Financial compensation awarded to a complaining party for a breach by the defendant of its legal obligations to the complainant. Where an intellectual property right has been infringed, the holder of that right or, in certain circumstances its licensees, are entitled to pecuniary damages.

Damages may be calculated in various ways, usually described as “heads” of damages, some of which are cumulative (i.e., the damages for various heads can be added together) and some of which are ‘exclusive’ or in the alternative (i.e., receiving damages under one head excludes the possibility of receiving damages under another specific head, or perhaps under all other heads). In the case of heads of damages that are exclusive, some procedural systems may require a plaintiff to opt for a form of damages at the outset of the case or before trial, rather than seeking various heads of damages in the alternative.

In the general case, damages are designed to place the intellectual property owner (or perhaps the licensee) in the position that it would have enjoyed, had the infringement not taken place. Under such an analysis, that the infringing activity was not profitable, or that it was not as profitable as the IP owner’s use of the IP, does not reduce the infringer’s liability (e.g., the infringer could be a double loser, both commercially and in damages). One common basis for damages is that they should be not less than a reasonable royalty, i.e., the royalty the infringer would have had to pay in order to obtain a license. However, where damages can be shown to exceed a reasonable royalty, the higher sum would usually be paid.

In addition, in some jurisdictions, particularly with respect to trademarks and copyrights, profit disgorgement by the infringer may be required (in the event that profits exceeded other measures of damages) on the basis that a wrongdoer should never be allowed to profit from its wrong. Substantial heads of damages may include: lost sales; price erosion (which may result in massive damages if it is shown to be permanent); convoyed sales; and assorted market damages. Many systems provide for statutory damages, which may substantially exceed the actual damages traceable to each act of infringement. Other jurisdictions also allow enhanced damages, or exemplary damages, though not typically the U.K. See Georgia-Pacific Factors.