A negotiation that never happened, on the eve of infringement, between parties who assume the patent is valid. The construct is artificial. The evidentiary demands are not.
Start a conversation with Cournot, the Institute’s damages concierge, already scoped to reasonable royalty & apportionment. Pick a starting point, or describe the dispute directly.
The reasonable royalty reconstructs a bargain: what a willing licensor and a willing licensee would have agreed at the moment infringement began, both assuming the patent valid and infringed. The construct is deliberately artificial, and everything in it must still be built from real evidence. The conventional organizing structure is the Georgia-Pacific framework, a set of factors covering the patent holder's licensing practices, the parties' competitive relationship, the invention's advantages over alternatives, and the profitability of the infringing product. In practice, the analysis lives in a few dense places. Comparable licenses, if genuinely comparable, are the strongest anchor, and the comparability of each one is contested transaction by transaction. The royalty base must be apportioned to the invention's footprint, often the smallest salable unit that practices it, rather than the whole product, unless the invention demonstrably drives the demand for the whole. And the rate must be derived rather than asserted: rules of thumb unmoored from the specific negotiation have been driven out of practice, and a rate that cannot show its work does not survive. The form of the royalty, running rate against lump sum, and the treatment of non-infringing alternatives available to the licensee complete the structure, because a licensee with a viable design-around negotiates very differently from one without.
Each element is derived from evidence, or it is the weak point of the opinion.
The date, the parties, the assumptions. Getting the moment right matters: bargaining positions change with the market.
The conventional factor structure. Discipline means analyzing the factors that matter, not reciting all of them ritually.
The strongest evidence when truly comparable: same technology, similar terms, arm’s length. Each candidate is contested.
What sales the rate applies to. The smallest salable unit is the default conversation; the entire market value is the exception to be earned.
From licenses, profitability analysis, or the value of the invention over alternatives. Asserted rates and rules of thumb are exclusion bait.
What the licensee could lawfully have done instead, at what cost. Caps the rational royalty and is often underworked.
How the Institute approaches a royalty question.
In most patent cases, this is the damages case.
Parties fight hardest over percentage points of rate, but the choice of base, the component against the full product, often moves the result by a larger factor than any plausible rate adjustment. Whoever wins the apportionment argument has usually won the damages case.
Alignment on the dimensions that drove the bargain: the same or closely related technology, a similar scope of rights, comparable exclusivity, a similar competitive relationship between the parties, and an arm's length negotiation rather than a settlement under litigation pressure, though the treatment of settlement licenses is itself a contested question for counsel. Structure matters as much as headline rate: a lump sum with broad cross-licensing tells you little about a running rate on one patent. The practical discipline is symmetric scrutiny, testing your own candidate licenses as hard as you will test the other side's, because an expert who applies comparability standards selectively hands the rebuttal its opening argument.
The demanding version of the question is legal and belongs to counsel, but the economic logic is consistent: using the whole product's revenue as the base is defensible when the patented feature is what drives customers to buy the product, and not otherwise. Establishing that is affirmative work, consumer research, conjoint or survey evidence, documents showing the feature's role in purchasing decisions, not an assumption. Where the feature is one contributor among many, the analysis starts from a smaller base, often the smallest salable unit practicing the invention, and may need further apportionment within even that unit. Overreaching on the base is among the most common grounds on which royalty opinions fail.
It changes both the number and the evidence that supports it. A running royalty scales with actual infringing sales, so it requires reliable sales data and produces damages that grow with the infringement. A lump sum reflects what the parties would have paid once for the license's full expected life, which turns on the sales both sides projected at the negotiation date rather than the sales that materialized. The parties' own licensing histories are the best evidence of which form they actually use, and the form interacts with everything else: a lump sum derived from a running-rate comparable, or the reverse, needs an explicit conversion with stated assumptions about expected volumes, discounting and risk, and that conversion is itself a point of attack.
They define what the licensee was actually buying. If the accused infringer could have designed around the patent lawfully at moderate cost and delay, the hypothetical negotiation is over the value of avoiding that cost and delay, not over the full value of the technology, because no rational licensee pays more for a license than its next best lawful option costs. The analysis has to be concrete: which alternative, was it available and acceptable at the negotiation date, what would it have cost to implement, what performance or market position would have been sacrificed. Vague gestures at design-arounds carry no weight, and equally, a royalty analysis that never asks the question has left its ceiling unexamined and its conclusion exposed.
Describe the patent, the product and the licensing history. The Institute will help you see where the analysis will be attacked.