A Series of Historical Accidents

Authors

Christopher S. Storm, Uber Technologies, Inc.

Abstract

The Patent Act of 1946 banned infringer profit awards in utility patent cases by restricting all compensatory awards, including reasonable royalties, to the value of actual damages suffered and by eliminating infringer profits from reasonable royalty estimations. In 1964, the Supreme Court confirmed in Aro Manufacturing v. Convertible Top Replacement Co. that the 1946 Act limits reasonable royalty awards to the amount of the patentee’s actual damages, which courts must assess without regard to the value gained by the infringer. Subsequent courts, however, have ignored the 1946 Act and its correct interpretation in Aro, opting instead to permit profit disgorgement through reasonable royalty calculations. These extralegal calculations have fueled proliferation of patent assertion entities and expansion of the larger patent monetization market by enabling patent asserters to seek compensation based on infringer gains rather than patentee losses. This Article defends the 1946 Act and its interpretation in Aro as both good law and good policy. In support, this Article reviews over two-hundred years of patent damages law to identify the “series of historical accidents” that led to profit disgorgement and reasonable royalties in equity, explain how the 1946 Act restricted reasonable royalty calculations to damages only, and expose the second wave of accidents that caused modern courts to stray from the 1946 Act. Today, courts should enforce the Act’s restrictions on reasonable royalty awards by requiring plaintiffs to demonstrate actual injury-in-fact, limiting reasonable royalties to estimations of such injuries only, and disregarding evidence of infringer profits and other measures of infringer success when setting reasonable royalties.

Recommended Citation

Christopher S. Storm, A Series of Historical Accidents, 31 Mich. Tech. L. Rev. 73 (2024).
Available at: https://repository.law.umich.edu/mtlr/vol31/iss1/2