Royalty Rates for Standard-Essential Patents: In Second Decision of Its Kind, District Court Determines RAND Royalty Rate for 19 Patents Essential to 802.11 WiFi Standard

Sullivan & Cromwell LLP - October 7, 2013
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Many patents that are essential to a technology standard—so-called “standard-essential patents”—are subject to a commitment that they be licensed on “reasonable and non-discriminatory” (“RAND”) terms. Last week, the district court in In re Innovatio IP Ventures, LLC Patent Litigation, determined the RAND royalty rate for 19 patents essential to the 802.11 WiFi standard. Following a bench trial, the court held that the RAND royalty would be 9.6 cents for each device containing a WiFi chip, approximately 1% of the royalty that the patent holder, Innovatio, had sought.

Innovatio was the second district court decision to determine a RAND royalty rate, following last April’s decision in Microsoft Corp. v. Motorola, Inc. Like Microsoft, the Innovatio court applied a methodology based on the Georgia Pacific hypothetical negotiation factors modified to account for the RAND encumbrance on the patents. In contrast to Microsoft, however, the court in Innovatio did not rely on comparable patent pool license royalty rates to establish the RAND royalty. Instead, the court adopted a royalty rate based on the profit margin for a WiFi chip and the relative importance of the Innovatio patents to the WiFi standard.