Damages for RAND-Encumbered SEPs and for Unencumbered SEPs Must Be Adjusted Equally

Commonwealth Scientific and Industrial Research Organisation v. Cisco Systems, Inc. (Fed. Cir., Dec. 1, 2015). (Fed. Cir., Dec. 1, 2015)

Earlier this month the Federal Circuit ruled on an important case in the field of Standard Essential Patents (SEPs), i.e., patents that have been found to be essential to the practicing of an industry standard. In the ruling, the court emphasized that a royalty award resulting from a standard essential patent should be apportioned in order to separate the value due to standardization from the intrinsic value of the patented technology. The court noted that “the royalty for SEPs should reflect the approximate value of that technological contribution, not the value of its widespread adoption due to standardization.”

The dispute in the case arose out of a failed licensing negotiation between CSIRO and Cisco regarding a standard essential patent for various revisions of the 802.11 wireless standard. Although CSIRO had agreed to reasonable and non-discriminatory (RAND) licensing for the first revision of the 802.11 wireless standard, no such promise had been made for other revisions of the standard. Although licensing negotiations were held between the parties, no agreement was reached. After stipulations regarding infringement and validity were made, a trial was held regarding damages.

A number of issues were discussed by the court in the decision. For instance, besides standard essential patents, the court discussed Smallest Salable Patent-Practicing Units (SSPPUs) and comparable licenses including a Technology Licensing Agreement (TLA) previously made between the parties. However, it was the ruling on standard essential patents that will likely have the most impact on the state of patent law. By ruling that damages of unencumbered standard essential patents should be mitigated to account for standardization, the court has blurred the lines between standard essential patents encumbered with RAND commitments and those having no such restrictions.

In the case, CSIRO had argued that the royalty should not be lowered because the patent, although standard essential, was not RAND encumbered. The court relying on Ericsson v. D-Link, 773 F. 3d 1201 disagreed and found that “adjustments to the Georgia-Pacific factors apply equally to RAND-encumbered patents and [unencumbered] SEPs.” This holding means that going forward damages for standard essential patents will be subject to adjustment irrespective of RAND commitments, thus eliminating one reason to hold back from committing to RAND terms.