The Entire Market Value Rule

• Author: Russell L. Parr
• Profession: President of Intellectual Property Research Associates
• Pages: 434-447

CHAPTER 27

THE ENTIRE MARKET VALUE RULE

“The ‘entire market value rule’ recognizes that the economic value of a patent may be

greater than the value of the sales of the patented part alone. Under this rule, courts have

allowed recovery of lost prots or a reasonable royalty based not only on the prot from

the patented part, but also on non-patented parts.”1The entire market value rule “permits

recovery of damages based on the value of the entire apparatus containing several features,

where the patent related feature is the basis for customer demand.”2The entire market value

rule has come under attack and in some cases is far too limiting and results in inadequate

damages awards.

In Mentor Graphics Corp. v.EVE-USA, Inc. [No. 15–1470 (Fed. Cir. Mar.16,2017)] the

concept of the entire market rule was an issue. A jury awarded Mentor over $36 million in

lost products based on the patent-infringing sales of the defendant’s product that were made

for Intel Corp. The defendant appealed the decision, arguing that the court failed to properly

apportion the lost prots. They argued that the damages amount must be apportioned to

cover only the portion of the prot attributable to the infringing products’ patented feature.

The Patent Act provides that “the court shall award [the patent owner]damages adequate

to compensate for the infringement but in no event less than a reasonable royalty for the

use made of the invention by the infringer” (35 U.S.C. § 284). Under the statute, “damages

adequate to compensate” means “full compensation for ‘any damages’ [the patent owner]

suffered as a result of the infringement.”

The Federal Circuit considered the four Panduit factors and concluded that Mentor satis-

ed all four and was entitled to an award based on lost prots. The Federal Circuit rejected

the argument of the defendant and reasoned that Mentor’s product and the defendant’s

infringing product were the only acceptable alternatives to Intel and Intel would not pur-

chase a product without the patented features. The court considered that other features of

the product may have been important to Intel but only Mentor could sell the product with all

the desired features, including the patented feature at issue. The Federal Circuit concluded

that but for the infringing products, Mentor would have made sales and prots based on the

entire market value of the product sales it had lost—no apportionment was justied.

The EMV rule is also applicable to damages based on a reasonable royalty, which are

typically divided into two components: (1) the determination of the royalty base and (2) the

determination of the royalty rate. For example, the royalty base could be the net sales in

dollars of the allegedly infringing product, and the royalty rate could be a running royalty

expressed as a percent of the sales price of the product. The reasonable royalty calculation

is then expressed as the product of the royalty base multiplied by the royalty rate.

1King Instruments Corp. v. Perego, 65 F.3d941, 950–951 n.4 (Fed. Cir.1986).

2State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d1573, 1580 (Fed. Cir. 1989).

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