Part 3: Patent Damages & the Demise of the 25% Rule

In our earlier posts, we reviewed the recent Uniloc decision in the US that effectively disposed of the 25% Rule of calculating patent damages. Has this rule been used in Canada?

To a certain extent, yes. Here are 2 leading cases: In Alliedsignal Inc. v. du Pont Canada Inc., 1998 CanLII 7464 (F.C.), the Court stated that a reasonable royalty for patented technology was between 25% and 33% of the plaintiff’s profits and applied a series of 13 factors that could tend to increase or decrease the royalty within the range. For example, if the parties to the litigation were direct competitors, that would tend to increase the royalty rate.

In Jay-Lor International Inc. v. Penta Farm Systems Ltd., 2007 FC 358 (CanLII), the anticipated profits approach was used, and the court assessed the 13 factors that were used in Alliedsignal.  This analysis was used to determine where the royalty should fall within the range of 25% to 33% of profits. These are part of the “hypothetical negotiation” that courts construct to determine the appropriate royalty. The factors include things such as:

  • Exclusivity – whether the license would have been exclusive or not
  • Territorial restrictions – whether the license would have been restricted geographically
  • Risk of market success of the patented invention, whether it was a proven technology
  • R&D – whether the inventor incurred high research and development costs to bring the product to market

Courts in the US have looked at similar factors.  The Uniloc decision in the US is likely to impact Canadian assessments of patent damages, but will not cause a significant change in the court’s approach.  The factors used by Canadian courts allow a measured, flexible approach, which won’t be up-ended by the demise of the 25% Rule in the US. 

Related Event: March 17, 2011 –  Field Law is hosting the Licensing Executives Society on the topic of “IP Valuation in 2011” presented by Robert Doran, KPMG. Link to Register

Calgary – 07:00 MST

1 comment

1 Comment so far

  1. […] IPblog | Intellectual Property Law in Canada » Part 3: Patent Damages & the Demise of the 25% Rule ipblog.ca/?p=456 – view page – cached In our earlier posts, we reviewed the recent Uniloc decision in the US that effectively disposed of the 25% Rule of calculating patent damages. Has this rule been used in Canada? Tags […]

Leave a reply

You must be logged in to post a comment.