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Vulnerabilities of Game Theory in Reasonable Royalty Analysis

By Stevan Porter of AdValum Consulting

Stevan Porter is a Managing Director of AdValum Consulting, which provides expert economic consulting services in strategy, valuation and damages, specializing in intellectual property. He also is an adjunct Professor of Strategy at IE Business School, where he teaches Strategic Management of Intellectual Property.

About 25 years before Judge Tenney set forth the fifteen Georgia-Pacific factors for evaluating hypothetical negotiations,1 two researchers invented the mathematical theory of games, which also can be useful for describing and predicting negotiation outcomes.2 Recently, there has been renewed interest in using game theory to analyze hypothetical negotiations and estimate reasonable royalties.3 This attraction appears to stem from courts’ (e.g. Uniloc) continued push for greater scientific girding of reasonable royalties proposed by damages experts in the course of patent infringement litigation.4

Whether game theory offers any such girding, however, is unclear.

While the theory of games has undoubtedly contributed a great deal to economic analysis in the last 65 years, its application in th...

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