Federal Circuit, December 3, 2015, 2015-1066

Author: Doug Agoposowicz

In CSIRO, the Federal Circuit held that the U.S. District Court for the Eastern District of Texas did not err in relying on the parties' actual licensing discussions in its damages methodology, but erred in not accounting for the standard-essential status of a patent in calculating damages and in its reasons for discounting a relevant license agreement.

Appellant CSIRO owns U.S. 5,487,069 ("the '069 patent"), a standard-essential patent (SEP) with respect to the Wi-Fi standard IEEE 802.11.  CSIRO agreed to license the '069 patent on reasonable and non-discriminatory (RAND) terms in connection with respect to only certain revisions of the 802.11 standard.  In 2001, Cisco acquired Radiata, and from 2001-2007, Cisco agreed to pay CSIRO royalties under a technology license agreement (TLA) previously negotiated between CSIRO and Radiata.  In 2007, the parties were unable to negotiate continued terms of the license agreement.  In 2011, CSIRO filed suit against Cisco for infringement of the '069 patent.  The parties stipulated infringement and validity.

At trial, the District Court based its damages model in part on informal negotiations between the parties.  The District Court refused to adjust the Georgia-Pacific factors to account for the standard essential status of the '069 patent.  Moreover, the District Court refused to consider the technology license agreement (TLA) in its damages calculations.

Issue 1: Whether Damages Model Based On Informal Negotiations Is Proper

On appeal, the Federal Circuit held that the District Court did not err by basing its damages model on informal negotiations between the parties regarding a possible royalty rate, noting that "there may be more than one reliable method for estimating a reasonable royalty" according to general apportionment principles.  In so doing, the Federal Circuit rejected Cisco’s argument that would have required all damages models to begin with the smallest salable patent-practicing unit, noting its conflict with precedent approving the valuation of patents based on comparable licenses.

Issue 2: Whether Georgia-Pacific Factors Should be Adjusted For Standard-Essential Patent

The Federal Circuit further held that the District Court erred by refusing to adjust the Georgia-Pacific factors to account for the standard essential status of the '069 patent.  The Federal Circuit, relying on Ericcson Inc. v. D-Link Systems, Inc., 773 F.3d 120, (Fed. Cir. Dec. 4, 2014), cautioned that "[t]he royalty for [standard essential patents] should reflect the approximate value of that technological contribution, not the value of its widespread adoption due to standardization".  The Federal Circuit further reasoned that several Georgia-Pacific factors, including factors related to profitability, commercial success, popularity, and advantages and benefits of the patented invention, are all irrelevant or misleading in cases involving a standard-essential patent, regardless of whether the standard-essential patent is RAND-encumbered or not.

Issue 3: Whether Technology License Agreement Should Have Been Considered

Finally, the Federal Circuit held that the District Court erred by not considering the technology license agreement (TLA), noting that the TLA, which is contemporaneous with the hypothetical negotiation, may be relevant to the damages analysis.

The Federal Circuit vacated the damages award and remanded to the district court.