The Strategic Value And Challenges Of Estimating Damages Pre-Suit In Patent Infringement Cases

Reprinted with permission from the November/December 2025 issue of IP Litigator and The Licensing Journal.

In the realm of patent infringement litigation, the period before a lawsuit is filed can often be as critical as the litigation itself,

When infringement occurs, patent owners must evaluate whether to pursue legal action and/or, as an alternative to litigation, engage in licensing negotiations or explore acquisition opportunities. A key component of this decision-making process is the estimation of damages, pre-suit – a process that is both strategically important and inherently challenging.

To make informed decisions, a patent owner needs to be able to weigh the potential damages outcomes in a successful litigation campaign with the significant investment of time, resources, and attorney fees and costs associated with patent litigation. While attorney fees and costs can vary significantly in patent litigation cases, they will almost certainly be hundreds of thousands of dollars through the claim construction hearing and likely over one million dollars through trial and possibly significantly more, depending upon the level of infringement and number of patents and defendants involved in the case. Understanding the costs and benefits of patent litigation is particularly important to emerging companies owning patents covering their new technology. These companies need to protect their main assets but must evaluate how patent litigation will impact their cash flow, profitability, and future transactions – as well as their presence in the market. An estimate on damages, pre-suit helps provide insight into those uncertainties.

The Challenge of Estimating Damages, Pre-Suit

Estimating damages before discovery and expert disclosure phases involves uncertainty. However, even without access to the defendant's internal financial records, sales data, and cost structures, skilled and experienced experts can develop reasonable estimates using public information, indirect benchmarks, and assumptions, which can be further tested after litigation commences.

Some of the specific challenges include:

• Lack of Access to the Infringer's Internal Data: In a typical litigation setting, we have access to discovery materials including the infringer's sales records, profit margins, and internal communications. Pre-suit, this kind of information is largely unavailable. However, other information can be obtained – e.g., on SEC filings, market research, industry benchmarks, and public product data – to infer the scope and profitability of the alleged infringement for an estimation of damages, pre-suit.
• Incomplete Technical Understanding: Patent infringement analysis often involves technical nuances that are clarified through discovery and technical expert analysis in the litigation process. Pre-suit, definitive information about how the allegedly infringing products operate in relation to the asserted patents is limited. However, patent owners are often able to address this issue, depending on the ability to examine the alleged infringing product/features.
• Estimating Apportionment: In a damages calculation, it is critical to apportion the value of the patented feature relative to the entire product. Even without discovery, apportionment can be estimated using preliminary technical understanding on industry knowledge, comparable technologies, or licensing precedents.
• Market Conditions and Causation: Demonstrating that the patented feature drives consumer demand – an important factor in determining damages – is difficult without survey evidence or customer insight, both of which are typically developed during litigation and require the engagement of and significant analysis from an expert witness. That said, data on market conditions and causation can be obtained from customers and existing market research and, when appropriate, causation may be assumed for an estimate on damages, pre-suit.

Despite these limitations and challenges, a well-reasoned, conservative pre-suit damages estimate is still viable and can be a powerful tool – especially when plaintiffs consider non-litigation strategies like a potential acquisition of an infringer's business.

Pre-Suit Damages Estimates as a Lever for Acquisition

One increasingly strategic use of pre-suit damages estimates is in the context of patent-driven acquisitions. In situations where a plaintiff believes a defendant's infringement is significant and core to its business operations, a damages estimate, pre-suit, may reveal that potential damages may exceed the defendant company's valuation or at least materially affect it. A credible damages estimate can give the plaintiff leverage to propose an acquisition as a settlement option in a patent infringement case under the logic that:

• Litigation Risk is High: The threat of a substantial damages award, particularly if enhanced damages (for willful infringement) are plausible, may make acquisition an attractive risk-mitigation strategy for the defendant.
• Settlement Value as Acquisition Currency: A plaintiff can frame the acquisition price around avoided litigation costs and potential exposure. For example, when a pre-suit damages estimate approaches the overall value of the defendant's business, the plaintiff might propose acquiring the defendant at a negotiated discount. In that way, the threat of litigation becomes leverage for a deal, effectively transforming litigation risk into a strategic asset.
• Control and Monetization: For the plaintiff, acquiring the defendant means not just ending infringement but removing a competitor and gaining control over a technology, product line, or market share, creating future monetization opportunities beyond litigation.
• Negotiation Posture: Even if an acquisition is not the primary goal, a credible damages estimate enhances the plaintiff's negotiation posture – signaling preparedness, sophistication, and a strategic perspective beyond just litigation.

Best Practices for Plaintiffs and Counsel

If your team is considering asserting patents against infringers, and especially if acquisition is a possible endgame, here are some best practices for developing pre-suit damages estimates:

• Engage an Expert Early: Damages modeling is iterative. Starting early allows time to refine assumptions; explore multiple methodologies for calculating damages (e.g., lost profits vs. reasonable royalty); and tailor the damages analyses to support business goals.
• Use Triangulated Data Sources: Rely on a combination of public financial information, market reports, pricing data, comparable licenses, and client information on the marketplace and causation to reinforce assumptions.
• Develop Scenarios: Given the data uncertainty, consider providing a range of damages outcomes under conservative, moderate, and aggressive assumptions.
• Coordinate with Technical Experts: Even pre-suit, informal collaboration with technical consultants can help clarify the scope of infringement and potential claim construction issues that affect damages.
• Position the Estimate Strategically: Frame the estimate on damages, pre-suit as part of a broader business solution to the patent infringement – not just the potential for a damage award or legal exposure, but also a benchmark for possible acquisition value, increasing competitive advantage and market control.

Final Thoughts

Estimating pre-suit damages for patent infringement is as much an art as it is a science. While the lack of discovery data imposes some limitations, a well-grounded estimate can still be established and help inform on strategic decisions, shift negotiation dynamics, and even reshape the competitive landscape through acquisition. Engaging a team of seasoned litigators and damages experts at the outset does more than model damage claim figures – it positions clients to leverage those insights strategically. Recognizing the potential value of intellectual property assets allows companies to use it not just for protection, but as a driving force for business growth.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.