Hypothetical negotiation (Georgia-Pacific)

The analytical framework used to determine reasonable royalty damages in patent infringement cases, requiring the fact-finder to reconstruct the royalty terms a willing licensor and willing licensee would have reached in a hypothetical arm's-length negotiation at the moment infringement began. The Georgia-Pacific Corp. v. U.S. Plywood Corp. decision (1970) identified 15 non-exhaustive factors — including existing royalty rates, the nature of the license, relative bargaining positions, and the patent's commercial success — that guide this analysis. In litigation finance underwriting, the Georgia-Pacific analysis is the primary vehicle through which damages experts construct recovery models, and a funded case's investment thesis often rests on a specific reading of which factors dominate given the technology and market. Funders who invest across patent portfolios develop institutional views on how courts in particular circuits weigh these factors.

Because the fifteen Georgia-Pacific factors are non-exhaustive and courts weigh them inconsistently across circuits, funders develop jurisdiction-specific views on which factors dominate for a given technology and market before committing capital — for example, whether the patentee's licensing history or the infringer's realizable profit will carry more weight with a particular judge. This circuit-level calibration is one of the few advantages an experienced funder has over the underlying damages expert, since it draws on outcome patterns across many prior negotiation analyses rather than a single case's facts.