The End of the 25% Rule

The Federal Circuit issued a ruling on January 4, 2011 that will significantly alter the calculation of reasonable royalty damages in IP infringement actions.

“This court now holds as a matter of Federal Circuit law that the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation. Evidence relying on the 25 percent rule of thumb is thus inadmissible under Daubert and the Federal Rules of Evidence, because it fails to tie a reasonable royalty base to the facts of the case at issue.”  Uniloc USA v. Microsoft, No. 2010-1035, -1055 (Fed. Cir. Jan. 4, 2011), slip op. at 41.

For many years, Hoffman Alvary has advised counsel against using the 25% rule of thumb.  In our view, this method lacks an economic basis, and we have been outspoken critics of this approach both in our testimony and in other public settings.

Hoffman Alvary continues to approach our damage analyses the same way as before – based in the facts of the case, the economics and value of the invention, and the relevant case law.  This decision supports our historical approach and our long-standing criticism of the 25% rule of thumb.

• News & Ideas
• News
• At the Podium
• Ideas
• Law Firm Mergers