Damages quantification following intellectual property (IP) infringement is a specialised area. The first step in bringing a damages claim is for the claimant to elect the type of award it seeks. In most jurisdictions, the claimant needs to choose between two available options: an inquiry as to damages (in other words, the loss the owner of the IP has suffered as a result of the infringement) or an account of profits (in other words, the gain the defendant made from the infringement).
In broad terms, damages in respect of IP infringement in an inquiry are recoverable either in the form of lost profits, if it can be demonstrated that the owner of the intellectual property has lost sales as a result of the infringement, or a reasonable royalty. Other damages such as lost profits on unpatented ancillary goods such as spare parts may also be recoverable.
Lost profits comprise the incremental profit that would have been earned by the claimant absent the defendant's infringement. Incremental profit is defined as the revenue the claimant would have earned, less all of the costs that would have been incurred solely as a result of carrying out the work. A reasonable royalty is the hypothetical royalty that would have been negotiated by the IP owner and the infringer had they been willing parties to a licence agreement for the intellectual property prior to the infringing act.