Patent Infringement Damages

What Kind of Monetary Recovery is Available?

U.S. patent law provides for both injunctive relief, which halts infringing activity, and monetary compensation for the harm suffered by the patent holder. The monetary compensation may be measured in the patent holder's lost profits or a reasonable royalty that the infringing party would have paid. Also, in some cases, a jury may award enhanced damages in exceptional cases where the defendant acted egregiously.

Patent infringement is a potential issue for any business developing new products and services. It is important to understand the risk of patent infringement and the monetary damages that might result from infringement. The types of patent damages are explored in more detail below.

What Are Patent Infringement Damages?

When a defendant is found liable for patent infringement, U.S. law ensures that the patent owner receives fair compensation. Under 35 U.S.C. § 284 of the Patent Act, once a court determines that a defendant's infringement has occurred, it must award the patentee "damages adequate to compensate for the infringement, but in no event less than a reasonable royalty" for the unauthorized use of the patented invention. These damages are designed not to punish the infringer, but to restore the patent holder to the financial position they would have been in had the infringement not occurred. However, if the infringement is proven to be willful, the court may award enhanced damages, up to three times the compensatory amount.

The law recognizes two main forms of compensatory damages:

1. Lost profits: These represent the profits the patent owner can show they would have made but for the infringement. To recover lost profits, the plaintiff must show detailed economic proof of diverted sales, price erosion, and/or other harms.
2. Reasonable royalties: If lost profits cannot be proven, the court will award at least a reasonable royalty, a hypothetical amount the infringer would have paid in a fair license negotiation before the infringement began.

Lost Profits: Recovering What You Would Have Made

Lost profits are one of the most significant categories of patent infringement damages because they aim to place the patent owner in the financial position they would have occupied “but for” the infringement. In other words, these damages are meant to compensate for the sales, market share, and profits the patentee lost due to the infringer unlawfully making, using, or selling the patented product.

To succeed in a claim for lost profits, the patentee must present evidence at trial that satisfies a four-part test established in Panduit Corp. v. Stahlin Bros. Fibre Works, 575 F.2d 1152 (6th Cir. 1978). The elements are:

1. Demand for the patented product: The patent owner must show actual market demand for the product covered by the patent.
2. Absence of acceptable non-infringing substitutes: There must be no comparable product that consumers could have chosen instead, weakening the inference of lost sales.
3. Manufacturing and marketing capability: The patentee must demonstrate that they had the capacity to meet the additional demand that was diverted by the infringer.
4. The amount of profit the patentee would have made: This includes showing unit costs, pricing, and projected sales volumes to establish the profit margin lost.

In addition to diverted sales, courts may consider other economic harms, such as price erosion (where the infringer’s competition forces the patentee to lower prices), increased costs (from fighting to maintain market share), and convoyed sales, losses on related products or services sold in conjunction with the patented item (e.g., parts, accessories, or maintenance services).

Proving lost profits often requires detailed financial records and expert testimony, and it can be particularly challenging when the patent owner is not actively selling the product. In such cases, courts typically award reasonable royalty damages instead.

Reasonable Royalty: The Floor for Damages

When a patent owner cannot prove lost profits, they are still entitled to damages under the Patent Act, specifically, a reasonable royalty. Under 35 U.S.C. § 284, “[u]pon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer”. This provision guarantees a minimum baseline of compensation and ensures that patentees receive some remuneration even when actual losses are difficult or impossible to quantify.

A reasonable royalty is calculated based on a hypothetical negotiation between a willing licensor and a willing licensee at the time the infringement began. This legal fiction allows courts to simulate what the parties would have agreed upon in a good faith license negotiation, had infringement not occurred. The foundational authority for evaluating reasonable royalties comes from Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), which identified 15 non-exclusive factors relevant to determining the royalty rate. These include:

1. Existing royalty rates for comparable patents or products;
2. The nature and scope of the license (exclusive vs. non-exclusive, geographic or field restrictions);
3. The commercial relationship between the parties;
4. The profitability and advantages of the patented invention over alternatives; and
5. The portion of the realizable profit attributable to the invention, rather than unpatented elements or the business’s goodwill. (Id. at 1120).

One key legal requirement is apportionment, the process of ensuring that damages reflect only the value of the patented feature, and not the value of the entire product unless the patented feature drives consumer demand. The Federal Circuit has emphasized that “a patentee is only entitled to a reasonable royalty attributable to the infringing features”. Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 904 F.3d 965, 977 (Fed. Cir. 2018). This rule is particularly important in the context of complex, multi-component products, such as smartphones or software systems.

Courts often require use of the smallest salable patent-practicing unit as the royalty base to avoid overcompensation, unless the entire market value rule (EMVR) applies, i.e., when the patented component drives the demand for the entire product. LaserDynamics, Inc. v. Quanta Comput., Inc., 694 F.3d 51, 67 (Fed. Cir. 2012).

Expert Testimony in Patent Infringement Cases

To support a damages award, expert testimony is typically required and must be grounded in economic rigor and factual evidence. Courts have excluded speculative or unsupported opinions, emphasizing the need for reliable methodologies and factual ties between the royalty and the extent of infringement. Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1336–37 (Fed. Cir. 2009).

Thus, the reasonable royalty framework acts as both a statutory safeguard for patentees and a critical analytical tool for courts in patent infringement cases.

Enhanced Damages and Exceptional Cases

In addition to compensatory damages, courts may award enhanced damages, up to three times the amount of actual damages, under 35 U.S.C. § 284 when willful infringement is proven. However, enhanced damages are not available in every infringement case. The Supreme Court in Halo Electronics, Inc. v. Pulse Electronics, Inc., 579 U.S. 93 (2016), clarified that such damages are reserved for "egregious cases of misconduct beyond typical infringement", and courts have broad discretion to determine whether enhancement is appropriate.

The Halo Court rejected the prior Seagate test, which had required clear and convincing evidence of objective recklessness, finding that it was overly rigid and inconsistent with the discretionary language of § 284. Instead, Halo emphasized that willfulness should be assessed based on the infringer’s subjective bad faith at the time of the conduct, and that culpability is generally measured against the knowledge of the actor at the time of the challenged conduct.

Key factors that courts consider when determining whether to enhance damages include:

1. Whether the infringer knew of the patent and chose to infringe anyway;
2. Evidence of copying the patented invention;
3. Concealment or litigation misconduct;
4. The infringer’s failure to conduct a reasonable investigation of patent scope or validity; and
5. The existence of weak or non-existent defenses asserted in litigation.

See Read Corp. v. Portec, Inc., 970 F.2d 816 (Fed. Cir. 1992).

Because the inquiry is fact-intensive and centers on intent, companies should document good-faith efforts to avoid infringement, such as conducting freedom-to-operate analyses, obtaining legal opinions, and designing around patents. These proactive steps may help a court find that the infringement was not willful, thereby avoiding exposure to treble damages.

Be Prepared and Proactive

Patent litigation can be costly, unpredictable, and disruptive. Whether you’re a patent owner seeking damages or a defendant facing exposure and seeking to limit damages, understanding how courts assess infringement damages is critical. For business owners, here are some practical takeaways:

• Document your design and clearance processes to reduce willfulness risk.
• Assess potential infringement risk of your new products through freedom to operate analyses; don’t wait for litigation.
• Negotiate licenses proactively when appropriate.

If you need assistance with a patent dispute or other patent matter, contact our office for a free consultation.

© 2025 Sierra IP Law, PC. The information provided herein does not constitute legal advice, but merely conveys general information that may be beneficial to the public, and should not be viewed as a substitute for legal consultation in a particular case.