Reasonable Royalty for Industry Standard Patents

by Dennis Crouch

The Australian governmental research agency CSIRO has been the plaintiff in a number of E.D. Texas patent cases over the past decade — repeatedly enforcing its wireless local-area-network (LAN) U.S. Patent No. 5,487,069 that has been held to cover WiFi (802.11a and 802.11g).

After a long battle, CISCO stipulated to liability and validity of the patent.  In a bench trial, the court found that a reasonable royalty was about $.83 per WiFi product sold by Cisco.  On appeal, however, the Federal Circuit vacated that Judgment – holding that the royalty rate was likely too high because it internalized the lock-in value of the standardized technology.  There are many ways to create a wireless local network and there really is not any indication that the ‘069 patent offers the best way (even among other available alternatives).  Instead, what makes the ‘069 patent so valuable is that it was chosen as the standard.

The underlying question now on petition for certiorari to the Supreme Court is whether and the extent that CSIRO’s royalty rate should be discounted because the invention was chosen as the standard.  However, CSIRO’s petition focuses on the standard of appellate review:

The Patent Act provides that a “[u]pon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement ….” 35 U.S.C. § 284. In contravention of this broad language, the Federal Circuit has erected a rigid set of legal rules to control the determination of damages by triers of fact. As a result, the Federal Circuit now exercises de novo review over inherently factual questions, resulting in routine reversals.
This Court has held with regard to another patent remedies provision that it is improper for the Federal Circuit to “superimposed an inflexible framework onto statutory text that is inherently flexible.” Octane Fitness. And this Court is considering related questions in relation to another portion of section 284 in Stryker Corp. and Halo Electronics.

The question presented is:

Is the Federal Circuit’s promulgation of rigid legal rules to control the weight to be given by the trier of fact to evidence of patent infringement damages proper under 35 U.S.C. § 284?

 

Because damages are now the fundamental remedy for patentees, this case will be an important one to follow.

[Read the Petition: CSIRO v. Cisco Petition for Certiorari]

Guest Post by Prof. Contreras – CSIRO v. Cisco: The Convergence of RAND and non-RAND Royalties for Standards-Essential Patents

Dennis Crouch

About Dennis Crouch

Law Professor at the University of Missouri School of Law. Co-director of the Center for Intellectual Property and Entrepreneurship.

13 thoughts on “Reasonable Royalty for Industry Standard Patents

    1. I was just discussing this case with a UCLA grad. We both agreed that justifiable homicide might be a defense.

  1. Why is the lock-in value not a part of the value?

    It was valuable enough to have been chosen, so why is it “proper” to remove that value?

    1. Your question should be considered before the analysis continues any further down the path of discounting value due to lock-in. Does it matter if the claim at issue is the chicken or the egg (in a what lead to who analysis) or whether the entire standard is interwoven in a way that makes it impossible to separate the claimed invention from the standard.

    2. Just to complicate that question further, standard setting bodies do not normally set a standard that would infringe a necessary patent owned by a non-participant. Is not the imaginary prior arms length negotiated license part of the Georgia-Pacific test supposed to be considered as if conducted BEFORE the expensive commitment to infringing products, when non-infringing alternatives are still available?

      1. Paul, a standard is chosen because it 1) works; and 2) is the best known that, of course, does not infringe a third party patent.

        I am puzzled by the thinking of the Court here. It is as if standards bodies choose among several equally good choices.

        I think the fact that the invention was chosen should be given weight in determining its value.

      2. standard setting bodies do not normally set a standard that would infringe a necessary patent owned by a non-participant

        Completely immaterial to the legal considerations here. Further, the standards setting body is not a legal body, setting law. What they do or do not do should not have an impact to the legal point here, should it (aside from any normal value that obtains to the item in question)? The standards group is entirely free to change their collective minds and choose a different standard, which undoubtedly would lower the value of the item under consideration here.

        This appears to just be a judicial nanny overreach – plain and simple.

  2. Is the Federal Circuit’s promulgation of rigid legal rules to control the weight to be given by the trier of fact to evidence of patent infringement damages proper under 35 U.S.C. § 284?

    The answer would seem to depend on the “rigid rule” in question.

    But nuance is really difficult for the patent kool-aid drinkers. It always has been.

  3. The argument of “the Federal Circuit’s promulgation of rigid legal rules ” for damages will be argued to be inconsistent the fact that in this case the Fed. Cir. actually bent some of its general damages calculation rules to require consideration of the fact that this was a required industry standard.
    But as Ned noted, almost every Fed. Cir. decision lately seems to have inspired a cert petition.

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