Reasonable Royalty and Standard-Essential Patents
Damages may not incorporate value generated by inclusion in a standard.
[A]ny royalty award must be based on the incremental value of the invention, not the value of the standard as a whole or any increased value the patented feature gains from its inclusion in the standard.
— Ericsson, Inc. v. D-Link Systems, Inc., 773 F. 3d 1201, 1229–1235 (Fed. Cir. 2014).
This rule applies in call cases, including for patents both with and without RAND commitments.
We therefore reaffirm that reasonable royalties for SEPs generally—and not only those subject to a RAND commitment—must not include any value flowing to the patent from the standard's adoption.
— CSIRO v. Cisco Systems, Inc., 809 F. 3d 1295, 1305 (Fed. Cir. 2015).
Thus, for example, an analysis of the Georgia-Pacific factors must account for standardization.
[T]he district court never considered the standard's role in causing commercial success. Ericsson calls out factors 8, 9, and 10 as all being irrelevant or misleading in cases involving SEPs. Ericsson, 773 F.3d at 1231. We therefore conclude that the district court erred in failing to account for standardization when it evaluated the Georgia-Pacific factors[.]
— CSIRO v. Cisco Systems, Inc., 809 F. 3d 1295, 1305 (Fed. Cir. 2015).
Similarly, an analysis of licensing must account for standardization.
[T]he district court erred in failing to account for value accruing to the '069 patent from the standard's adoption. This error manifests in … its adoption of the parties' informally offered royalty rates without accounting for the possibility that CSIRO may have been trying to capture the standard's value in its licenses.
— CSIRO v. Cisco Systems, Inc., 809 F. 3d 1295, 1306 (Fed. Cir. 2015).
RAND-encumbered patents may call for adjustments that are similar yet distinct from the adjustments that are appropriate for unencumbered standard-essential patents.
In a case involving RAND-encumbered patents, many of the Georgia-Pacific factors simply are not relevant; many are even contrary to RAND principles. See Br. of Amici Curiae American Antitrust Institute ('AAI Br.') 11-20 [citing factors 4, 5, 8, 9, and 10]. … Several other Georgia-Pacific factors would at least need to be adjusted for RAND-encumbered patents—indeed, for SEP patents generally.
— Ericsson, Inc. v. D-Link Systems, Inc., 773 F. 3d 1201, 1229-1231 (Fed. Cir. 2013).
For example, a patentee that is subject to a RAND commitment may not selectively withhold a license from any party including competitors.
Likewise, factor 5—[t]he commercial relationship between the licensor and licensee—is irrelevant because Ericsson must offer licenses at a non-discriminatory rate.
— Ericsson, Inc. v. D-Link Systems, Inc., 773 F. 3d 1201, 1230-1231 (Fed. Cir. 2013).
Each SSO has its own set of rules and RAND terms vary from case to case. A royalty calculation should reflect the actual RAND commitment at issue in a case.
RAND terms vary from case to case. … The court therefore must inform the jury what commitments have been made and of its obligation (not just option) to take those commitments into account when determining a royalty award.
— Ericsson, Inc. v. D-Link Systems, Inc., 773 F. 3d 1201, 1231 (Fed. Cir. 2013).
In February 2015, the IEEE became the first SSO to regulate the calculation of FRAND royalties:
'Reasonable Rate' shall mean appropriate compensation to the patent holder for the practice of an Essential Patent Claim excluding the value, if any, resulting from the inclusion of that Essential Patent Claim’s technology in the IEEE Standard.
— IEEE, IEEE-SA Standards Board Bylaws, Clause 6, http://standards.ieee.org/develop/policies/bylaws/approved-changes.pdf, Last Accessed on October 15, 2016.
Hold-up and royalty stack may not be at issue. A reasonable royalty calculation should account for evidence of hold-up and stacking when such evidence exists.
In deciding whether to instruct the jury on patent hold-up and royalty stacking, again, we emphasize that the district court must consider the evidence on the record before it. The district court need not instruct the jury on hold-up or stacking unless the accused infringer presents actual evidence of hold-up or stacking.
— Ericsson, Inc. v. D-Link Systems, Inc., 773 F. 3d 1201, 1234 (Fed. Cir. 2014).