Federal Circuit – Down with the Rule of Thumb

For years, one tool available to testifying experts in evaluating royalty rates as a basis for damages in patent litigation has been the "25 percent rule of thumb," although the Federal Circuit has been unclear in precisely how it viewed the rule. Various cases have alternatively allowed or excluded damage theories based on the rule without much rhyme or reason. Basically, the rule posits that a licensee would, as a rule of thumb, pay 25 percent of its expected profits for the product that incorporates the intellectual property at issue, and support for the rule traces back to published empircal studies from the 1970's which analyzed 1,500 licenses from fifteen industries, and found a median royalty rate of 22.6 percent, and the majority of royalty rates between 21 and 40 percent. In the recent decision of Uniloc USA, Inc. et al v Microsoft Corporation, the CAFC definitively ruled as follows:

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