Court Issues Ruling Establishing Framework for RAND Royalty Rates for SEPs

On April 25, 2013, in Microsoft Corp. v. Motorola, Inc., Case No. C10-1823 (W.D. Wash.), U.S. District Judge James Robart issued the first-ever detailed determination by a U.S. district court of a “reasonable and non-discriminatory” (RAND) royalty rate for standards-essential patents (SEPs), which have been the subject of antitrust scrutiny by enforcement agencies examining mobile device markets. The ruling establishes a comprehensive legal framework for resolving disputes over RAND royalty rates for SEPs, and likely will prove influential in future disputes. The outcome resulted in, according to Microsoft’s public announcement, $1.8 million in royalties as opposed to the $4 billion sought by Motorola.

Judge Robart’s opinion focuses on how to modify the conventional damages analysis set forth in Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), to account for:

  • The importance of the SEPs to the standard at issue (separately from the value associated with incorporation of the patented technology into the standard);
  • The importance of the standard and the SEPs to the licensee’s products;
  • Licenses for other RAND-committed patents; and
  • The number of other patents covering the standard and products incorporating it (what is known as “royalty stacking”).

Implicit in Judge Robart’s opinion is that SEPs raise important public-interest and policy considerations that remove them from the “one-on-one” negotiating context applicable to conventional breach of contract damages analysis. A fuller analysis of the opinion, its importance to future cases, and the specific modifications to the Georgia-Pacific factors is available here.