Second FRAND Royalty Rate Calculation Largely Follows Robart Approach

On September 27, 2013, U.S. District Court Judge James F. Holderman (Northern District of Illinois) ruled non-practicing entity (NPE) Innovatio IP Ventures (Innovatio) is entitled to a “fair, reasonable, and non-discriminatory” (FRAND) royalty rate of 9.56 cents per chip used in wireless computer network technology. Judge Holderman did not fix damages in the case, however, as Innovatio and the defendants, which include Cisco Systems, Hewlett-Packard and Dell, among others, agreed to allow Judge Holderman to calculate the royalty rate before determining whether the Wi-Fi patents were valid or infringed. The Court hopes that the determination of the royalty rate will enhance the possibility of the parties reaching a settlement.

In re Innovatio IP Ventures, LLC , 11-cv-09308, is an action brought by Innovatio against manufacturers who use or sell WiFi chips that it claims infringe on Innovatio’s portfolio of 19 patents essential to the IEEE 802.11 (WiFi) standard. Although the rate of 9.56 cents per chip is miniscule compared to Innovatio’s proposed rates, it is approximately three times the rate Judge Robart set per WiFi unit in the Motorola litigation against Microsoft concerning the same standard earlier this year. Judge Holderman arrived at rate of 9.56 cents using Judge Robart’s method, and explained the difference between the two rates, finding that while Judge Robart held that the Motorola patents were only of minimal value to the standard, Innovatio’s patents are of moderate to moderate-high importance to the standard, and the increased royalty rate reasonably accounts for the greater importance of Innovatio’s patents to the 802.11 standard.

The ruling is a victory for the manufacturers whose products are at issue in the case, and continues a trend of WiFi standard-essential patent holders receiving far less than what they demand. It remains to be seen whether this trend will affect the claims of NPEs holding standard-essential patents. What is evident, however, is the importance of Judge Robart’s method of FRAND royalty rate calculation, which wasn’t challenged by either party and thus far seems to becoming a standard for FRAND determinations.