All Your Base Are Belong to Us: Towards an Appropriate Usage and Definition of the "Entire Market Value" Rule in Reasonable Royalties Calculations

IntroductionPatentees in recent years have wielded the entire profits of infringing products at trial to receive gargantuan reasonable royalty patent damage awards from juries, out of proportion to the patented technologies' contributions to those products.1 The U.S. Court of Appeals for the Federal Circuit has invoked the "entire market value" ride to curb these disproportionate awards.* 2 Yet, considerable confusion surrounds the rule's application to reasonable royalties.3 First, the rule as originally conceived ought to have no place in reasonable royalty awards.4 Scholars and the U.S. Federal Trade Commission (FTC) have accordingly condemned the use of the rule in the reasonable royalties context and urged its abolition.5 Second, although the Federal Circuit says in its opinions that it has applied the rule to reasonable royalties calculations, it has not actually done so.6 It has rather applied some other rule, a 100% royalty base rule, masquerading as the "entire market value" rule.7 Without language to describe what courts are doing, it is difficult for judges, attorneys, scholars, and commentators to dispel the confusion.8 The lack of differentiation furthermore inhibits a nuanced discussion of the policy underlying this 100% royalty base rule.9This Note attempts to clear the air by proposing a new name, the "entire market base" rule, to label the 100% royalty base rule that has actually been used by the Federal Circuit in reasonable royalties determinations.10 The Note then explores the policy basis for this rule and examines the appropriateness of the test the Federal Circuit has announced, namely whether the patented component constitutes the ba- sis for consumer demand.11 Finally, as the real purpose of the "entire market base" rule as used by the Federal Circuit is to avoid juror prejudice, this Note proposes recasting the rule as a specific application of Federal Rule of Evidence 403 and entrusting the determination to the sound discretion of the trial court.12Part I of this Note explores the underpinnings of patent damages law, including its constitutional, statutory, common law, and policy bases, and introduces the "entire market value" rule.13 Part II discusses the two disparate uses of the phrase "entire market value" rule, and urges a new designation-the "entire market base" rule-for use in reasonable royalties calculations.14 Finally, Part III argues that the entire market base rule is best understood as a means to avoid unfairly prejudicing the jury, and urges that the rule be recast as an application of Federal Rule of Evidence 403.15I. Underpinnings of Patent Damages LawThe primary purpose of damages in patent infringements is to compensate and to make the patentee whole after infringement.16 The requisite compensation to make the patentee whole, however, depends upon the nature of the patented invention and the marketing intent and capabilities of the patentee.17A. Nature and Purpose of Patent ProtectionThe goal of patent law is to incentivize innovation by granting an inventor, for a limited time, an exclusive monopoly over all use of a patent.18 The U.S. Constitution granted Congress the power "[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries."19 Likewise, 35 U.S.C. § 271 provides that "whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefore, infringes the patent."20 A patent is thus a constitutionally mandated and statutorily imposed short-term monopoly for the patentee.21The reason a monopoly grant is thought necessary to incentivize innovation is to solve the free-riding problem.22 Without patent protection, an inventor of a new technology of great benefit to society might not reap the rewards of his or her investment in innovation because others could freely appropriate the novel techniques and ideas invented. …