Published: 1/1/13
This decision established FRAND royalty rates for the use of Motorola’s FRAND-encumbered SEPs that were essential to the H.264 video compression standard and the 802.11 (Wi-Fi) wireless local area networking standard. The court applied a modified version of the Georgia-Pacific methodology for establishing royalties in patent cases, which is based on a hypothetical negotiation between the parties, to prevent patent hold-up and royalty stacking. The court ruled that “the parties in a hypothetical negotiation would set RAND royalty rates by looking at the importance of the SEPs to the standard and the importance of the standard and the SEPs to the products at issue.” Based on this approach, the court rejected Motorola’s demand for a royalty of 2.25% based on the price of Microsoft’s Xbox video game console and Windows operating system. The court concluded that the FRAND royalty rates for Xbox and Windows were $0.00555 for Motorola’s H.264 SEP portfolio and $0.03471 for Motorola’s 802.11 SEP portfolio. Granting Motorola’s 2.25% royalty request, by contrast, would have resulted in a royalty of $6-8 for those products.
One of the key findings that the court made in determining the importance of the SEPs at issue was that “[t]he development of the 802.11 Standard dealt primarily with the implementation of well-known technologies rather than innovation. As such, the majority of the technologies available to and/or adopted by the 802.11 drafters were in the public domain and not covered by patents.”