Reasonable-Royalty Apportionment

Georgia-Pacific After VirnetX: Apportionment as the Controlling Constraint

After VirnetX, the Georgia-Pacific factors survive — but they operate only inside a mandatory apportionment framework, not as an independent path to a royalty. A patentee must in every case offer evidence separating the damages between the patented and unpatented features, and that evidence must be reliable and tangible, not conjectural or speculative. Virnetx, Inc. v. Cisco Systems, Inc., 767 F.3d 1308 (Fed. Cir. 2014). Nor does the smallest salable unit end the inquiry: identifying that unit is simply a step toward apportionment, so where the unit is itself a multi-component product containing non-infringing features, the patentee must go further and estimate what portion of its value the patented technology contributes.

The entire market value rule remains a narrow exception. A patentee may use the entire product as the royalty base only where the patented feature drives the demand for the entire product, and the proof required is exacting: showing that consumers would not want the product without the patented feature is not showing that the feature alone drives demand, and pairing the full market value with a very small royalty rate does not cure an improper base. Laserdynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51 (Fed. Cir. 2012).

Where the exception does not apply, apportionment disciplines both ends of the calculation: the ultimate combination of royalty base and royalty rate must reflect the value attributable to the infringing features, and no more, so that the award captures only the incremental value the invention adds to the end product. Ericsson, Inc. v. D-Link Systems, Inc., 773 F.3d 1201 (Fed. Cir. 2014). Ericsson also reshapes how the factors reach the jury. Rather than parroting all fifteen, trial courts must tailor the instruction to the record — and on the record there, factors four, five, eight, nine, and ten were irrelevant or misleading.

None of this keeps the factors from doing the apportionment work themselves. An expert may take the entire accused product as the royalty base and apportion through the royalty rate instead, so long as the analysis adequately and reliably separates the improved features from the conventional ones — and a proper Georgia-Pacific analysis is one way to draw that line. Exmark Manufacturing Co. v. Briggs & Stratton Power Products Group, LLC, 879 F.3d 1332 (Fed. Cir. 2018). The approach builds on Astrazeneca Ab v. Apotex Corp., 782 F.3d 1324 (Fed. Cir. 2015), because a standard Georgia-Pacific analysis already takes account of the importance of the inventive contribution: factors nine, ten, and thirteen ask directly about the invention's advantages over old modes and the portion of realizable profit that should be credited to the invention. The tolerance ends at superficiality, though — under Exmark, reciting the factors and then announcing a rate is inadmissible, and the expert must explain why, and to what extent, each factor moves the proposed rate.

Comparable licenses supply a third route. When a sufficiently comparable license is the basis for the royalty, further apportionment may not be required, because apportionment is effectively built into the license itself; the expert may adopt its rate and base without proving the entire market value rule. Vectura Limited v. Glaxosmithkline LLC, 981 F.3d 1030 (Fed. Cir. 2020). Together these cases order the inquiry: courts ask first whether the damages theory apportions at all — through the base, the rate, or a comparable license — and only then whether the Georgia-Pacific factors, trimmed to the relevant evidence, support the expert's specific number.