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Intellectual Property Law

: Two-Seventy-One Patent Blog

Are Patent Damages "Excessive?" New Study Suggests That They Aren't

By Peter Zura

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As part of the ongoing debate over patent reform, Michael Mazzeo, Jonathan Hillel and Samantha Zyontz set out to empirically analyze damage awards from 1995 to 2008 and establish if a systematic or pervasive problem of "excessive" damages exist.

From the Abstract:

In their arguments for patent reform, proponents have cited cases with very large damage award amounts as evidence of pervasive ?excessive? damages. This paper uses economic value of patents as a benchmark for comparison to conduct a systematic empirical analysis of patent damage awards to get a more complete understanding of the scope of the potential problem of ?excessive? damage awards. We build a dataset consisting of information about damage awards in a comprehensive list of 340 cases decided in US federal courts between 1995 and 2008, supplemented with information about the litigants, their lawsuits and the economic value of the patents-at-issue. Our findings demonstrate that the largest awards dominating the conversation come from isolated cases: damage awards in the largest eight cases represent over 47% of total damages in our database. We build an econometric model based on our supplementary data that explains nearly 75% of the variation in observed damage award amounts, suggesting the awards are highly predictable and correlated with economic value of patents. We argue that the empirical results do not establish an argument for substantial patent reform based on a pervasive problem with ?excessive? damages.

Some interesting findings:

- The number of cases with patent damage awards have increased recently, but are still quite small - between 2006 and 2008, there were less than 50 cases each year awarding damages; in 2002 there were slightly more than 30 and in 1997 there were about 17 cases. According to the authors, "the small number of patent infringement cases in which damages are awarded may give reason to question the hyperbolic claims by some that patent litigation damages have significant deleterious effects on research and development activities in the United States."

- Median damages between 1995 and 2008 have held relatively steady, with occasional ups-and-downs - in 2003, the median damage award peaked at $10.41M; in 2007 it sank to a low of $1.11M.

- Once again, juries continue to be associated with larger damages awards.

- The Federal Circuit has been more active in reviewing patent damage awards. None of the eight largest damage awards have gone unchallenged. While 2 of the cases are still ongoing, none of the other six awards have stood.

This excellent paper goes through previous studies on patent damages, recent patent damages case law (yes, even the Uniloc v. Microsoft decision, which abolished the 25% rule), and even reviews the different legislative proposals for limiting reasonable royalties, and is a must-read for anyone involved or interested in patent reform. While the document is still in draft form, the authors are welcoming comments.

Read/download a copy of the study here (link)

Full post as published by Two-Seventy-One Patent Blog on February 23, 2011 (boomark / email).