Magic Bullet Or Rule Of Thumb: Determining Reasonable Royalties With Corporate Discount Rates Using The Muthoo Model

By Brian Dies and Joel Wacek

Damages experts in patent litigation have been applying an economic model based on the work of Dr. Abhinay Muthoo1 to determine reasonable royalty rates through a profit sharing formula based on relative corporate discount rates.2 The work of Dr. Muthoo has been oversimplified and misapplied in this context. Attempts to use corporate discount rates as the sole determinative measure of bargaining power in a hypothetical negotiation for a reasonable royalty are fundamentally flawed. This use of the Muthoo Model is nothing more than another unsupported rule of thumb that is unreliable for determining reasonable royalties in patent infringement matters.

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