Royalties for SEPs cannot include the value of standarization regardless of whether the patentee committed to licensing subject to RAND terms

Commonwealth Scientific and Industrial Research Organization v. Cisco Systems, Inc., No. 2015-1066 (Fed. Cir. Dec. 1, 2015)

The patentee claimed infringement of a standard essential patent (SEP), and the alleged infringer stipulated not to challenge infringement or validity. The alleged infringer appealed the damages calculation on several grounds. The Federal Circuit reversed in part.

The alleged infringer appealed the district court’s decision not to calculate damages based on the smallest salable patent practicing unit. The Federal Circuit reiterated that “damages awarded for patent infringement must reflect the value attributable to the infringing features of the product, and no more.” This principle is apportionment and governs damages for multi-component products. To reliably apportion a royalty base requires use of the smallest salable patent practicing unit. Here, the court held that starting with the smallest salable patent practicing unit was not necessary because “the district court began with the parties’ negotiations. [T]he parties negotiated over the value of the asserted patent, ‘and no more.’”

The alleged infringer also argued that the patent was inappropriately given value created by its status as a SEP. The patentee argued that the alleged infringer was seeking to impose reasonable and non-discriminatory licensing (RAND) terms even though the patentee did not commit to RAND terms. The Federal Circuit agreed with the alleged infringer and rejected the patentee’s argument stating: “Reasonable royalties for SEPs generally—and not only those subject to a RAND commitment—must not include any value flowing to the patent from the standard’s adoption.”

A copy of the opinion can be found here ►