I see people tell others all the time to pick up thornmail to counter melee heavy teams (On a tank of course).

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Thornmail:

+100 Armor UNIQUE Passive: On being hit by standard attacks, returns 25% of damage taken as magic damage.

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So does it return 25% of the unmitigated strike, or 25% of the strike post armor mitigation?

Example,

Yi hits Rammus who has thornmail for 100 dmg (before mitigation), this gets mitigated down to 60 dmg, does thormail return 25 dmg or 15?

Just seems like if its the latter, the item kinda defeats itself, since it mitigates the damage its trying to reflect.

Thornmail returns damage before mitigation. So, 100dmg = 25 returned.
I know, crazy huh?

It would return 25 in that case, but the 25 would be lowered by Yi's magic resistance. So stacking more armor if you have a thornmail is a good idea.