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.