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By Jeffrey S. Ginsberg and Joseph Mercadante
January 27, 2011

Federal Circuit Nixes 25% Rule of Thumb in Damages Analysis

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.

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