Monday, March 28, 2011

Sanofi-Aventis v. Glenmark -- After Uniloc, Where Does an Expert Start the Reasonable Royalty Analysis?

In Uniloc, the Federal Circuit struck down the disfavored 25% "rule of thumb" (which held that, as a "starting place" an expert could start his or her reasonable royalty analysis by presuming that the plaintiff would take 25% of the infringer's profits on the infringing product). This rule had been kicking around for years, surviving almost universal condemnation from the academic community, by sheer inertia, until the Federal Circuit finally put it out of its misery, holding that using it would get a quick Daubert exclusion.

But where is an expert to start the Georgia-Pacific analysis (i.e. a staring point from which the factors could be applied, plus and minus) without walking into the same trap?

In Sanofi, the expert presumed that the parties would have split the profits 50-50 and was met with an objection that this analysis was just as arbitrary as the "25% rule" struck down in Uniloc. The Court noted the problems the Federal Circuit had with the 25% rule: 1) "it fails to account for the unique relationship between the patent and the accused product," 2) "it fails to account for the unique relationship between the parties," and 3) "the rule is essentially arbitrary and does not fit within the model of the hypothetical negotiation within which it is based."

In this case, however, the court noted that the expert had relied on game theory to come up with his 50-50 split and that he had considered "the facts of the case, specifically the relationship between the parties and their relative bargaining power, the relationship between the patent and the accused product, the standard profit margins in the industry, and the presumed validity of the patent."

Thus, even after Uniloc, an expert can pick a "starting point" for his or her reasonable royalty analysis, but must be careful to have a rational, economically sound, basis for it.

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