Ericsson v D-Link: Standards, Patents, and Damages

By Jason Rantanen

Ericsson, Inc. v. D-Link Systems, Inc. (Fed. Cir. 2014) Download Ericsson v D-Link
Panel: O’Malley (author), Taranto (dissenting-in-part), Hughes

Standard Essential Patents (SEPs) are an integral part of the modern technological landscape.  As an example, Ericsson, the patent holder in this case, alleged that the patents at issue were essential to a common Wi-Fi standard, 802.11(n); thus all 802.11(n) compliant devices infringe the patents.  Due to their nature (they cover technologies whose widespread use can be as at least as much due to the adoption of the standard as the incremental value of the invention), SEPs pose particular issues when dealing with the question of remedies.

Two well-recognized problems are hold-up and royalty stacking.  “Patent hold-up exists when the holder of a SEP demands excessive royalties after companies are locked into using a standard. Royalty stacking can arise when a standard implicates numerous patents, perhaps hundreds, if not thousands. If companies are forced to pay royalties to all SEP holders, the royalties will “stack” on top of each other and may become excessive in the aggregate.”  Slip Op. at 7-8.  Organizations that develop standards, such as IEEE, typically address these potential problems by seeking pledges from their members “that they will grant licenses to an unrestricted number of applicants on “reasonable, and nondiscriminatory’ (‘RAND’) terms.”  Id. at 8.  Ericsson promised to offer such licenses for its 802.11(b) SEPs.

Background: In 2010, Ericsson filed an infringement suit against D-Link, accusing it of infringing a set of its 802.11(b) SEPs.  Ericsson prevailed at the district court, with a jury finding infringement of three patents, rejecting a validity challenge to one, and awarding Ericsson $10 million in damages (a royalty rate of $0.15 per product).  Based on the jury award, the judge found $0.15 per product to be an appropriate running royalty.  On appeal, the Federal Circuit affirmed enough of the district court findings as to liability for the issue to be one of damages.  (Judge Taranto dissented as to one of the infringement conclusions but agreed with the rest of the majority opinion).

Damages and SEPs: The below paragraph from the court’s opinion summarizes its key holdings on damages:

In sum, we hold that, in all cases, a district court must instruct the jury only on factors that are relevant to the specific case at issue. There is no Georgia-Pacific-like list of factors that district courts can parrot for every case involving RAND-encumbered patents. The court should instruct the jury on the actual RAND commitment at issue and must be cautious not to instruct the jury on any factors that are not relevant to the record developed at trial. We further hold that district courts must make clear to the jury that any 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. We also conclude that, if an accused infringer wants an instruction on patent hold-up and royalty stacking, it must provide evidence on the record of patent hold-up and royalty stacking in relation to both the RAND commitment at issue and the specific technology referenced therein.

Slip Op. at 56.  The first sentence is probably the most widely applicable, and arguably applies beyond the RAND context.  It is legal error to simply recite the Georgia-Pacific factors in a set of jury instructions.  Courts must be cognizant of which factors actually apply in a given situation.  “Although we recognize the desire for bright line rules and the need for district courts to start somewhere, courts must consider the facts of record when instructing the jury and should avoid rote reference to any particular damages formula.”  Slip Op. at 50.

Of course, legal error in a jury instruction does not mandate reversal; that error must still be prejudicial.  Here, the errors were significant and in combination sufficiently prejudicial.  For example, some Georgia-Pacific factors are directly contrary to the RAND commitment, such as factor 4, “'[t]he licensor’s established policy and marketing program to maintain his patent monopoly by not licensing others to use the invention or by granting licenses under special conditions designed to preserve that monopoly.’ Georgia-Pacific, 318 F. Supp. at 1120. Because of Ericsson’s RAND commitment, however, it cannot have that kind of policy for maintaining a patent monopoly.”  Slip Op. at 48.

Another important piece of the court’s holding is its clarification of what the patent remedy must relate to in the context of SEPs: 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.”  In other words, just as modern devices incorporate many different technological components, so too do standards include multiple technologies.  “Just as we apportion damages for a patent that covers a small part of a device, we must also apportion damages for SEPs that cover only a small part of a standard.”  Id. at 52.

Finally, on patent hold-up and royalty stacking, an accused infringer can obtain such an instruction but there must be record evidence: “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. Certainly something more than a general argument that these phenomena are possibilities is necessary.”  Id. at 54.

31 thoughts on “Ericsson v D-Link: Standards, Patents, and Damages

  1. “For example, some Georgia-Pacific factors are directly contrary to the RAND commitment, such as factor 4, “'[t]he licensor’s established policy and marketing program to maintain his patent monopoly by not licensing others to use the invention or by granting licenses under special conditions designed to preserve that monopoly.’ Georgia-Pacific, 318 F. Supp. at 1120. Because of Ericsson’s RAND commitment, however, it cannot have that kind of policy for maintaining a patent monopoly.” Slip Op. at 48.”

    Sounds like a relevant factor to me – it cuts hard against the patent owner in the RR calculation. CAFC sounds a little reaching here to vacate and remand on damages.

    .15 cents? on a $50-$150 product? Sounds pretty fair and non-discrimatory to me. The rounding error on the sales tax.

    Sounds like the correct result to shift the burden of production onto a company like d-link. They are going to be the party who knows and can document best evidence of stacking and sum total for the standard.

    Maybe the RAND clause should be modified to include the requirement to record the economic terms of a license to a RAND patent with USPTO on the licensed patent in the patent file.

    1. Sounds like a relevant factor to me – it cuts hard against the patent owner in the RR calculation.

      You’re missing the critical point that this “factor” is directly contrary to the RAND commitment. The patentee can’t have it both ways.

  2. Infringer to jury, “There are literally tens of thousands of patents that cover devices that use the X standard. See, this Google search I just conducted when I plugged in the following key terms that all such patents normally would have. I get 111,212 hits.

    Thus divide the RR requested by the Patent Owner by 111,212.

    Patent Owner, I object. Your honor, there is no proof that all 111,212 patents actually cover the standard. I move for a mistrial.

    You are the court. Decide.

  3. Major case here.

    1) Whether CBM’s cover 101.
    2) Whether ultra vires assertions of jurisdiction are appealable at all – and whether there is a constitutional problem if Congress actually made jurisdiction off limits.
    3) Res Judicata — the corresponding court case is completely final and Versata won, SAP lost. In the CBM, SAP won, Versata lost.
    4) Whether software that improves the performance of a computer is eligible under 101. The PTAB said no.
    5) Whether software that improves performance of a computer is a “finanacial product or service” just because the programmed computer that is improved is calculating price.

    Panel P: Wednesday, December 03, 2014, 2:00 P.M., Courtroom 201
    Judges: Newman, Plager, & Hughes
    14-1145 DCT Versata Development Group v. Lee [argued]
    14-1194 PATO Versata Development Group v. SAP America, Inc. [argued]

    Oral Arg. link to oralarguments.cafc.uscourts.gov

    1. Ned, when you say “the corresponding court case is completely final” do you mean its appeal was already decided by the Fed. Cir., or the case was settled? [That clairification may make a difference to the defendant here [but not third parties]. A prior situation of an inconsistent PTAB and D.C. decision has beenhaving frequently missrepresented as a final judicial decision when it actually did not – there had not yet even been a D.C. damages decision. If I remember correctly, that was Fresenius USA, Inc. v. Baxter Int’l, Inc., 733 F.3d 1369 (Fed. Cir. 2013)(Order), panel opinion, 721 F.3d 1330 (Fed. Cir. 2013)?

      1. Paul, according to the chit-chat, the decision was not final at a point where the Board decided not to apply Res Judicata because an appeal might still have been pending. However, the parties settled. But the judgment of the lower court appears to be final.

        SAP was arguing that the decision was not “collateral estoppel” because the standard of proof were different. The court seemed a little perturbed by that argument given that the issue here is not collateral estoppel but claim preclusion.

        But in its closing rebuttal, the attorney for Versata was making the argument that the District Court judgment was final and that the settlement occurred sometime after that.

    2. Listened to it last night Ned and I have to be honest it doesn’t sound to me like it will be very “major”. Sounds to me like the status quo will merely continue.

        1. What the board is doing as it’s unreviewable decision to initiate proceedings. And the definition of CBM adopted by the board. And whether this particular invention is patent eligible.

          1. 6, you seem oblivious of the fact that congress has no power to remove subject matter jurisdiction from review by a court, and that if the AIA were to be interpreted the way the PTO insists it be interpreted, that AIA would be unconstitutional. The panelists said this, but you might have missed it.

            link to en.wikipedia.org

            Also, Crowell v. Benson, 285 U.S. 22, 56-57, 52 S. Ct. 285, 76 L. Ed. 598 (1932).

            “In the present instance, the Congress has imposed liability without fault only where the relation of master and servant exists in maritime employment and, while we hold that the Congress could do this, the fact of that relation is the pivot of the statute and, in the absence of any other justification, underlies the constitutionality of this enactment. If the person injured was not an employee of the person sought to be held, or if the injury did not occur upon the navigable waters of the United States, there is no ground for an assertion that the person against whom the proceeding was directed could constitutionally be subjected, in the absence of fault upon his part, to the liability which the statute creates.

            In relation to these basic facts, the question is not the ordinary one as to the propriety of provision for administrative determinations. Nor have we simply the question of due process in relation to notice and hearing. It is rather a question of the appropriate maintenance of the Federal judicial power in requiring the observance of constitutional restrictions. It is the question whether the Congress may substitute for constitutional courts, in which the judicial power of the United States is vested, an administrative agency — in this instance a single deputy commissioner[23] — for the final determination of the existence of the facts upon which the enforcement of the constitutional rights of the citizen depend. The recognition of 57*57 the utility and convenience of administrative agencies for the investigation and finding of facts within their proper province, and the support of their authorized action, does not require the conclusion that there is no limitation of their use, and that the Congress could completely oust the courts of all determinations of fact by vesting the authority to make them with finality in its own instrumentalities or in the Executive Department. That would be to sap the judicial power as it exists under the Federal Constitution, and to establish a government of a bureaucratic character alien to our system, wherever fundamental rights depend, as not infrequently they do depend, upon the facts, and finality as to facts becomes in effect finality in law.”

            1. That’s not exactly true Ned, as I have shown with the ability of Congress to remove appellate jurisdiction of patent law from the Supreme Court (granted, my example still has an Article III court in place, hence the ‘not exact’ versus a ‘flat out wrong’)

              1. anon, I have read law review articles that dispute the power of congress to override the constitution.

                While congress may tweak court jurisdiction, it has no power to entirely deny the protection of the courts for persons deprived of fundamental constitutional rights.

                That is what congress seemed to have intended here.

                1. Ned,

                  You quite seriously misunderstand what I have consistently stated.

                  The constitution FULLY allows Congress to limit the appellate jurisdiction of the Supreme Court, as long as the outlet of an Article III court is still present.

                  Your untowarda feality to that certain branch of the government is apparently clouding both your ability to read, as well as your ability to underarms what is within the power of Congress per the constitution.

            2. “6, you seem oblivious of the fact”

              I’m just telling you my opinion of the proceedings that were taped brosef. It sounds to me like they’re gearing up for more of the same.

  4. Not even discussed in this Fed. Cir. “case of first impression” on the RAND subject is any consideration of whether or not such a RAND or FRAND standards agreement is a valid and enforcable contract. That was a subject of academic speculation in a prior blog on this site, but it must not have been taken seriously?

      1. As noted, it was not me, it was this blog:

        “Why FRAND Commitments are Not (usually) Contracts

        September 14, 2014Dennis Crouch

        Guest Post by Professor Jorge L. Contreras

    1. In its letters, Ericsson pledged to “grant a license under reason- able rates to an unrestricted number of applicants on a worldwide basis with reasonable terms and conditions that are demonstrably free of unfair discrimination.” Joint Appendix (“J.A.”) 17253. The parties agree that this commitment is binding on Ericsson. See also IEEE Br. 19–20.

    2. Apparently that was not in dispute. See p. 8:

      “Ericsson promised to offer licenses for all of its 802.11(n) SEPs at a RAND rate via letters of assurance to the IEEE. In its letters, Ericsson pledged to “grant a license under reasonable rates to an unrestricted number of applicants on a worldwide basis with reasonable terms and conditions
      that are demonstrably free of unfair discrimination.” Joint Appendix (“J.A.”) 17253. The parties agree that this commitment is binding on Ericsson. See also IEEE Br. 19–20.”

  5. What is the definition of “excessive” royalties, either singly or in aggregate?

    Is it a royalty which amounts to a level such that the licensor is effectively unable to make any gross profit related to the articles covered by the patent(s) and is effectively barred from participating in the market for those articles?

    What other possible standard in a free and private market of competitors could be used for the definition of “excessive”?

    1. Is it a royalty which amounts to a level such that the licensor is effectively unable to make any gross profit related to the articles covered by the patent(s) and is effectively barred from participating in the market for those articles?

      That seems like a reasonable start … although I think you meant to say “licensee”, not “licensor.”

  6. Is this correct? “On appeal, the Federal Circuit {upheld?} enough of the district court findings as to liability for the issue to be one of damages.”

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