Under 35 U.S. Code § 284, a patentee involved in patent infringement litigation is entitled to recover damages “adequate to compensate for the infringement.” The minimum level of damages the patentee may receive is a “reasonable royalty” on the invention.  To compute a reasonable royalty, courts analyze what royalty would have resulted if the two parties had entered into a hypothetical negotiation on the eve of infringement.

The best evidence for a reasonable royalty includes the established royalty rates for the patent-in-suit. If the patentee has existing or prior licenses for the patent-in-suit, a court can apply the same rate as the reasonable royalty. While this solution seems simple, the Federal Circuit has recognized the factual context surrounding each licensing agreement may impact the royalty rate.  Because of this, the Federal Circuit requires a higher level of proof that established royalties may be used as the reasonable royalty. For instance, a single documented royalty is insufficient to establish there is general acceptance that the royalty is reasonable. Thus, it can be very difficult to use established royalties, standing alone, as sufficient proof of the reasonable royalty rate. Nevertheless, established royalties are still an important consideration when determining what constitutes a reasonable royalty.

Since information regarding established royalties is obviously important to have during a patent infringementlawsuit, what happens when that information is subject to a confidentiality provision?  The Federal Circuit has addressed this question in the context of settlement negotiations.

In In re MSTG, Inc., MSTG filed a lawsuit against AT&T for infringement of its 3G technology patents. One of the issues in the AT&T dispute was the reasonable royalty rate for the patents-in-suit.  Previously, MSTG sued other telecommunications companies for patent infringement and eventually settled those cases. As part of the various settlement agreements, MSTG granted the alleged infringers a license to the patents-in-suit. During discovery in the case against AT&T, MSTG produced six licensing agreements that resulted from its previous settlements as evidence of a reasonable royalty rate. AT&T, however, also sought to discover the negotiations concerning the settlement agreements by arguing the negotiations would assist the court in making a reasonable royalty determination.

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