On the heels of a California district court rejecting a 50% profit split to determine a reasonable royalty, this Delaware district court accepts the methodology. Coinciding perhaps (just guess here!) with the death of the so-called 25% Rule (which takes 25% of the infringing product’s profits as a reasonable royalty) we’ve seen a few experts use a 50% split, since it at least has some basis in economic theory – namely the Nash equilibrium. The California court rejected this concept, stating that the expert failed to tie the theory to the facts of the case and that “[t]he Nash bargaining solution would invite a miscarriage of justice by clothing a fifty-percent assumption in an impenetrable facade of mathematics.”
But here, this court accepts a 2011 supplemental report by Julie Davis that “contains a 50% profit sharing rule” because “Davis based her opinion regarding the general expectation for a company during a negotiation upon her ‘review of thousands of agreements over the 33 years of [her] career.’ The court concludes that Davis’s experience in reviewing comparable agreements is sufficient to establish the reliability of her methodology.”
This ruling seems rather generous in light of the increased level of precision that courts are currently demanding for royalty rate determination, plus the lack of literature or consensus on a profit sharing rule. This case may be worth keeping an eye on.
Solvay S.A. v. Honeywell Specialty Materials LLC, et. al., 1-06-cv-00557 (DE, September 8, 2011, Order) (Robinson).