Patent Valuation and Assessment of Damages | Dhenne Avocats

These three exercises do not follow the same rules. The first is judicial and is argued on the basis of Article L. 615-7 of the Intellectual Property Code. The second is a matter of contract and, for standard essential patents, of the undertaking given to the standardisation body. The third is financial, and makes sense only when backed by an examination of the strength of the title.

The article L. 615-7 CPI requires the court to take into consideration, separately, three heads: the negative economic consequences suffered by the injured party, including lost profits and the loss sustained, moral prejudice, and the profits made by the infringer, including the savings in intellectual, material and promotional investment derived from the infringement.

As an alternative and at the request of the injured party, the court may award a lump sum exceeding the royalties that would have been due had the infringer sought authorisation to exploit. That lump sum does not exclude compensation for moral prejudice.

The difficulty is almost never legal. It lies in constructing the base: which sales infringe, over what period, at what margin, and what share of the price is attributable to the patented function. It is the right of information under Article L. 615-5-2 CPI that makes it possible to obtain the quantities produced, delivered and received and the prices obtained. We conduct that work with financial experts, in parallel with the demonstration of infringement.

Where the licence is the battleground, the question becomes that of the rate. Two methods structure the discussion. Comparison with existing licences, which requires obtaining their production and neutralising portfolio and bundle effects. And the top-down approach, which starts from an aggregate rate for the technology as a whole and then apportions it according to the share represented by the portfolio at issue.

The debate then shifts to the royalty base, the geographical scope of the licence and the treatment of past sales. For standard essential patents, it is compounded by the FRAND undertaking given to the standardisation body, which frames what the proprietor may demand.

Outside litigation, three families of methods coexist, and their results often diverge by a significant factor. The choice of method is therefore itself a point of negotiation.

• The cost approach takes the outlay incurred to obtain and maintain the title: filing, extensions, renewal fees, research. It gives a floor, rarely a value.
• The market approach relies on comparable transactions covering neighbouring titles. Its limit is the scarcity of genuinely public comparables.
• The income approach discounts the expected flows from exploitation or royalties over the remaining term of the title. It is the most widely used, and the most sensitive to the assumptions adopted.

Option-based methods, which treat the patent as an option on future exploitation, are relevant for early-stage life sciences portfolios, where the uncertainty concerns the marketing authorisation as much as the title itself.

No method makes up for a weak title. The preliminary examination covers the same points an opponent would raise:

• The scope of the claims, and the gap between what is claimed and what is actually exploited.
• Strength against the closest prior art, and the prosecution history, which reveals the concessions made by the applicant.
• Territorial coverage and remaining term, including the existence of a supplementary protection certificate.
• Dependence on other titles, and freedom to operate.
• The existence of current licences, pledges or a co-ownership ownership.
• Litigation risk, that is, the likelihood that a revocation action will be brought and succeed.