A US Court Issues Second Ruling Determining RAND Rate for Standard Essential Patent (Innovatio)

Abstract

In the Innovatio litigation, Judge James Holderman of the U.S. District Court for the Northern District of Illinois determined the royalty a patentee could obtain after promising to license its patent on reasonable and nondiscriminatory (RAND) terms. Innovatio’s patents related to the 802.11 WiFi standard, which allows wireless devices such as routers, laptops, and cell phones to communicate with one another.

This short article begins by describing how the Innovatio decision adopted a modified Georgia-Pacific framework focusing on the importance of the patent portfolio to the standard and the product, as well as comparable licenses. It explains how the court adopted a "Top Down" approach that (1) starts with the price of a WiFi chip, (2) calculates the average profit a chipmaker earns on the sale of each chip, and (3) multiplies the profit by the percentage of standard-essential patents owned by Innovatio. And it describes Judge Holderman's finding that Innovatio’s patents relating to the 802.11 standard were of "moderate" to "moderate-high" significance and resulted in a royalty rate of 9.56 cents per chip.

Together with Judge James Robart’s opinion in Microsoft v. Motorola Mobility, the Innovatio decision articulates a comprehensive framework for determining RAND royalty rates. As these issues continue to reach the courts, the task will become incrementally easier as the number of RAND licenses on the public record increases, providing more data points for comparison.

Keywords: RAND, FRAND, patents, royalties, standards, licensing, SEP, WiFi

JEL Classification: K21, L40, L41, L63, O31, O34