Splitting The Atom: Economic Methodologies For Profit Sharing In Reasonable Royalty Analysis

By DeForest McDuff

In recent years, courts have excluded economic experts for improperly using “rules of thumb” for profit sharing in reasonable royalty analyses. Common examples are the 25% Rule and improper application of the Nash Bargaining Solution (sometimes cynically, yet inappropriately, referred to as the “50% rule of thumb”). Such rules have, in the past, been popular in certain expert circles due to ease of implementation and purported wide applicability. However, courts have recently excluded blind application of rules of thumb for failing to tie such methodologies to the specific facts of a given case.1 As a result, many experts have been left with a dilemma for how to approach profit sharing between licensor and licensee in a consistent manner while still accounting for the specific facts and circumstances of each case.

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