A new judicial test has likely established a new commercial standard for determining RAND royalty rates. The Court of Appeals for the 9th Circuit has upheld a $14.5M damage award against Motorola for breaching its obligation to license standard-essential patents on reasonable and non-discriminatory (RAND terms).

Motorola is the owner of patents that are essential to the implementation of two common industry standardsand had entered agreements with the standard setting organizations to license these standards essential patents (SEPs) to all other parties on RAND terms.

Not satisfied with the royalty rates demanded for the use of the SEPs, Microsoft initiated litigation alleging that Motorola had breached its RAND obligations and sought, amongst other issues, damages for over-payment of patent licensing royalties.  In April 2013, Judge James Robartissued a 207 page opinion setting out the first-ever judicial determination of a RAND royalty rate for SEPs, and arrived at royalty rates that were significantly lower than those demanded by Motorola.  Based at its core on the conventional 15-criteria Georgia-Pacific “reasonably royalty” analysis, Judge Robart’s decision analysis distinguish RAND royalty rates from the “reasonably royalty” and created a modified framework for determining RAND terms taking into account SEP and RAND specific factors (industry benefits, royalty stacking, relative contribution of the patented feature, etc.).  Using the judicially determined RAND rates, a jury awarded $14.5M in damages to Microsoft.  Motorola appealed.

On appeal, the Court of Appeals for the 9th Circuit upheld Judge Robart’s ground breaking analysis. In affirming the analysis and RAND rates determined at trial, the Court of Appeals, held that the “Federal Circuit has ‘never described the Georgia-Pacific factors as a talisman for royalty rate calculations”3 and that “…in determining the RAND rate and range for each SEP portfolio, the district court engaged in a thoughtful and detailed analysis, giving careful consideration to the parties’ briefings and evidentiary submissions, and to the testimony…”.4

Having now been endorsed in the 9th Circuit, Judge Robart’s RAND analysis may now serve as roadmap to future litigants and may become the new “standard” for determining RAND royalty rates in the future and should be considered “essential” reading for all SEP owners.