Yesterday, the jury in the Realtek v. LSI case before Judge Whyte returned a verdict finding that a RAND royalty for LSI’s two patents alleged essential to IEEE 802.11 WiFi standard would total about 0.19% of the total sales prices of Realtek’s WiFi chips (0.12% for one patent plus 0.07% for the other). This RAND royalty is reported to be closer to the rate sought by patent owner LSI of 0.29% than the much lower rate sought by putative licensee Realtek of 0.017%. The Realtek WiFi chip price is not clear from the available filings, but was reported to be $1 to $1.74, which would yield an effective royalty of about 0.19 to 0.33 cents per WiFi chip (the jury had the option to award a royalty per unit or percentage of sales price, and they chose the latter). The jury also awarded Realtek about $3.8 million for costs in defending against LSI’s attempt to seek an exclusion order in the U.S. International Trade Commission, which Judge Whyte previously held breached LSI’s RAND obligations.
For further background on this jury trial, see our prior posts that outlined key evidentiary rulings by Judge Whyte that framed the issue for the jury (see our Jan. 9, 2014 post and our Nov. 14, 2013 post).
Another Litigated RAND Data Point. The jury’s verdict in this case provides a fourth data point on a U.S. litigated RAND royalty rate. To date, we have two judge-determined RAND royalty rates and two jury determined RAND royalty rates, as follows:
- Judge Robart’s bench trial RAND determination of 3.471 cents per WiFi unit and 0.555 cents per H.264 unit in Microsoft v. Motorola (W.D. Wash.) (see our Apr. 25, 2013 post and other posts).
- Jury verdict before Judge Davis determining 15 cents per WiFi chip in Ericsson v. D-Link (E.D. Tex) (see our Aug. 7, 2013 post and other posts)
- Judge Holderman’s bench trial RAND determination of 9.56 cents per WiFI chip in In re Innovatio Litigation (N.D. Ill.) (see our Oct. 3, 2013 post and other posts).
- Jury verdict before Judge Whyte determining 0.19% per WiFi chip (about 0.19 to 0.33 cents per chip) in Realtek v. LSI (N.D. Cal.).
Probably too few data points at this point to predict future cases. The two bench trials (Judge Robart and Judge Holderman) generally have resulted in RAND determinations substantially favoring the putative licensee. The two jury verdicts (before Judge Davis and Judge Whyte) did not have as adverse results for the patentees, because the determined RAND rates were lower than–but closer to–what the patentees sought at trial.
Jury Instructions. The jury was instructed to assess the RAND royalty rate by assuming the patents are essential to the standard and without determining whether the patents actually are infringed by Realtek’s WiFi chips: “Whether or not Realtek infringes the two LSI patents is not an issue in this case” and “The determination of a RAND royalty rate also assumes that the two LSI patents are essential to the 802.11 standard.”
The crux of the instructions for the jury to determine a RAND royalty rate is found in Instruction Nos. 12 to 15, reproduced below in their entirety given the importance to putting the jury’s decision in context:
INSTRUCTION NO. 12: RAND DETERMINATION – HYPOTHETICAL NEGOTIATION
As I previously advised you, one of your tasks is to determine, based upon the evidence presented, the appropriate royalty rate for the ‘958 and ‘867 Patents that LSI needs to offer to Realtek to comply with LSI’s RAND obligations. Whether or not Realtek infringes the two LSI patents is not an issue in this case.
A royalty is a payment made to a patent holder in exchange for the right to make, use, or sell the claimed invention. This right is called a “license.” A “RAND” royalty rate is a reasonable and nondiscriminatory royalty rate.
In determining the RAND royalty rate, you should consider a hypothetical negotiation between Realtek and LSI over a royalty rate for LSI’s two patents. In considering the nature of this negotiation, you must assume that the patent holder and the licensee would have acted reasonably and would have entered into a license agreement. The determination of a RAND royalty rate also assumes that the two LSI patents are essential to the 802.11 standard.
For the purposes of this hypothetical negotiation, you should consider all the facts known and available to the parties at the time Realtek first made, used, or sold products using the standard, which was November 2002. You should not consider LSI’s advantage resulting from the standard’s adoption, if any. However, you may consider any advantage resulting from the technology’s superiority. Your role is to determine what the result of the hypothetical negotiation between Realtek and LSI would have been. You must determine what royalty would have resulted from the hypothetical negotiation and not simply what either party would have preferred.
INSTRUCTION NO. 13: RAND DETERMINATION – TYPES OF ROYALTIES
A royalty can be calculated in several different ways and it is for you to determine which way is the most appropriate based on the evidence you have heard. One type of royalty is a percentage royalty, in which the licensee pays the patent holder a certain percentage of its revenue. Another type of royalty is a per unit royalty, in which the licensee pays the patent holder a predetermined amount of money for each unit the licensee sells.
It is up to you, based on the evidence, to decide what type of royalty is appropriate in this case.
INSTRUCTION NO. 14: RAND DETERMINATION – DETERMINING A RAND ROYALTY RATE
You should follow the two steps below in determining the RAND royalty rate resulting from the hypothetical negotiation:
(1) Consider the importance of the two LSI patents to the standard as a whole, comparing the technical contribution of the two LSI patents to the technical contributions of other patents essential to the standard.
(2) Consider the contribution of the standard as a whole to the market value of Realtek’s products utilizing the standard.
INSTRUCTION NO. 15: RAND DETERMINATION – CONSIDERATION OF LICENSES
You may consider other licenses for patents comparable to the two LSI patents. In determining the comparability of other licenses, you may consider, among others, the following factors:
(1) the patents included in the license agreement,
(2) the date of the license,
(3) any limitations on the use of the licensed technology,
(4) the inclusion of other consideration in the agreement,
(5) whether the license was part of a settlement of litigation or arbitration,
(6) whether the royalty was a lump sum or a running royalty rate, and
(7) opinion testimony of qualified experts.