Willing Licensor — Willing Licensee
Supreme Court precedent describes the willing licensor – willing licensee model as useful for establishing royalty damages.
In fixing damages on a royalty basis against an infringer, the sum allowed should be reasonable and that which would be accepted by a prudent licensee who wished to obtain a license but was not so compelled and a prudent patentee, who wished to grant a license but was not so compelled.
— Carrier Engineering Corporation v. Horvath, 308 US 581 (S.Ct. 1939).
Under this model, market forces bring patentee and infringer together to strike a hypothetical licensing deal. This model does not fit the circumstances surrounding all cases.
The concept of a willing licensee may be at odds with the reality that infringement took place.
[A]s we previously stated in Rite-Hite, this is an absurd characterization of the determination when the parties were previously unable to come to an agreement, i.e., were not willing, as in this case.
— Maxwell v. J. Baker, Inc., 86 F. 3d 1098, 1109–1110 (Fed. Cir. 1996).
The model may also have limits in cases where there are no gains from trade.
And, where, as here, a patentee is unwilling to grant an unlimited license, the hypothetical negotiation process has its limits. … [T]he imposition on a patent owner who would not have licensed his invention for [a given] royalty is a form of compulsory license, against the will and interest of the person wronged, in favor of the wrongdoer.
— Monsanto Co. v. Ralph, 382 F.3d 1374, 1384 (Fed.Cir.2004).
Gains from trade are negative when a patentee gains more by excluding than she could gain by licensing to an infringer.
[Suppose] the value of exercising the right to exclude is greater than the value of any economically feasible royalty. If the competitor infringes in this situation and the patentee can recover only a reasonable royalty, the patentee does not receive adequate compensation as the statute requires. The same reasoning applies anytime the patent owner benefits more by excluding others than by licensing.
— King Instruments Corp. v. Perego, 65 F. 3d 941, 951 (Fed. Cir. 1995).
The patentee is entitled to damages adequate to compensate for infringement in all cases (including when there are no gains from trade).
The language of the statute requires damages adequate to compensate, which does not include a royalty that a patentee who does not wish to license its patent would find unreasonable.
— Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1555 (Fed.Cir.1995).
Full compensation can be achieved by modifying the reasonable royalty to fit the commercial situation or by including non-reasonable royalty damages.
[A reasonable royalty] must be modified by the commercial situation, and when the result is to interfere with a patent monopoly, which the patentee was in position to and desired to keep, by retaining the entire market himself, his compensation for parting against his will with that opportunity must take due account of the loss to him of anticipated profits on the business which the licensees will thus get away from him.
— Egry Register Co. v. Standard Register Co., 23 F. 2d 438, 443 (Court of Appeals, 6th Circuit 1928).