International Intellectual Property, Spring 2009 A Compa

1. INTERNATIONAL INTELLECTUAL PROPERTY
Is there more Damage than Remedy in Reforming Patent Law:
A Comparative Study of Patent Infringement Damages
Kathleen Broughton
CWRU School of Law
April 28, 2009

2. Introduction
The prophetic mantra found in history repeating itself is not exclusive. As the
Patent Reform Act of 2009 was recently presented to the House and Senate this spring, it is
curious as to whether or not the act will pass or again be given a nix like the Patent Reform
Act of 2007.1 One of the major barriers is the proposed method to assess damages. This
issue alone may cause a halt to reform the current patent statutory code.
The intent of this article is understand the current method the United States is using
to calculate damages and determine if the Patent Reform Act of 2009 is similarly situated to
other countries methods to calculate damages or if the reform act cuts away in a different
direction. First, a review of the current statutory language governing the method damages
are calculated will be reviewed in light of judicial interpretation. Then, a transition will be
made to look at the method other countries are calculating damages. An intended focus
will be with England and Canada since these two countries are more prone to also hear and
have remedies for patent infringement suits. Then, the focus will look closer at the Patent
Reform Acts of 2007 and 2009 to determine what the statutory changes are and how the
current Congress and patent gurus interpret and predict the impact will have on the
various forms of technological arts.
The Patent Reform Act of 2009 of the 111 Congress, at S. 515 and H.R. 1260, was presented to the House and
1
Senate on March 3, 2009. A copy of the Patent Reform Act of 2009 presented to the Senate can be found at
http://www.patentlyo.com/patentreformactof2009.pdf; and the bill presented to the House can be found at
http://www.patentlyo.com/housepatentbill.pdf. A copy of the Patent Reform Act of 2007 presented to the Senate
can be found at http://www.patentlyo.com/patent/files/PatentReform2007.SENATE.pdf; a copy of the same bill
presented to the House can be found at http://www.patentlyo.com/patent/files/PatentReform2007.HOUSE.pdf.
2

3. Current U.S. Patent Damages Calculations
Patent law in the United States is rooted in Constitution since its adoption on
September 17, 1787. The Constitution gives Congress the power “to promote the progress
of science and the useful arts, by securing for limited times to authors and inventors the
exclusive right to their respective writings and discoveries.”2 Congress has enacted various
laws to promote innovation.3 One method to promote innovation is through protection of
the ideas through incentives to the patent owners. With this, patent infringement has
become a very dangerous and costly business. Many companies devote large portions of
their internal cost budgets to not only to innovate, but to protect the propriety rights of
their intellectual property. Furthermore, infringement remedies have continued to
exponentially increase as technology has become more complex, and damage awards have
skyrocketed in the last decade.4 It is common knowledge that the best damage remedies
are found by jury in the Eastern District of Texas followed by the Eastern District of
Virginia. Thus, the issue of damages, specifically how to calculate damages, is critical.
Currently, damages calculated under 35 U.S.C. §284 reads in pertinent part:
Upon finding for the claimant the court shall award the claimant 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,
together with interest and costs as fixed by the court.
U.S. Constitution Article I, section 8, clause 8.
2
The most recent statutory law governing patents was enacted on July 19, 1952, effective January 1, 1953, and is
3
codified in Title 35 of the United States Code.
See Empirical Data on Patent Damages and Permanent Injunctions Presented at Federal Trade Commission
4
Hearings on “The Evolving IP Marketplace” which discusses the overall trends in US patent infringement suits.
3

4. When the damages are not found by a jury, the court shall assess them. In
either event the court may increase the damages up to three times the
amount found or assessed.5
Adequate compensation holds a baseline of a “reasonable royalty.” It is more likely that a
victim of infringement will seek damages based on lost profits.6 Under either analysis the
court can award up to three times the amount assessed.
Courts apply varied methods at arriving at a reasonable royalty rate. Two of the
most utilized forms of calculating patent infringement damages are using a single lump
sum fee or analyzing a rate per year multiplied by the total number of years the product
was infringed. One of the factors used in determining the royalty rate is the market of the
product; if an invention leads to significant change in the number of units sold or additional
devices by the company, then courts will factor such changes into the analysis to determine
an appropriate royalty rate. Courts may also consider other similar contracted royalty
rates in determining what the infringer should pay. The patent claim may additionally have
an impact on the method of analyzing the royalty rate because the claim may limit the
scope of what was protected by the patent. Overall, the courts typically look to sales of a
product prior to or at the time of the infringement occurring in determining a reasonable
royalty rate.
35 U.S.C. §284
5
See Assessing Damages Recoverable in Patent Infringement Cases, New York Law Journal, April 3, 2003, which
6
states “Lost Profits damages are assessed under Panduit. To recover lost profits, a patentee must show that “but
for” the infringement, the patentee reasonably would have made additional profits. A patentee may use any
method to show the “but for” connection, but this argument usually involves a fairly sophisticated market
reconstruction. As the Federal Circuit explained, “[t]o show ‘but for’ causation and entitlement to lost profits, a
patentee must reconstruct the market to show, hypothetically, likely outcomes with infringement factored out of
the economic picture.” http://www.thelen.com/resources/documents/NYLJ-4-8-03.pdf, (last viewed April 6, 2009).
The Actual Panduit factors are: 1) a demand for the patented product, 2) the manufacturing and marketing
capacity to meet the demand, 3) the absence of acceptable noninfringing alternatives that offer the advantages of
the patented device, and 4) the amount of profit the patentee would have made. Panduit Corp. v. Stahlin Bros.
Fibre Works, Inc., 575 F2d 1152, 1156 (6 Cir. 1978).
th
4

5. There are two primary effects on the market and patent claim scope based on
royalty rate calculations recognized by practitioners and the courts – “entire market value
rule” and “apportionment.” The “entire market value rule” recognizes that “the economic
value added to a produce by a patented feature may be greater than the value of the feature
alone.”7 Federal Courts rely on Rite-Hide which decided the governing rule that where a
patent infringement occurs in a product or process which is the selling point of a product,
the reasonable royalty rate should be based on the entire unit of the sale rather than just
the product or process that was infringed. Under this analysis a patentee claiming
infringement must prove that the sale of a product was due to the alleged infringed
innovation. The burden of proof placed on a plaintiff is very similar to tort law.
The other type of royalty rate calculation recognized in patent infringement
damages is “apportionment,” which is based on making an assessment of relevant factors to
determine what an appropriate royalty rate is. Georgia Pacific is the leading case defining
fifteen relevant factors to defining reasonable royalty rates under the apportionment
theory.8 9 These factors have created a great deal of concern in the legislature because of
the manner courts have applied them post Georgia Pacific.
William C. Rooklidege, “Reform” of Patent Damages: S. 1145 and H.R. 1908.
7
http://www.patentsmatter.com/press/pdfs/Patent_Damages_Reform_Rooklidge.pdf (last viewed April 4, 2009).
Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), modified and
8
aff’d, 446 F.2d 295 (2nd Cir. 1971), cert. denied, 404 U.S. 870 (1971).
Gene Quinn, Patent Infringement Damages, http://www.ipwatchdog.com/patent/patent-infringement-
9
damages/, (last visited April 1, 2009). The Georgia Pacific factors to calculate a reasonable royalty rate under
apportionment include:
1. The royalties received by the patentee for the licensing of the patent in suit, proving or tending to
prove an established royalty.
2. The rates paid by the licensee for the use of other patents comparable to the patent in suit.
3. The nature and scope of the license, as exclusive or non-exclusive; or as restricted or non-restricted in
terms of territory or with respect to whom the manufactured product may be sold.
4. The licensor’s established policy and marketing program to maintain his patent monopoly by not
licensing others to use the invention or by granting licenses under special conditions designed to preserve
that monopoly.
5

6. With the current methods available to calculate damages related to patent
infringement, the juries, along with the courts, have continued to increase damages
awarded. Such awards can be seen as an exponential rate of growth.10 The largest patent
damage award granted to date was in the U.S. District Court for the Southern District of
California, in 2008, for over $1.5 billion in reasonable royalty damages.11 This has lead
some people wary in the method of calculating patent damages and has lead to attempts to
legislatively reform patent law.12 Reform measures were introduced to Congress recently
in 2005, 2007 and now again this spring 2009.
5. The commercial relationship between the licensor and licensee, such as, whether they are competitors
in the same territory in the same line of business; or whether they are inventor and promoter.
6. The effect of selling the patented specialty in promoting sales of other products of the licensee; the
existing value of the invention to the licensor as a generator of sales of his non-patented items; and the
extent of such derivative or convoyed sales.
7. The duration of the patent and the term of the license.
8. The established profitability of the product made under the patent; its commercial success; and its
current popularity.
9. The utility and advantages of the patent property over the old modes or devices, if any, that had been
used for working out similar results.
10. The nature of the patented invention; the character of the commercial embodiment of it as owned
and produced by the licensor; and the benefits to those who have used the invention.
11. The extent to which the infringer has made use of the invention; and any evidence probative of the
value of that use.
12. The portion of the profit or of the selling price that may be customary in the particular business or in
comparable businesses to allow for the use of the invention or analogous inventions.
13. The portion of the realizable profit that should be credited to the invention as distinguished from non-
patented elements, the manufacturing process, business risks, or significant features or improvements
added by the infringer.
14. The opinion testimony of qualified experts.
15. 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.
See http://www.dilanchian.com.au/ip/patent-infringement-damages-skyrocket.html which discusses the overall
10
trends in venues and juries compared to damage awards given for patent infringement.
Lucent Technologies Inc. v. Gateway, Inc., 543 F.3d 710, (2008).
11
David Blackburn and Mario Lopez, Where’s the Economics behind Lucent v. Gateway et al? NERA Economics
12
Consulting, March 22, 2007. http://www.nera.com/image/PUB_Microsoft-Lucent_paper_0708.pdf. (last viewed
April 4, 2009).
6

7. Patent Reform Acts
Patent law continues to be scrutinized as intellectual property becomes the wealth
of a business. Business people, and not only inventors, are waking up and seeing light in
protecting their propriety rights. This has given rise to stronger patent protection and
enforcement of rights. In response, the statutes governing patents have been under
question for at least the last decade.
In 2005, legislation was first presented to Congress which would modify the process
patents are issued by the Patent and Trademark Office and interpreted by Federal Courts.
Republican Congressman Lamar S. Smith, who introduced the Patent Reform Act of 2005
on June 8, 2005, stated that the Act was “the most comprehensive change to U.S. patent law
since Congress passed the 1952 Patent Act."13 Some of the main proposals included:
changing to a first-to-file system rather than first-to-invent, eliminate the requirement of
disclosing a best mode, limiting the scope of continuation applications, limiting the
damages for willful infringement, and limiting damage calculations to the inventive
contribution rather than the value of the entire product sold.14 The FTC was a major
pusher for the Act and made many proposals on what to reform in 2005.15 The Act never
passed beyond congressional committees in either the House or the Senate.
In 2007, an attempt to again reform patent laws was introduced to Congress. The
Patent Reform Act of 2007 was introduced to both Congressional branches on April 18,
2007 by Democrat Howard Berman in the House and Democrat Patrick Leahy in the Senate.
Dennis Crouch, Patent Reform: Patent Act of 2005, June 9, 2005.
13
http://patentlaw.typepad.com/patent/2005/06/patent_reform_p.html. (last viewed April 4, 2009).
Id.
14
Id.
15
7

8. This Act’s highlighted modifications to patent law included: switching to a first-to-file
system, revising procedures for patent interference disputes, redefining “inventor,” and
modify patent infringement damage provisions. Such damage provisions include requiring
a court to conduct an analysis of a patent’s specific contribution over prior art, allow
increased damages for willful infringement, and expand the prior user defense. The 2007
Act was favored among Democrats and disfavored by Republicans.16 Ultimately, the Act
was passed by the House but was not voted on in the Senate before the bill died. A very
similar Act was introduced in 2009.
The 2009 Patent Reform Act is an identical bill produced for the 111th Congress and
was introduced on March 3, 2009 by Senators Orrin Hatch and Patrick Leahy and
Representative John Conyers. This proposal is similar to the 2005 and 2007 Acts in such
respects as first-to-file and expanding on the reexamination process. The Act again stirs
controversy in the proposed method for calculating a reasonable royalty.1718 However, the
The Patent Reform Act of 2007: Report Together with Additional and Minority Views, to Accompany S. 1145,
16
Report No. 110-259, January 24, 2008
Patent Reform Act of 2009 §284(c) Proposal.
17
(c) STANDARD FOR CALCULATING REASONABLE ROYALTY.—
(1) IN GENERAL.—The court shall determine, based on the facts of the case and after adducing any further
evidence the court deems necessary, which of the following methods shall be used by the court or the jury in
calculating a reasonable royalty pursuant to subsection (a). The court shall also identify the factors that are
relevant to the determination of a reasonable royalty, and the court or jury, as the case may be, shall consider only
those factors in making such determination.
(A) ENTIRE MARKET VALUE.—Upon a showing to the satisfaction of the court that the claimed invention’s specific
contribution over the prior art is the predominant basis for market demand for an infringing product or process,
damages may be based upon the entire market value of that infringing product or process.
(B) ESTABLISHED ROYALTY BASED ON MARKETPLACE LICENSING.—Upon a showing to the satisfaction of the court
that the claimed invention has been the subject of a nonexclusive license for the use made of the invention by the
infringer, to a number of persons sufficient to indicate a general marketplace recognition of the reasonableness of
the licensing terms, if the license was secured prior to the filing of the case before the court, and the court
determines that the infringer’s use is of substantially the same scope, volume, and benefit of the rights granted
under such license, damages may be determined on the basis of the terms of such license. Upon a showing to the
satisfaction of the court that the claimed invention has sufficiently similar noninfringing substitutes in the relevant
market, which have themselves been the subject of such nonexclusive licenses, and the court determines that the
8

9. 2009 compared to the 2007 Act appears to have statutory language more in tune with the
current common law. For example, the Act will apply an “entire market value” approach to
calculate the value of the infringed invention if it is found that the “specific contribution
over the prior art is the predominant basis for market demand for an infringing product or
process.”19 The legislatures tactfully also use an established royalty rate analysis or in the
catch-all a valuation calculation. In the 2007 Act, under the “entire market rule” there was
no allowance to calculate patent infringement damages based on the entire unit rather than
the infringed innovation.20 One of the positive elements of the 2009 Act over the 2007
proposed Act is that courts are no longer required to apply an apportionment analysis in
infringer’s use is of substantially the same scope, volume, and benefit of the rights granted under such licenses,
damages may be determined on the basis of the terms of such licenses.
(C) VALUATION CALCULATION.—Upon a determination by the court that the showings required under
subparagraphs (A) and (B) have not been made, the court shall conduct an analysis to ensure that a reasonable
royalty is applied only to the portion of the economic value of the infringing product or process properly
attributable to the claimed invention’s specific contribution over the prior art. In the case of a combination
invention whose elements are present individually in the prior art, the contribution over the prior art may include
the value of the additional function resulting from the combination, as well as the enhanced value, if any, of some
or all of the prior art elements as part of the combination, if the patentee demonstrates that value.
(2) ADDITIONAL FACTORS.—Where the court determines it to be appropriate in determining a reasonable royalty
under paragraph (1), the court may also consider, or direct the jury to consider, any other relevant factors under
applicable law.
(d) INAPPLICABILITY TO OTHER DAMAGES ANALYSIS.—The methods for calculating a reasonable royalty described
in subsection (c) shall have no application to the calculation of an award of damages that does not necessitate the
determination of a reasonable royalty as a basis for monetary relief sought by the claimant
On April 2, 2009 the Senate judiciary committee amended the act, included the proposed damages provisions.
18
The amendments can be found at: http://www.patentsmatter.com/issue/pdfs/20090402_amendments.pdf, (last
visited on April 2, 2009). As the Act still remains in its initial state until the amendments are approved by the
Senate, the analysis of this paper shall continue under the original language of the Act. The revisions, in pertinent
part will modify the proposal to §284(c) by eliminating any express language as to how to analyze patent
infringement damages.
Id. This analysis is strikingly similar to the Rite-Hide approach to calculating damages.
19
Patent Reform Act of 2007 §284 (c) (3) ENTIRE MARKET VALUE RULE.—Unless the claimant shows that the
20
patent’s specific contribution over the prior art is the predominant basis for market demand for an infringing
product or process, damages may not be based upon the entire market value of that infringing product or process.
9

10. every infringement suit to determine a reasonable royalty rate.21 In the end, there is still
much heated debate amongst the main parties this Act could affect.
As this is now the third go-around at reforming patent law, legislators are taking
industry leader’s views into greater consideration through stronger lobbying by affected
markets, such as electronic technology. For example, the Coalition for 21st Century Patent
Reform, composed of about 40 large companies such as 3M, Caterpillar, Eli Lilly, Motorola,
Procter & Gamble, Pfizer, and Texas Instruments, “is pressing for Congress to introduce a
more tailored bill focused simply on reforming the PTO.”22 On the other hand, the Coalition
for Patent Fairness, including the Business Software Alliance, Apple, Symantec, and Google,
believes that there is still room for interpretation after modifying the current statutory
laws of 35 U.S.C.23 Another organization, Manufacturers Alliance on Patent Policy that
represents some of the same companies as the Coalition for 21st Century Reform, such as
Dow Corning, DuPont, and Texas Instruments “met with key legislators this year to discuss
a report it commissioned to show the potential economic effects of a damages provision.”24
As controversy exists in interpreting the Act, the various industries either applaud
or fear the potential for patent law reform. Two major industries affected are the biotech
and IT industry. Biotechnology Industry Organization (BIO) President and CEO Jim
Greenwood released the following statement regarding the patent reform legislation:
Id at §284 (c) (2) RELATIONSHIP OF DAMAGES TO CONTRIBUTIONS OVER PRIOR ART. –The court shall conduct an
21
analysis to ensure that a reasonable royalty under paragraph (1) is applied only to that economic value properly
attributable to the patent’s specific contribution over the prior art. See also Roolidge who argues that this
statutory language would have required courts to conduct an apportionment analysis in every patent infringement
analysis despite the few actual cases that require such an analysis.
Stephanie Condon, Patent Bill to be reintroduced to Congress this week, March 2, 2009
22
http://news.cnet.com/the-iconoclast/?keyword=Patent+Reform+Act (last viewed April 5, 2009).
Id.
23
Id.
24
10

11. “BIO appreciates the efforts of Senator Kyl and his staff to address the
concerns of many stakeholders with the patent reform legislation currently
pending in the Senate, and commends him for introducing the Patent
Reform Act of 2008. This legislation is a vast improvement over previous
bills in the House and Senate with respect to many of the discrete issues
and concerns raised by BIO, patient groups, universities, labor unions and
many other stakeholders over the past two years.”2526
The Biotech industry has a large push against reforming patent law, which may be
due to the fact that few patents are pushed in the industry. For example, Arizona, a leading
state of the Biotech industry, voted heavily against the Patent Reform Act of 2007.
Similarly, Ohio, another state home to the Biotech industry, voted 3-13 against the Patent
Reform Act of 2007.27 One of the main reasons for a split in industries regarding whether
or not reform is necessary is that different technologies follow different business models.
Kevin Sharer, CEO of Amgen, told the House Hearing on Patent reform:
I pointed out that there are different business models between the
software technology and the biopharmaceutical industry, and I think those
are at the root of some of the industry different points of view on what is
the right way forward. I would only offer that our patents are relatively few
for a product. Technology have many, many. Our product R&D cycle is very
long, and the products last a long time.28
The difference between industry business models creates the strong separation in desire to
reform patent laws. During the introduction to the House of Representatives committee
hearing into the 2007 bill the Honorable Howard L Berman, the house representative for
California, said that the “while the media has portrayed the debate as a tech vs. PhRma
Vincent McBurney, 2009 Show Down: Democrat Software Patent Reform versus the Republican Biotech Patent
25
Reform, October 10, 2008. http://it.toolbox.com/blogs/infosphere/2009-show-down-democrat-software-patent-
reform-versus-the-republican-biotech-patent-reform-27662, (last visited April 1, 2009).
A Patent Reform Act was also introduced in 2008. The 2008 Bill did not receive much attention compared to the
26
2005, 2007 or 2009 Acts. The views and opinions sought in 2008 are recognized and reflected in much of the 2009
Act.
See footnote 25.
27
Id.
28
11

12. battle—I prefer to see it as the inability of current patent laws to accommodate the
differences of industry business models.”29
California, a heavily packed software state, voted 45-8 in favor of the 2007 Act in the
House. The software industry has taken many hits with the current patent laws and
continues to lobby heavily for reform. In example, Microsoft, in Lucent Technologies Inc. v.
Gateway, Inc., argued that Alcatel infringed approximately $17M in patents. The jury,
however, found that Microsoft was liable for all revenue for all MP3 players ever sold
rather than just the royalty of the music sold on Microsoft MP3 plays and awarded $1.52B.
Anthony Peterman, patent counsel for Dell Computer Company stated to the House this
problem in 2008:
…Plaintiffs are exploiting litigation rules and seeking artificially high damages. It
is litigation as a business, and these cases cost a lot, and they take a long time to
resolve, even when the defendant has a straightforward defense. Businesses
faced with these claims have two options: defend the patent in court, agree to
pay settlement fees. And with the cost of legal defense significant, the risk of
irrational damage high, a growing number of companies agree to settle even
when they believe they would have won on the merits. 30
The costs of patent litigation are high. The potential damage awards for infringement,
especially willful infringement, are even higher. Those who litigate patents know these
high stakes all too well and therefore usually have well informed opinions, even if such
opinions, just like industries and political parties, are split.
In assessing potential economic effects, there are differing views on whether the
reform Act is a help or a hindrance. Case Western Reserve economics Professor Scott
Id.
29
Id.
30
12

13. Shane concluded that “limiting patent infringement damages could reduce patent value by
between $34.4 billion and $85.3 billion. That lowered value would supposedly lead to a
decrease in the value of U.S. public companies by $38.4 billion to $225.4 billion, which
would supposedly jeopardize 51,000 to 298,000 U.S. manufacturing jobs.”31
Professor Shane, in his assessment submitted January 14, 2009 to the
Manufacturing Alliance on Patent Policy, argued that apportionment analysis of patent
infringement damages should not change because to do so, the value of the patent could be
reduced in value by 20 to 39 percent.32 However, in the reported study the disclosure of the
survey used was not published, nor was it indicated as the size of the sample set, the
industries of the practitioners surveyed, and the previous surveys recognized in the report
were outdated by a number of years. An even larger concern is that the studies relied on by
Shane are based on average values of patents; whereas it is well recognized that many
patents hold no economic value but are established to prevent further development by a
competitor. He further estimates what problems might arise if there is a decrease in the
value of patents to speculate that R&D would naturally decline which would also affect the
number of manufacturing jobs available. The figures of loss are all based on speculation
which is based on what appears as flawed surveys. These fundamental defects in the
reports creates a reliability issue in depending on the analysis to conclude that there will, in
fact, be issues with modifying the laws of infringement suits. Unfortunately, some
See footnote 22.
31
Scott Shane, The Likely Adverse Effects of an Apportionment-Centric System of Patent Damages, January 14,
32
2009. http://www.mfgpatentpolicy.org/images/Apportionment_of_Damages_Adverse_Effects_Jan14_09.pdf. (last
visited April 17, 2009).
13

14. politicians still rely on this, and similar, reports to claim to the public that patent reform for
damage awards are unwarranted and unjust.
This claim of devaluing the worth of a patent is shared by some politicians. U.S.
Reps. Don Manzullo (R-IL) and Mike Michaud (D-ME) claim reform to patent law would
actually weaken intellectual property protections for American manufacturers and put
hundreds of thousands more Americans on the unemployment lines. Manzullo and
Michaud led a bipartisan coalition of 64 Members of Congress last fall fighting for major
changes in last year’s patent reform bill.
On Manzullo’s website, he stated in a press release:
This year’s version of the so-called patent reform bill again weakens America’s
strong patent system, making it easier for foreign companies to take our ideas
and our jobs. By diminishing the damage awards in patent infringement cases,
this bill would encourage intellectual property theft by foreign competitors,
putting 298,000 American manufacturing jobs at risk and curtailing U.S. research
and development spending by $66 billion, according to a recent economic study.
It makes no sense to us why we would threaten the jobs of hundreds of
thousands of Americans at a time when our people are in desperate need of
jobs.33
When the 2007 Act was presented many practitioners raised brows and became
highly concerned. The Licensing Executives Society, an organization comprised of over
6,000 American and Canadian IP oriented business people, lawyers, academics, scientists
and engineers conducted a survey to determine what the initial reaction was to the Act.
The survey found that about 52 percent of IP professionals believe that “limitations
concerning damages calculations will inhibit innovation by reducing the penalties for
infringement, while about 8 percent indicated that the limitations would promote
Manzullo & Michaud: New Patent Bill Encourages IP theft, Destroys American Jobs, March 3, 2009,
33
http://manzullo.house.gov/news/DocumentSingle.aspx?DocumentID=113152. (last viewed April 19, 2009).
14

15. innovation by reducing the costs of potential damages.”34 Simultaneously, “about 40
percent indicated that the damages calculations will fairly apportion the economic value of
the patented technology.”35
One of the popular sites for reviewing patent-oriented professionals is Patently-O.
On this site, a discussion was held when the 2007 Patent Reform Act was under
consideration. At that time, the damage apportionment was one of the main issues in
debate. Federal Circuit Chief Judge Mitchel released an opinion to Senators Leahy and
Hatch on May 3, 2007 discussing his personal views of reforming patent law damages.36
His overall assessment of changing the law related to apportionment is negative and
summarized that such modifications would “require courts to adjudicate the economic
value of the entire prior art, the asserted patent claims, and also all other features of the
accused product or process whether or not patented”37 He further stated that the bill
would open a flood-gate to litigators using “hired-gun” expert witnesses to analyze and
assess the value of the patent. An interesting observation made was that in reforming the
damage calculations today, the patent law system would return to a method used prior to
the 1940s. In a comment regarding Judge Mitchel’s letter, one blogger wrote:
“Until the 1930's, we did damages calculation[n]s the way the bill proposes -
establish value separately of the combination and of the prior art, and subtract. That
was found to be impractical, and led to too many anom[a]lous awards. The damages
Al Rickard, Patent Reform Legislation Proposes Sweeping Changes to U.S. Patent Laws
34
Licensing Executives Society raises important questions about the impact on innovation, September 27, 2007.
http://www.usa-canada.les.org/press/archives/9.27.07Patent.asp. (last viewed April 4, 2009).
Id.
35
Chief Judge Michel, Letter to Senator Leahy and Senator Hatch, May 3, 2007,
36
http://www.patentlyo.com/patent/files/MichelLetter.pdf (last viewed April 19, 2009).
Id
37
15

16. statute was amended in 1938 (? from memory) to get to the ‘reasonable royalty’
language we have today.”
This astute observation may have made a point that reform was necessary in the 1940s. At
the same time it is a general idea that as time changes, law changes. Such a principle
should apply in, above all else, patent law because it is the governing law of technology.
Another note that should be made is that the Patent Reform Act seeks to modify the
method of calculating apportionment and will not affect the opportunity of calculating
damages based on a reasonable royalty rate. One thing is sure in modifying the statutes
associated with patent infringement, damages—the changes will affect the entire patent
law world.
INTERNATIONAL PATENT INFRINGEMENT REMEDIES
From an international perspective, the Act holds controversy because of the
acknowledgment of the impact. The Coalition for 21st Century Patent Reform states:
At a time when we need to stimulate our innovation and aid U.S.
manufacturers, this bill sends an international signal that patented
American technology can be copied with little or no consequence. We
will erode our global leadership in research and invention if we
eviscerate this cornerstone of our patent system. Specifically, provisions
intentionally designed to reduce damages, such as 'prior art subtraction,'
should not be part of any patent reform enacted by Congress.38
As the Coalition for 21st Century Patent Reform indicates, legislators must keep a global eye
if and when reform happens to patent laws in the United States. The United States is the
last remaining superpower and is the driving engine of innovation. Patent law in the U.S.
shapes and impacts the rest of the world’s views regarding patent regulation.
Bill Mashek, Coalition Statement on Introduction of Patent Reform Legislation America’s Patent System: Creating
38
Jobs and Growth by Stimulating Invention, March 3, 2009.
http://www.patentsmatter.com/press/20090303_patent_reform_legislation.htm. (last viewed April 2, 2009).
16

17. Canada, U.S.’ friendly neighbor to the north, is another country with strong
Intellectual Property protection. Liability for patent infringement is regulated under the
Canadian Patent Act Section 55. Under §55(1), an infringer is “liable to the patentee and to
all persons claiming under the patentee for all damage sustained by the patentee or by any
such person, after the grant of the patent, by reason of the infringement.”39 The statutory
language indicates that liability is extended to all damage sustained for infringement. The
liability extends only after the patent became open to the public for inspection. When the
patent is pending but known to the public, a person could infringe and would be “liable to
pay reasonable compensation.”40 In Canada, a patentee whose rights were infringed may
elect either an accounting of profits or an award of damages as a remedy.41 Patent damage
calculations, governed by Section 55 of the Canadian Patent Act, was first interpreted by
the Canadian Courts in Jay-Lor International Inc. and Jay-Lor Fabricating Inc. v. Penta Farm
Systems Ltd. and Penta One Limited (2007 FC 358). In Jay-Lor, Penta Farm and Penta One
were found liable for patent infringement and Jay-Lor opted for an award of damages as
the remedy. The court determined that “reasonable compensation” may mean something
beyond the scope defined by §55(1) and by means beyond a royalty. Neither party
provided interpretation of “reasonable compensation,” however, thus the Court interpreted
Canadian Patent Act §55(1).
39
Canadian Patent Act §55(2) states: A person is liable to pay reasonable compensation to a patentee and to all
40
persons claiming under the patentee for any damage sustained by the patentee or by any of those persons by
reason of any act on the part of that person, after the application for the patent became open to public inspection
under section 10 and before the grant of the patent, that would have constituted an infringement of the patent if
the patent had been granted on the day the application became open to public inspection under that section
HB Radomski, Richard Naiberg and Miles Hastie, Canada Enforcement of Intellectual Property, 2007.
41
http://www.goodmans.ca/pdfs/Enforcement%20of%20Intellectual%20Property%20-%20IP%20Value%202007.pdf.
(last viewed April 5, 2009).
17

18. the damages calculation under a “reasonable royalty” analysis.42 In defining a reasonable
royalty, the Court determined that an anticipated profits approach was judicially
appropriate. Under that approach, “Penta Farm would negotiate a reasonable royalty by
estimating its anticipated profits arising from the sale of the patented invention and then
paying a portion of those profits to the Plaintiffs.”43 The Canadian interpretation of patent
damages is similar to the manner in which the U.S. calculates infringement damages.
The European Union is another entity with a strong presence in patent law.
European Patent Convention article 64 (3) states that “any infringement of a European
patent shall be dealt with by national law.”44 The approach of the EU to handle patent
infringement situations is appropriately parallel to the method of receiving protection – a
state by state approach.
In the United Kingdom, the U.K. Patent Act of 1977 governs. Section 60 through
Section 71 of the 1977 Act governs patent infringement from definition to declaration of
non-infringement. Similarly to Canada, the U.K. typically will review infringement from a
damages approach or an account of profits. In both cases, the potential infringer must
disclose financial benefits from the patent in question so the accuser can determine which
form of infringement remedy is sought. In the case of account of profits, the infringed
patentee is entitled to a disgorgement of profits. This method is rarely pursued because
the outcome is unpredictable despite the potential large award. Damages for patent
Intellectual Property Group Stikeman Elliott, Canada: Federal Court Calculates "Reasonable Compensation" For
42
Patent Infringement Occurring Between Published Application And Issuance, July 27, 2007.
http://www.mondaq.com/article.asp?articleid=50604. (last viewed April 5, 2009).
Id.
43
European Patent Code Article 64(3).
44
18

19. infringement were restated in the 1996 English case, Ultraframe v. Eurocell. In Ultraframe,
the patent and design rights under question were related to a conservatory and the court
found that Eurocell infringed a patent by Ultraframe and sold the competitive product at a
lower price. The court reiterated that an infringee can recapture lost profits for sales that
he would have made but for the infringement, lost profits for his own sales to the extent
that he was forced to reduce his own price and a reasonable royalty on sales by the
defendant which he would not have made.45 The same year the Intellectual Property
Enforcement Directive made changes in the way damages are calculated to allow courts to
consider “both any unfair profits made by the defendant and the ‘moral prejudice’ caused
to the claimant.”46 This form of damage award—moral prejudice—is unique to English
courts for patent infringement but aligns well with European moral rights in Copyright law.
In comparison to Canada and the United Kingdom, it appears that Japan takes a
different approach to viewing patent infringement damages. Japan originally relied less on
injunctive relief or apportionment and focuses on reasonable royalty rates in the
alternative. One of the main reasons why Japanese courts would not conduct loss profit
analysis is because causation of damages by infringement was difficult to establish by a
plaintiff.47 This is caused by a lack of established case law for a plaintiff to infer causation
and an overwhelming response that “Japanese courts are eager to accept defendants'
Slaughter and May Intellectual Property Group, Ultraframe: a view of patent damages. IP Plus. Intellectual
45
Property sector supplement, July/August 2006.
http://www.slaughterandmay.com/media/39218/intellectual_property_plus_1_jul_-_aug_2006.pdf. (last viewed
April 19, 2009).
Id.
46
Center for Advanced Study & Research on Intellectual Property University of Washington – School of Law, Big
47
Change in Measurement for Japanese Patent Infringement Damages? Tokyo District Court Awards $23.5 Million in
Lost Profits Damages. CASRIP Newsletter - Fall 1998, Volume 5, Issue 3.
http://www.law.washington.edu/Casrip/newsletter/Vol5/newsv5i3jp1.htm. (last viewed April 18, 2009).
19

20. arguments to negate causation between infringement and lost profits.”48 As a result,
Japanese courts typically rewarded a reasonable royalty based on royalty agreements
established with government license rates. These rates are known for being lower than
private industry. The Japanese PTO attempted to reform the statutes in 1997 to award
more appropriate damage remedies. The statutes of civil remedies did not pass but courts
did respond to the proposed direction of reforming the law. In Smithkline & Beecham
French Lab. Ltd. v. Fujimoto Seiyaku the Tokyo District Court awarded damages worth U.S.
$23.5M by using a lost profit analysis. The Court found that Fujimoto copied a process of
Smithkline to produce a generic drug equivalent and the court adopted a 3.5% royalty rate
as well as awarded the total 3059.36 M yen with a 5% statutory interest to Smithkline. The
Japanese courts are, therefore, moving along also to follow similar trends to Europe and
North America.
CONCLUSION
As patent infringement remedies continue to increase as litigation remains
predominant in patent law, reform has remained an issue of debate the past decade. With
Congress continually looking for the proper approach to reform patent laws, it seems
inevitable that change is bound to occur. As many spectators predict, 2009 appears as the
year Congress will solidify new statutory laws affecting 35 U.S.C. By changing the approach
of analyzing damages, some fields of technology will benefit and some will not. From the
international perspective it appears that whatever change occurs in the United States, the
rest of the world will likely follow suit in analysis of infringement remedies. In the end, it
Id.
48
20

21. seems that change is inevitable and when patent law is statutorily changed it is the duty
and responsibility of everyone to implement laws that properly protect innovation and
promote the progress of science through adequate compensation and remedies.
21