IP Valuation in Litigation: Relief from Royalty & Lost Profits Explained

Methodology Options

IP valuation in UK litigation uses three primary approaches depending on the IP type and available data:

• Relief from royalty: Estimates the royalty the IP owner avoids by owning rather than licensing, capitalised and discounted to present value
• Lost profits: Quantifies sales and profit lost due to infringement, requiring proof of causation
• Cost approach: Based on the cost to develop or replace the IP, used for early-stage or unlicensed IP

Patent vs Trade Mark vs Copyright

Patent valuation typically uses relief from royalty with comparable licence rates for similar technology. Trade mark valuation may use relief from royalty or brand valuation approaches depending on the brand's standalone value. Copyright valuation uses comparable licence rates for similar content types.

Account of Profits Election

The claimant must elect between compensatory damages (lost profits or reasonable royalty) and account of profits. The valuation expert should calculate both to inform the election. Account of profits requires the infringer to disgorge profits made from the infringement.

Reasonable Royalty Calculation

The reasonable royalty is the rate a willing licensor and willing licensee would have agreed at the time infringement began. The expert uses comparable licences, the value of the patented technology to the infringer, and the hypothetical negotiation framework established in UK case law.

Brand Value Erosion

Where infringement has damaged brand reputation, the expert may quantify brand value erosion as an additional head of loss. This requires evidence of brand tracking data and market research showing consumer perception changes attributable to the infringement.