Commonwealth Scientific and Indus. Res. Org. (CSIRO) v. Cisco System, Inc.


Docket Nos. 2015-1066

PROST, DYK, HUGHES
December 3, 2015

Update:  Cert. denied 6/27/16 (15-1440)

Brief Summary: Damages award was therefore vacated and remanded as it “must reflect the value attributable to the infringing feature of the product, and no more” (“particularly true for” standard-essential patents).

Summary: Cisco appealed DC award of over $16 million to CSIRO (the principle research arm of the Australian federal government) for infringement of US 5,487,069 relating to wireless local area network technology. In 1997, the Insititute of Electrical and Electronics Engineers (“IEEE”) released Wi-Fi product specifications that included the ‘069 patent technology. CSIRO submitted a letter to IEEE pledging to license the ‘069 patent on reasonable and non-discriminatory (“RAND”) terms. The ‘069 patent also encompasses later specifications relating to 802.11g, n, and ac Wi-Fi specifications but “CSIRO refused to encumber the ‘069 patent with a RAND commitment for these revisions.” A Technology License Agreement (“TLA”) was executed between CSIRO and Radiata, Inc. (owned by one of the ‘069 inventors) with “tiered royalties for each chip sold” (1996). Cisco then acquired Raidata (2000) and the TLA was amended accordingly but then stopped using Radiata-based chips in its products (2007). In 2003, CSIRO offered licenses to other Wi-Fi industry participants (“Rate Card offer”) and, after expiration of the TLA, offered Cisco a similar license which was not accepted “[d]espite both parties’ apparent willingness to negotiate a license”. In 2011, CSIRO filed suit against Cisco and only the damages determination ultimately left for trial. The DC products its own “volume-tiered rate table” based on a hypothetical negotiation. Cisco alleged the DC “erred in not beginning its damages analysis with the wireless chip, which it found to be the smallest salable patent-practicing unit” and did not properly “adjust the Georgia-Pacific factors to account for the asserted patent being essential to the 802.11 standard.” The FC opinion explained that under 35 USC § 284 (“damages…not less than a reasonable royalty”), the damages award “must reflect the value attributable to the infringing feature of the product, and no more” (Ericsson, Inc. (FC 2014); “the smallest salable patent-practiving unit principle”), which “is not a new rule” (citing Garretson, US 1884 and Laser Dynamics, FC 2012), and that “[t]he entire market value rule is a narrow exception to this general rule”, applicable only where “a party can prove that the patented invention drives demand for the accused end product”. Considering the parties’ previous negotations, the FC panel found no error in the DC’s hypothetical negotiation since they had “negotiated over the value of the asserted patent, ‘and no more’” (Cisco’s suggested approach “conflicts with our prior approvals of a methodology that values the asserted patent based on comparable licenses.”) However, it did agree with Cisco that the DC “legally erred under Ericsson because it failed to account for any extra value accruing to the ‘069 patent from the fact that it is essential to the 802.11 standard”, thereby favoring CSIRO (“the idea that ‘the patent holder should only be compensated for the approximate incremental benefit derived from his invention… is particularly true for” standard-essential patents). This is with respect to both the Georgia-Pacific analysis and the hypothetical negotiation (“its adoption of the parties’ informally offered royalty rates without accounting for the possibility that CSIRO may have been trying to capture the standard’s value in its licenses” and regarding the relevance of the TLA). The damages award was therefore vacated and remanded.

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