IP News

In Uniloc USA, Inc. v. Microsoft Corp., (Civ. No. 2010-1035, -1055), the Federal Circuit held that the 25% rule of thumb for calculating a reasonable royalty “is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation.” Judge Richard Linn, writing for the panel, stated that the $388 million verdict levied against Microsoft was incorrect because Uniloc's expert had applied the 25% rule, which is an abstract theory not tied to the particular facts of the case. Therefore, it is inadmissible under Daubert and the Federal Rules of Evidence.

Uniloc's expert came to a damages total of $564,946,803 by calculating 25% of the minimum value reported of each infringing product ($10), for a reasonable royalty of $2.50 per product. The Federal Circuit rejected this approach, stating that “there must be a basis in fact to associate the royalty rates used ' to the particular hypothetical negotiation at issue in the case. The 25 percent rule of thumb as an abstract and largely theoretical construct fails to satisfy this fundamental requirement. The rule does not say anything about a particular hypothetical negotiation or reasonable royalty involving any particular technology, industry, or party.”