With the recent rulings by the CAFC regarding the “entire market value rule” in mind, it’s interesting to take a look back at the early drafts of the Patent Reform Act. What we see, interestingly, is that the CAFC seemingly adopted the controversial damages revisions of the 2007 draft legislation. Here is the wording from the Patent Reform Act of 2007 (emphasis added):
(1) IN GENERAL- An award pursuant to subsection (a) that is based upon a reasonable royalty shall be determined in accordance with this subsection. Based on the facts of the case, the court shall determine whether paragraph (2), (3), or (4) will be used by the court or the jury in calculating a reasonable royalty. The court shall identify the factors that are relevant to the determination of a reasonable royalty under the applicable paragraph, and the court or jury, as the case may be, shall consider only those factors in making the determination.
(2) RELATIONSHIP OF DAMAGES TO CONTRIBUTIONS OVER PRIOR ART- Upon a showing to the satisfaction of the court that a reasonable royalty should be based on a portion of the value of the infringing product or process, the court shall conduct an analysis to ensure that a reasonable royalty under subsection (a) is applied only to that economic value properly attributable to the patent’s specific contribution over the prior art. The court shall exclude from the analysis the economic value properly attributable to the prior art, and other features or improvements, whether or not themselves patented, that contribute economic value to the infringing product or process.
(3) ENTIRE MARKET VALUE- Upon a showing to the satisfaction of the court that the patent’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 the products or processes involved that satisfy that demand.
(4) OTHER FACTORS- If neither paragraph (2) or (3) is appropriate for determining a reasonable royalty, the court may consider, or direct the jury to consider, the terms of any nonexclusive marketplace licensing of the invention, where appropriate, as well as any other relevant factors under applicable law.
Congress’s earlier draft legislation (in 2005) was much more modest regarding damages—it sought to merely insert the following: “In determining a reasonable royalty in the case of a combination, the court shall consider, if relevant and among other factors, the portion of the realizable profit that should be credited to the inventive contribution as distinguished from other features of the combination, the manufacturing process, business risks, or significant features or improvements added by the infringer.” As IP folks recognize, that was lifted from the Georgia-Pacific factors, and so was already part of the methodology.