Intellectual Property: Valuation, Exploitation and Infringement Damages 2013 Cumulative Supplement, 11th Edition

CHAPTER 35A

QUANTIFYING REASONABLE ROYALTIES: THE ENTIRE MARKET VALUE RULE (NEW)

RICHARD J. GERING, PHD, CLP

The patentee under certain circumstances may be entitled to lost profits on both the patented product as well as other products that are not covered by the patent but that it normally sells along with the patented product. The sales of these non-patented products are generally referred to as convoyed or collateral sales by practitioners.

The terms convoyed and collateral are used interchangeably by many practitioners. Convoyed is the past participle of convoy, which is defined as a collection of land vehicles traveling together or a collection of merchant ships with an escort of warships.¹ Collateral is defined as an accompaniment to something else; “collateral target damage from a bombing run,” or situated or running side by side; “collateral ridges of mountains.”² The convoyed or collateral sale may be a completely separate product from the patented product or the unpatented component of the same physical product.

Typically, a convoyed or collateral sale is included in a lost profit calculation “when patented and unpatented components are physically part of the same machine” or when the separate patented and unpatented products “constitute a functional unit.”³ In addition the patentee must show that the patented product or component is “the basis for demand” for the entire product or for the unpatented product.⁴

The subject matter of this chapter is not lost profits in ...