Understanding the Difference Between Real-World Licenses and the Hypothetical License in Patent Damages Analysis

Larry Tedesco details the differences between a hypothetical license and a typical real-world license, including established validity and infringement, variances in license scope with respect to patents or territories included, timing of the license, and volume of sales. A predominant method of calculating patent damages in intellectual property litigation involves the determination of a reasonable royalty through a “hypothetical negotiation” between the patent owner and the alleged infringer. Understanding and accounting for these differences correctly in a damages analysis can have a material impact on the reasonable royalty.

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