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Olson v. Nieman's Ltd.5/28/1998
nt of the use involved. What is a reasonable royalty is a question of fact. . . . The primary inquiry, often complicated by secondary ones, is what the parties would have agreed upon, if both were reasonably trying to reach an agreement.
There is no mathematical formula for the determination of a reasonable royalty. The property loss of a patentee from infringement may arise from such varying facts and circumstances that each case must be controlled by those peculiar to it and except in rare instances the loss can only be determined by reasonable approximation. Faulkner v. Gibbs, 199 F.2d 635, 639-40 (9th Cir. 1952).
Iowa Code chapter 550-Trade Secrets-recognizes reasonable royalty as a measure of damages: "In lieu of damages measured by any other methods, the damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty for a person's unauthorized disclosure or use of a trade secret." Iowa Code § 550.4(1) (emphasis added).
Determining a reasonable royalty is analogous to a jury's determination of a proper amount of damages for pain and suffering in a personal injury suit. Like reasonable royalties, pain and suffering cannot be measured by any exact mathematical formula. Oldsen v. Jarvis, 159 N.W.2d 431, 434 (Iowa 1968). Rather, pain and suffering rest in the sound discretion of the jury based upon a fair and impartial consideration of all the evidence. Id.
Such flexibility in determining a reasonable royalty is imperative in cases involving business torts such as misappropriation of trade secrets. This is because " ublic policy requires that unfair competitors must not be allowed to profit by their wrongful methods and that those who have been injured by them should receive adequate compensation for the loss or injury they have suffered." Jet Spray Cooler, Inc. v. Crampton, 385 N.E.2d 1349, 1356 (Mass. 1979) (quoting 2 H. Nims, Unfair Competition and Trade-Marks § 419, at 1324-25 (4th ed. 1947)). This is especially important where (1) a defendant has destroyed the value of plaintiff's secret through publication and has not enjoyed any profits and (2) the plaintiff is hard-pressed to show any loss. University Computing Co., 504 F.2d at 535.
Here, Newkirk developed four models to calculate damages, using a reasonable royalty measure of damages and a market approach. Under the circumstances, this was appropriate because from the evidence the jury could find (1) Nieman destroyed the value of Olson's device by making it public; (2) Nieman sold few, if any, devices; and (3) Olson derived no income from it. Thus, Newkirk was attempting to value the lost opportunity of a destroyed right.
Newkirk's calculation of damages not only assumes a market for Olson's device but also a profitable one. His assumptions are reasonable because they are based on (1) Harms' testimony that the device was patentable and (2) statements Nieman's competitors made that there would be a demand for the device.
In a preface to his damage report, entitled "Principles of Valuation," Newkirk describes the market approach: "The market approach measures the present value of future benefits by determining the value that market would accord to the investment. Market analysis requires a public market and the existence of comparable values." He testified this method is a highly recognized economic valuation technique for market valuation of intellectual property and intangible assets. See generally Gordon V. Smith & Russell L. Parr, Valuation of Intellectual Property and Intangible Assets ch. 7, 8 (1989). One commentator has noted that lost profits is the "primary component in measuring [the plaintiff's] loss." David G. Ober
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