Published: 3/1/11
In this report, the FTC addressed the issue of a reasonable royalty for FRAND-encumbered SEPs. The Commission recommended that “[c]ourts should cap the royalty at the incremental value of the patented technology over alternatives available at the time the standard was chosen.” The FTC explained that setting the royalty for a FRAND-encumbered SEP “based on the ex ante value of the patented technology at the time the standard is chosen is necessary for consumers to benefit from competition among technologies to be incorporated into the standard – competition that the standard setting process itself otherwise displaces.” The FTC also addressed the question of the appropriate royalty base in patent cases and recommended that “[c]ourts should identify as the appropriate base that which the parties would have chosen in the hypothetical negotiation as best suited for accurately valuing the invention. This may often be the smallest priceable component containing the invention.” According to the FTC, “the practical difficulty of identifying a royalty rate that accurately reflects the invention’s contribution to a much larger, complex product counsels toward choosing the smallest priceable component that incorporates the invention.”