Brandon Baum of Baum Legal and Practice Center Contributor, sent in this article discussing the “Nash 50 Percent Rule” and patentees recent attempt to use the rule to support it’s damages claim in it’s patent infringement case.  Is the Nash Bargaining Solution stronger and more defensible than the “25 Percent Rule”?

In Uniloc v. Microsoft, the Federal Circuit rejected the so-called “25 Percent Rule of Thumb” that suggested that in a hypothetical negotiation over reasonable royalties, a good starting point is to assume a profit split of 25% to the patentee and 75% to the infringer.  Although the Federal Circuit did not say it, it has been assumed by many that the problem with the 25 Percent Rule was that it gave too much to the patentee — resulting in excessive damage awards.  Indeed, it was Microsoft complaining about the use of the “Rule” on appeal, not Uniloc.

Patentees, however, are a clever and resilient bunch who always view the glass as half full.  Since the Federal Circuit found that the 25 Percent Rule was not sufficiently grounded in science, patentees sought a replacement that was stronger and more defensible — and many have turned to the Nash Bargaining Solution. The Nash Bargaining Solution is a mathematical proof of what any parent of two children knows; in a two person bargaining scenario, the optimal split that the parties will eventually agree upon is 50-50.  For this, Nash won a Nobel Prize.  ”Eureka!,” said patentees.  ”We will replace the unproven and now-rejected 25 Percent Rule with Nash’s Nobel Prize-winning 50 Percent Rule!”

Oracle sought to use the Nash 50 Percent Rule to support its claim to $6 billion in damages in its patent infringement case against Google’s Android.  The district court (Judge Alsup) rejected this approach under Daubert and Uniloc, ruling:

Although Judge Alsup’s instincts in rejecting Nash may be correct, his reasoning (essentially that the Nash proof involves too much math) seems contrary toUniloc. After all, in Uniloc, Judge Rader criticized the the 25 Percent Rule as unscientific, a criticism that does not apply to Nash. Patentees will no doubt continue to try to use Nash, and we can expect to see Judge Alsup’s strong condemnation quoted in opposition.

Tags: 25 Percent Rule, Daubert, John Nash, Judge Alsup, Judge Nash, Nash 50 Percent Rule, Nash Bargaining Solution, Patent Damages, patent infringement, Uniloc

This entry was posted on Thursday, July 28th, 2011 at 15:21 and is filed under Patent Damages, posts. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.