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rate. Wagner testified that he first chose an appropriate “benchmark” in order to value

Microsoft’s use of the claimed invention at the time of the hypothetical negotiation.

Wagner chose a product called XMetaL as his benchmark, which had a retail price of

$499. To calculate the licensing fee, Wagner multiplied the price of XMetaL ($499) by

Microsoft’s profit margin (76.6%), based on his assumption that any licensing fee would

be a fraction of the profits. Wagner then applied the 25-percent rule to this number,

which assumes the inventor will keep 25% of the profits from any infringing sales. This

resulted in a baseline royalty rate of $96. Wagner testified that the 25-percent rule was

“well-recognized” and “widely used” by people in his field.

To support his royalty calculation, Wagner adjusted the baseline royalty rate of

($96) using the factors set out in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F.

Supp.

1116,

1120

(S.D.N.Y.

1970).3

Based

on

the

Georgia-Pacific

factors,

Wagner

then increased the baseline from $96 to $98, which was the “reasonable royalty rate” he

3 These factors include: (1) royalties the patentee has received for licensing the patent to others; (2) rates paid by the licensee for the use of comparable patents; (3) the nature and scope of the license (exclusive or nonexclusive, restricted or non- restricted by territory or product type); (4) any established policies or marketing programs by the licensor to maintain its patent monopoly by not licensing others to use the invention or granting licenses under special conditions to maintain the monopoly; (5) the commercial relationship between the licensor and licensee, such as whether they are competitors; (6) the effect of selling the patented specialty in promoting sales of other products of the licensee; (7) the duration of the patent and license term; (8) the established profitability of the product made under the patent, including its commercial success and current popularity; (9) the utility and advantages of the patent property over old modes or devices; (10) the nature of the patented invention and the benefits to those who have used the invention; (11) the extent to which the infringer has used the invention and the value of that use; (12) the portion of profit or of the selling price that may be customary in that particular business to allow for use of the invention or analogous inventions; (13) the portion of the realizable profit that should be credited to the invention as opposed to its non-patented elements; (14) the opinion testimony of qualified experts; and (15) the results of a hypothetical negotiation between the licensor and licensee. Id.

2009-1504

29

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