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In Ericsson, the Federal Circuit provided district courts, experts, and practitioners with much-needed clarification as to how to instruct a jury on the issue of reasonable royalty damages in cases involving standard essential patents and RAND licensing.  Ericsson involved three of Ericsson’s standards essential patents and Ericsson’s pledge to license them on “reasonable, and non-discriminatory (“RAND”) terms,” the court vacated the jury’s verdict awarding Ericsson roughly $10 million in damages (approximately $0.15 per unit) due to the trial court’s erroneous jury instructions. 

First, the court affirmed the admission of comparable licenses which did not consider the entire market value rule, i.e., which are based on the entire value of a multi-component product, not merely the incremental value of the patented feature.  In admitting such licenses, however, the trial court should provide, if requested, a cautionary instruction explaining the need for the jury to apportion the ultimate royalty award to the incremental value of the patented feature apart from the value of the overall product. 

Second, because many of the Georgia-Pacific factors are inapplicable to RAND cases (e.g., Factors 4, 5, 8, 9, and 10), trial courts should craft jury instructions that address the actual RAND promises presented by the facts of the case without rigidly reciting all of the Georgia-Pacific factors (as the trial court did here).  The court made clear that it was not holding that there is a modified version of the Georgia-Pacific factors that are applicable for all RAND cases.  Further, a trial court may only give jury instructions on patent hold-up and royalty stacking (i.e., the patentee demands excessive royalties after the company is locked into the standard or there are so many required licenses that the royalties stack up on one another and become excessive) where the record includes such evidence.

Third, where the patents-at-issue are standards essential patents, it is vital that the trial court instruct the jury to only award damages attributed to the added value of the invention, and to not award any damages based on the value of the standard as a whole or on any value added due to the fact that such feature is also required by the standard. 

Additionally, the court affirmed the judgment of infringement on two of the patents-in-suit and affirmed the holding that one patent was not anticipated, but it reversed the judgment of infringement on the third patent. 

The court further clarified an important infringement issue that often arises when accusing infringement of a method claim by the use of a consumer product.  Although it is often easier to prove that the steps of a method claim are being practiced than are the element of a system claim, it is also often more difficult to prove that  the product manufacturer or seller has committed acts of direct infringement when the product is possessed and operated by the end user. 

Consistent with its holding in SiRF Tech., Inc. v. Int’l Trade Comm’n, 601 F.3d 1319, 1331 (Fed. Cir. 2010), the court in Ericsson held that a manufacturer or seller of a product can be liable for direct infringement of a method claim where the product used to perform the method is possessed by the end user only if the product performs steps of the method claim automatically, i.e., without user modification.  In Ericsson, the products accused of performing the steps were possessed by the end users, but there were no steps that were automatically performed by the product.  The court stated that “none of our decisions have found direct infringement of a method claim by sales of an end user product which performs the entire method.”  Thus, in Ericsson, the accused product manufacturers/sellers (e.g., D-Link) could not be direct infringers of the method claims; they could only be inducing infringers if Ericsson could also prove that the product manufacturers/sellers “knowingly induced infringement and possessed specific intent to encourage another’s infringement,” which is often very difficult and costly to prove.

Practitioners seeking to accuse a product manufacturer or seller of directly infringing a method claim, where the product is possessed and operated by the end user, therefore must be assured that the product performs the steps of the method automatically, i.e., without user modification.  Any user modification associated with a method claim step will thus defeat a claim for direct infringement against the manufacturer/seller of the product, leaving only a claim for indirect infringement against the manufacturer/seller, or a claim for direct infringement against end user consumers.  

Ericsson, Inc. v. D-Link Systems, Inc., Case No. 2013-1625, -1631, -1632, -1633 (December 4, 2014); Opinion by: O’Malley, joined by Taranto, Hughes; Taranto (joined in part, dissented in part); Appealed From: Eastern District of Texas, Davis, J.  To read the full opinion, click here.

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