portantorevenessentialtotheuseorcommercialviabilityofanaccusedmulti-componentproductincasesinvolvingmulti-componentproductspatent-eesmaycalculatedamagesbasedonsalesoftheen-tireproductonlyiftheyshowthatthedemandfortheentireproductisattributabletothepatentedfea-ture.12InadditiontheCourthasprohibiteduseoftheso-called25ruleofthumbunderwhichdamagesexpertsassumedthatareasonableroyaltywouldbe25oftheallegedinfringersprofits.13Italsohasinsistedthatdamagesexpertswhorelyonroyal-tyratesinotherpre-existingpatentlicensesasevi-denceofwhatthepartieswouldhaveagreeduponinthehypotheticalnegotiationmustshowthattheoth-erlicensestrulyarecomparabletothehypotheticallicense.14Thusanexpertwhoopinesthattherea-sonableroyaltyrateforoneortwopatents-in-suitwouldbethesameroyaltyratepaidforapatentportfoliolicensecoveringdozensoflicensesandothertypesofintellectualpropertyorknow-howislikelytohavedifficultysurvivingaDaubertchal-lenge.ContinuedonPage10