When Nominal Is Reasonable: Damages for the Unpracticed Patent

INTRODUCTIONEven a casual glance at the news confirms that patent trolling is the most visible and controversial issue in patent law today.1 "Patent trolls" represent half of all patent lawsuits,2 yet President Barack Obama described them as extortionists.3 This raises numerous questions: how could half of the litigants utilizing a system that has existed for hundreds of years suddenly be compared to criminals? What exactly is the problem? Is there a problem at all? Are specific entities-trolls-the problem, or are specific behaviors- trolling-the problem? These are just questions of framing and definition. What about solutions? Proposals range from back-end litigation reforms like fee-shifting to front-end reforms focused on initial patent quality.4Some legal scholars suggest that the problem is worse than we realize. They argue that patent trolls themselves are not the problem. Rather, they should be understood as the outgrowth of "more complex and fundamental problems with the patent system."5 This Article agrees with that view. Understanding the deeper roots of the problem is important because "[t]reating the symptom will not solve the problems."6 In other words, it is shortsighted to stop trolls by adding another layer to patent law; we should instead first understand why trolls exist.For example, an op-ed suggested thinking about patent trolls as a biological phenomena.7 Viewed as an ecosystem, we should examine the conditions that enable trolls to exist and thrive.8 To flourish, flora and fauna need an abundant food supply. This Article argues that patent law has created those necessary conditions-that "food supply"-by granting near automatic, significant patent damages in every patent lawsuit. A patentee may receive substantial damages for patent infringement whether or not he or she has done anything to commercialize the patented invention. With our modern understanding of patent damages, there now exists a mandated, substantial floor for patented damages in all cases. Patent law presumes that infringement alone causes real compensable harm. If you have a valid, enforceable, and infringed patent, then you may generally collect significant patent damages. This should be a central focus of our understanding of the troll phenomena.For some time, those targeted by trolls have implored us to avoid "feeding the trolls." We should stop enabling them and we should resist settlement and negotiation. What if we applied that advice, not to individual lawsuits, but instead to the whole patent ecosystem? What if significant patent damages,9 even reasonable royalties, were made contingent on efforts to commercialize the patented invention? Such a rule would surely reduce patent troll activity and would likely incentivize beneficial acts of commercialization and innovation. That is, rather than suing and forcing ex post licensing, patentees would be channeled towards socially beneficial ex ante technological transfer.10This Article argues for exactly such a rule.11 Not only would it make for better patent policy but, perhaps surprisingly, such a rule is the correct understanding of our current patent damages statute. Though there has been recent, important scholarly research on reasonable royalties in general,12 the presumption of compensable harm has received far less scrutiny. In reviewing the history of patent damages, this Article explains that significant damages at law were granted only when the patentee had undertaken some efforts to commercialize or if the infringer had copied from the patentee. For other cases where a patentee could not demonstrate the fact of harm, that patentee would receive no more than nominal damages. The statutory codification of reasonable royalties has not changed this traditional rule.13 Although it is certainly true that the modern patent statute mandates that a successful patentee be awarded "no less than a reasonable royalty," nothing in the statute or case law demands that a reasonable royalty be more than nominal in all cases. …