The Misuse of Reasonable Royalty Damages as a Patent Infringement Deterrent

I. INTRODUCTION II. DETERRING INFRINGEMENT WITH REASONABLE ROYALTY AWARDS A. Brief Introduction to Patent Infringement Damages B. Patent Damages as Pecuniary Compensation C. Inflation of the Reasonable Royalty Measure of Damages D. Heads-I-Win, Tails-You-Lose: Reasonable Royalties as an Infringement Deterrent III. THE RATIONAL INFRINGEMENT MYTH A. The Willfulness Doctrine and Others Exist to Deter Blatant Infringers B. Reasonable Royalties Already Incorporate a Premium C. Patent Holdup IV. INNOCENT INFRINGERS CANNOT BE DETERRED A. Ignorance Is No Defense--But Should Be B. Most Infringement Is Innocent Infringement 1. No One Reads Patents--And for Good Reason 2. Independent Invention Is the Rule, Not the Exception V. HEADS-I-LOSE, TAILS-YOU-WIN: PATENT CHALLENGES AS PUBLIC GOODS VI. PATENT REFORM MEASURES A. Carve Out Ordinary Infringers B. Single Out Blatant Copyists VII. CONCLUSION I. INTRODUCTION Psychologists, economists, and biologists agree that humans feel an instinctive need to punish bad actors--to seek revenge against liars, cheats, and free riders--regardless of the deterrent effect such retribution has on future scoundrels. (1) Although we hope the judges who apply society's laws are capable of rising above such primal desires, are we so sure that judges are different? If u.s. patent law is any indication, the answer is a resounding no. As this Article demonstrates, the proclivity of jurists and jurors toward just-desserts retribution has had a significant impact on the evolution of how u.s. patent law treats those found liable for patent infringement. This Article documents the striking fact that courts have time and again awarded reasonable royalty damages for patent infringement that rise well above any objectively "reasonable" level for the apparent purpose of punishing defendants for their infringing conduct. (2) Numerous cases demonstrate that the Federal Circuit is more than willing to award inflated reasonable royalties--at times enhanced by an order of magnitude or more (3)--to ensure that patentees receive what the court deems an appropriate level of recovery, punish infringers, and deter those who might choose to infringe in the future. Although this practice may be commendable in intent (4) and supported by simple intuitive appeal, (5) when considered in context of the patent system as a whole, distorting the reasonable royalty measure of damages is a needless (indeed, almost certainly counterproductive) and ineffective means of ensuring an optimal level of reward for inventors and deterrence for infringers. This Article explores the inflation of reasonable royalty awards and concludes that this practice simply makes no sense in a patent system that already consistently overvalues patent rights compared to their value to society, especially when courts mete out this punishment to innocent and willful infringers alike. Part II explores cases in which the Federal Circuit and other courts following its lead have awarded increased reasonable royalty awards for punitive impact and explains the Federal Circuit's professed rationale for doing so. Part III demonstrates that this practice makes little sense, given the number of other powerful deterrents already present in the patent system. Part IV explains that, to the extent they exist at all, any deterrence-related benefits resulting from excess damages do not materialize when courts impose those damages against innocent infringers--a group that likely makes up the lion's share of patent infringers. Part V argues that, even without the additional burden of inflated damages awards, there is good reason to believe that the patent system already over deters infringement because accused infringers participating in a competitive market face strong incentives not to challenge patents asserted against them. …