Two weeks ago, we posted about non-party IEEE’s amicus curaie brief in Ericsson v. D-Link, et al., an appeal pending before the Federal Circuit.  The appeal, initiated by defendants D-Link, Dell, Acer, Gateway, Netgear and Toshiba, challenges a jury’s damage award against the defendants for infringement of plaintiff Ericsson’s patents that are claimed to be essential to the IEEE’s 802.11 standard (SEPs).  Recently, non-party American Antitrust Institute (AAI) filed its own amicus curaie brief in the appeal, challenging the District Court’s instruction to the jury to apply an unmodified version of the 15 Georgia-Pacific factors in calculating damages for infringement of alleged SEPs.

AAI argues that the Georgia-Pacific factors “are not an appropriate basis for instructing a jury how to determine damages for infringement of a standard-essential patent encumbered by a RAND commitment, at least not without significant modification.”  According to AAI, the district court’s wholesale adoption of the Georgia-Pacific factors in its jury instructions was error that “was not cured by the court additionally instructing the jury that any damages award be consistent with the patentee’s RAND obligation, without explaining what the RAND obligation entails.”

AAI asserts that the purpose of a patent holder’s RAND commitment “is to mitigate the problem of patent holdup, namely obtaining royalties on the basis that implementers are locked into the standard rather than on the basis of the value of the patented technology itself.”  AAI goes on to argue that the value of the patented technology

“is properly understood as the incremental value of the patented technology over the next best alternative at the time the technology was under consideration for inclusion in the standard (the ex ante value), subject to a ‘royalty stacking’ constraint, i.e. that the combined royalties on all of the patented technologies included in the standard must not undermine implementation of the standard.”

AAI points out that commentators have criticized the use of the Georgia-Pacific factors  “as indeterminate at best for determining a reasonble royalty for patents generally.”  Those factors, according to AAI, are “particularly inadequate for setting a RAND royalty.”  This is because they “do not explicitly focus on the ex ante value at the time the standard is adopted nor expressly take into account royalty stacking,” both of which are integral to the primary purpose of a RAND commitment.  Specifically, setting a RAND rate based on the ex ante value of the patented technology at the time the standard is set — rather than just before infringement under Georgia-Pacific — “is necessary for consumers to benefit from competition among technologies to be incorporated into the standard — competition that the standard setting process itself otherwise displaces.”

AAI then cites to the modified Georgia-Pacific factors used by the courts in Microsoft v. Motorola and In re Innovatio as potential cures for the alleged shortcomings in the standard Georgia-Pacific analysis in capturing the ex ante value of the patented technology at the time the standard is adopted:  “In adopting a substantially modified version of the Georgia-Pacific factors, the district courts in Microsoft and Innovatio recognized that this ‘pre-inclusion’ ex ante vantage point is appropriate, although they also referred to the time of infringement.”   Specifically, both courts held that the parties would consider alternatives that could have been adopted in lieu of the asserted SEPs at the time the standard was set, and those potential alternatives could potentially “drive down the royalty that the patent holder could reasonably demand.”

AAI also argues that the jury must be instructed that any damage award should be measured so as to avoid royalty stacking, which “is not completely captured in the bilateral hypothetical negotiation contemplated by Georgia-Pacific.”  This is because SEP holders “collectively have an ex ante interest in preventing royalty stacking and ensuring that the overall royalty burden of the standard is reasonable.”  “[A]bsent explicit instructions, a jury will not understand the significance of royalty stacking and may, for example, reasonably believe that Georgia-Pacific’s first factor—proof of an established royalty for the patents in suit—does not permit the RAND royalty to vary depending on the number of patents (and patentees) essential to the standard, as stacking concerns would otherwise suggest.”

Finally, AAI argues that several of the Georgia-Pacific “factors are either flatly inconsistent with a RAND commitment or are irrelevant.”  For example, quoting Judge Robart’s decision in Microsoft v. Motorola, AAI asserts that Georgia-Pacific Factor 4, which considers the licensor’s policy of maintaining his patent monopoly by not licensing others or by granting licenses under special conditions designed to preserve the monopoly, “‘is inapplicable in the RAND context because the licensor has made a commitment to license on RAND terms and may no longer maintain a patent monopoly by not licensing to others.'”

AAI further asserts that:

“[w]hile the remaining Georgia-Pacific factors may be relevant to the RAND determination and understandable to juries if modified in ways suggested by the district courts in Microsoft and Innovatio, those factors that involve consideration of the benefits or profits earned by the licensee from the sale of the ‘product made under the patent’ (factors 6, 8, 10, 11) are problematic insofar as they obscure the need to ‘apportion the defendant’s profits and the patentee’s damages between the patented feature and the unpatented features’ . . . in a context where the SEP holder is not entitled to a royalty based on the value derived from the incorporation of the patented technology into the standard, or to discriminate among licensees.”

As in Microsoft and Innovatio, the district court in Ericsson’s case should modify “Georgia-Pacific factors 6, 8, 10, and 11 [to] expressly to take into account ‘only the value of the patented technology and not the value associated with incorporating the patented technology into the standard.'”  This will potentially prevent the factfinder from mistakenly taking into account, “as a factor in the RAND analysis, the relative value of the functionality provided by the standard itself (here, Wi-Fi) to the licensee’s products.”