In Commonwealth Scientific and Indus. Research Org. v. Cisco Sys., Inc., Appeal No. 2015-1066, the Federal Circuit vacated a district court damages award relating to standard-essential patents (“SEPs”) and remanded in view of the Federal Circuit’s decision in Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1226 (Fed. Cir. 2014), which issued after the district court’s judgment.

CSIRO sued Cisco for infringement of a patent that was essential to the 802.11 Wi-Fi standard.  The parties stipulated to infringement and validity, leaving damages as the only issue.  The district court rejected both parties’ damages models, created its own model, and awarded approximately $16 million in damages.

Cisco appealed, arguing that (1) the court erred in not basing its damages model on the smallest salable patent-practicing unit (i.e., the licensed chips); (2) the court erred by failing to adjust the Georgia-Pacificfactors to account for the asserted patent being standards-essential; and (3) the court erred in not basing its damages model on a licensing agreement between the parties in effect through 2007.

Regarding (1), the Federal Circuit held that the district court did not err in basing the royalty on the end product because such royalty was based on the parties’ past negotiations.  Since the parties had already proposed per-unit royalties (i.e., $0.90/unit) specific to the patent-in-suit during the negotiations, the parties had already apportioned for the value of the claimed inventions.  Therefore, there was no difference between paying per-unit royalties on the end-product or a component, as the per-unit royalty would remain the same.

Regarding (2), the Federal Circuit held that, on remand, the district court would need to take the Ericssonadjustments to the Georgia-Pacific factors into account, even though the patent was not encumbered by reasonable and non-discriminatory (RAND) licensing agreements.  The Federal Circuit explained that a claimed invention’s value may be artificially inflated by adoption into a standard, and that a reasonable royalty rate must seek to subtract that inflation to measure the true value of the claimed invention.

Regarding (3), the Federal Circuit held that the district court erred in rejecting a previous licensing agreement between the parties as a basis for calculating damages.  While there were differences between the previous agreement and the hypothetical negotiation, the license should not have been entirely disregarded by the district court.