Published: 12/8/15
This case addressed the damages calculation method for a SEP reading on Wi-Fi technology. The district court based its reasonable royalty determination on licensing negotiations between the parties, using the rates proffered by the parties during negotiations as the lower and upper bounds for a reasonable royalty. On appeal, the infringing party argued that the district court’s methodology for assessing the reasonable royalty was erroneous because it was not based on the smallest saleable patent practicing unit, as required by Federal Circuit case law. The Federal Circuit clarified that the smallest saleable patent practicing unit is both a principle of substantive damages law and an important evidentiary principle in jury trials. The appellate court, however, held that the district court was not required to apply the smallest saleable unit principle in that particular case because it based the reasonable royalty on terms proffered by the parties in licensing negotiations, such that “[t]he choice of royalty base … is irrelevant to the district court’s analysis.” The appellate court stated that it is permissible to base the royalty rate on comparable licenses “[w]here the licenses employed are sufficiently comparable ….” The court reaffirmed, however, that “where a damages model apportions from a royalty base, the model should use the smallest salable patent-practicing unit as the base.” It also affirmed that deviating from this principle “carries a considerable risk that the patentee will be improperly compensated for non-infringing components of that product.”
The court also considered whether a reasonable royalty award may compensate a holder of a SEP that is not encumbered by a FRAND commitment for the additional value that accrues to the patent from its inclusion in a standard. It held that the reasonable royalty award for all SEPs, regardless of FRAND encumbrance, must “capture the asserted patent’s value resulting not from the value added by the standard’s widespread adoption, but only from the technology’s superiority.” The court explained that “a reasonable royalty calculation … attempts to measure the value of the patented invention,” and that this value “is distinct from any value that artificially accrues to the patent due to the standard’s adoption.” The court further held that because the rates proffered by the parties during their negotiations “may themselves be impacted by standardization,” those rates should be adjusted downward if they reflect the value of the standard. Because the Federal Circuit concluded that the district court failed to account for standardization, it vacated the lower court’s damages award and remanded for a new determination of a reasonable royalty.