Another week, and another standard-essential patent trial. Whereas last week brought us the jury’s verdict finding a RAND breach in the Microsoft-Motorola case, the trial this week relates to a determination of the appropriate RAND royalty rate for Innovatio IP Ventures, LLC’s WiFi-essential patent portfolio (consisting of patents previously owned by Broadcom).
You may recall that Innovatio has undertaken a widespread licensing and litigation campaign, and that several WiFi equipment suppliers — Cisco, Motorola Solutions, Hewlett Packard, SonicWALL, and Netgear — stepped in a brought declaratory judgment actions against Innovatio. Earlier this year, the court dismissed some of the WiFi suppliers’ unfair competition and RICO claims, and recently found the IEEE-related RAND obligations apply to all of Innovatio’s asserted patent claims. In a bench trial beginning today in the Northern District of Illinois (Chicago) before Judge James F. Holderman, both Innovatio and the WiFi equipment suppliers will present evidence on what constitutes an appropriate royalty rate for Innovatio’s WiFi portfolio. Such a determination could prove be a useful data point in determining whether Innovatio has violated its IEEE RAND obligations, as well as providing a potential “cap” for damages should Innovatio succeed on later proving infringement. (As to this latter point, the court apparently believes a RAND determination might motivate the parties to settle the case — it has scheduled a court-mandated settlement conference for three days next week).
On Friday, Judge Holderman issued an order requesting briefing for the parties on a particular disputed issue that could have great relevance for future SEP-related cases (as well as many non-SEP patent cases) — the issue of the applicability of the “smallest salable patent practicing unit” royalty base limitation (as articulated by the Federal Circuit in LaserDynamics v. Quanta) to “system” or “method” claims that appear to cover devices (or methods performed by multiple devices). Essentially, the court is trying to determine if the appropriate royalty base in this case should be the price of (1) a WiFi chip; (2) a device (e.g., a router) incorporating a WiFi chip; or (3) multiple WiFi-compliant devices — or whether the RAND royalty should be calculated in another manner. The court’s request and the parties’ respective briefing may be downloaded from the links below.
- 2013.09.06 Court Order Identifying Issue in Dispute
- 2013.09.08 Innovatio Response re Damages Issue in Dispute
- 2013.09.09 WiFi Suppliers Response re Damages Issue in Dispute
Both Innovatio and the WiFi suppliers agree that the court should broadly apply smallest salable patent practicing unit (SSPPU) test in determining the appropriate RAND royalty rate here. But that’s where the agreement stops.
Innovatio contends that the SSPPU test should apply to Innovatio’s asserted patent claims that cover methods or systems that span across multiple devices, and that in this case, the appropriate royalty base is the entire system. Innovatio argues that the court should then consider the benefits to the alleged direct infringer — the network operator, such as a coffee shop, restaurant, etc. — of using the allegedly infringing system. In this case, Innovatio states that this means considering the revenue directly obtained from offering WiFi services to customers, indirect revenue that might be associated with WiFi (such as a customer buying an additional cup of coffee), and increased business efficiencies associated with using WiFi.
On the other hand, the WiFi suppliers argue that the smallest salable unit doesn’t have to practice every single limitation of an asserted claim, asserting that the focus should be on determining the smallest unit that most closely relates to the inventive features of the patent. In this case, the WiFi suppliers assert, the appropriate royalty base is therefore the WiFi chip that incorporates 802.11 functionality and generally sells for $2-3 per chip. The WiFi suppliers also urge the court that if the SSPPU test does not limit the base to the WiFi chips, that the court undertake an apportionment and/or ex ante valuation analysis for each of Innovatio’s asserted patents, to ensure that Innovatio is not compensated based on the value of unpatented features or based on the patent’s mere inclusion in the 802.11 standard.
Patent-related damages law is constantly evolving. It will be interesting to see how the court comes out on this issue, and it could certainly have ramifications for both SEP and non-SEP cases going forward.