Why U.S. patents are now less valuable

March 23, 2011: 2:40 PM ET

A stunning decision in a Microsoft patent infringement case may have made patent royalties more fair, but also made them much more unpredictable.

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By Russell L. Parr and George Hovanec , guest contributors

A January decision by the Court of Appeals for the Federal Circuit had a sweeping effect:  it dropped the value of US patents. Just how much the value has been reduced, overall, is not yet known. Part of the reason we don't know is because the reduction in value is not going to be equally distributed across every patent. Rather, we know that patents owned by individual inventors, universities and research institutes will be hardest hit. Here, we'll explain what happened, and why it matters.

First, here's what happened last month. A frequently used method in determining damages for patent infringement, "the 25% Rule of Thumb," was rejected by the Court in Uniloc USA, Inc. et al. v. Microsoft Corporation. Microsoft was found to infringe Uniloc's patent for a piece of technology. Expert testimony at trial concerning patent damages had, like many cases through history, relied on the 25% Rule of Thumb to determine damages owed to Uniloc. More

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