Standard Essential Patents

Earlier today, the US Court of Appeals for the Federal Circuit released its decision in Ericsson, Inc. v. D-Link Systems, Inc. relating to standard essential patents on the 802.11(n) wireless standard. Ericsson had committed to RAND license terms on its patents and the court considered what RAND royalty rate would be appropriate.

The decision (PDF) considered a number of asserted patents, the appropriate royalty and the obligation to negotiate licenses with RAND obligations. The court upheld the findings of infringement by D-Link on two of the patents after considering the difference between system and method claims and whether the device had the capability to infringe or did actually infringe.

Contrary to Ericsson’s assertions, our decision in SiRF did not create direct infringement liability whenever an alleged infringer sells a product that is capable of executing the infringing method. Our decision in SiRF is not applicable here because all of the steps of the method in claims 1 and 2 of the ’215 patent are performed on the end product, which is controlled by a third party. See SiRF, 601 F.3d at 1331. Unlike the method in SiRF, there are no steps automatically performed by equipment controlled by D-Link. In fact, none of our decisions have found direct infringement of a method claim by sales of an end user product which performs the entire method, and we decline to do so here. (page 31)

For damages, the court discussed apportionment between patented and unpatented features and RAND royalties, an issue the Court identified as a matter of first impression.

Just as we apportion damages for a patent that covers a small part of a device, we must also apportion damages for SEPs that cover only a small part of a standard. In other words, a royalty award for a SEP must be apportioned to the value of the patented invention (or at least to the approximate value thereof), not the value of the standard as a whole. (page 52)

The court concluded:

As explained above, in this case, we find that the district court committed legal error in its jury instruction by: (1) failing to instruct the jury adequately regarding Ericsson’s actual RAND commitment; (2) failing to instruct the jury that any royalty for the patented technology must be apportioned from the value of the standard as a whole; and (3) failing to instruct the jury that the RAND royalty rate must be based on the value of the invention, not any value added by the standardization of that invention – while instructing the jury to consider irrelevant Georgia-Pacific factors. (page 56)