Tax Solutions to Patent Damages

The calculation of patent damages lies at the epicenter of patent policy, yet it remains one of the most contentious issues in all of intellectual property law. The dominant legal framework equates a reasonable royalty, the most prevalent patent damage award, to a hypothetical negotiation between the parties at the time infringement began. Commentators and courts generally agree that existing comparable patent licenses, which represent arms’-length transaction between two unrelated private parties that places a monetary value on the patent, are highly probative in determining a reasonable royalty. The lack of publicly available licensing data, however, limits the ability of courts to identity appropriate comparable licenses. In this paper, we argue that there is a large untapped trove of information on existing patent licensing agreements, many of which are likely more probative to reasonable royalty calculation than currently existing licensing data offered by patent damage experts. This novel source of data is tax-related “transfer prices.”