Today, a three-judge Federal Circuit panel (Prost (author), Dyk and Hughes) issued its awaited decision in CSIRO v. Cisco that agreed-in-part and disagreed-in-part with Judge Davis’ damages award based on patents alleged to be essential to the IEEE 802.11 WiFi standard, but which patents did not have any FRAND or other standard-setting obligation (see our July 28, 2014 post on Judge Davis’ decision). This is an important decision that provides incremental insight into proving and determining a reasonable royalty for a standard essential patent, which includes further insight into the Federal Circuit’s first decision on this issue a year ago in Ericsson v. D-Link that involved a standard essential patent that did have a FRAND obligation under the IEEE 802.11 WiFi standard (see our Dec. 5, 2014 post on the Ericsson v. D-Link decision).
This is an important decision to read directly to catch all the nuances and import of the decision, and the incremental guidance it provides in determining a royalty rate as a matter of patent damages law for past infringement of a patent that is essential to a standard. A few particularly important points come from the decision.
First, the Federal Circuit soundly rejected as “untenable” the accused infringer’s argument that there is a “rule” that all patent damages methodologies always must start out using the smallest salable patent-practicing unit. The smallest salable patent practicing unit is a principle that can aid courts to determine if a damages expert’s methodology reliably apportions to the patent only the value that the patented technology provides to the infringing product and not other unpatented features. But it is not the only approach that may be considered, and different cases present different factual circumstances that could lend themselves to different reliable methodologies. For example, damages methodologies properly may rely on real-world comparable licenses to reliably apportion value to the patented technology, whether the royalties are based on end products or components thereof. This decision may very well put to rest arguments that there is some “rule” requiring use of the smallest salable patent-practicing unit or that there is any problem per se in royalties being based on the end product rather than its components.
Second, the Federal Circuit clarified that the need to apportion the value of the patented technology from the value of standardization applies whether or not a standard essential patent is subject to a FRAND or other standard setting obligation. This is based on the long-standing, fundamental principal that statutory damages for infringement under 35 U.S.C. § 284 must be based on the value of the patented invention and not other unpatented features, whether that’s other unpatented technology in an infringing product or the value of the patent being essential to a standard.