So far, the Nash Bargaining Solution is no stand-alone substitute for the 25% rule-of-thumb

Uniloc put to rest the 25% rule-of-thumb. Assuming the problem is the “of-thumb” nature of the 25% rule, seeking more rigorous proof, plaintiffs in patent infringement cases have tried turning to the Nash Bargaining Solution as a mathematical construct for calculating damages. So, how’s that going for them?

Oracle tried to use it in the $6B damages request against Google, and Judge Alsup wanted no part of it: “No jury could follow this Greek or testimony trying to explain it. The Nash Bargaining Solution would invite a miscarriage of justice by clothing a fifty-percent assumption in an impenetrable façade of mathematics.”

In Mformation Techs., Inc. v. Research in Motion Ltd, No. C 08-04990 JW (N.D. Cal.), the court reasoned that since the expert had conducted an "extensive" Georgia-Pacific analysis, and that the Nash Bargaining Solution was used only as a "check" instead of as the primary methodology, the court denied the defendant's motion to exclude the expert's royalty rate calculation.

The court in Sanofi-Aventis Deutschland GmbH v. Glenmark Pharmaceuticals Inc. approved a 50/50 split based on game theory, accepting the explanation plaintiff’s expert ‘‘did not arbitrarily apply a 50/50 profit split, but rather reached that result after considering the facts of the case, specifically the relationship between the parties and their relative bargaining power, the relationship between the patent and the accused product, the standard profit margins in the industry, and the presumed validity of the patent.’’

For a scientific look at the Nash Bargaining Solution, start here. For our purposes, a Nash Bargaining Solution determines a licensing fee based on:

• The total benefits available from licensing agreement;

• The other next best alternative available to each party;

• An allocation of a portion of the benefits to each party that equals the benefits from their next best alternative;

• A split of the remainder according to the relative bargaining strength of the Parties (the assumption is that two parties with equal alternatives and equal bargaining strength will split the remaining benefits 50/50.)

By itself, the Nash Bargaining Solution is not faring well as a mathematical proof of damages. We’ll keep a watchful eye on how successful damages experts are in using it as just part of their analysis.