Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca13-15-01066/USCOURTS-ca13-15-01066-0/pdf.json

Parties Involved:
Cisco Systems, Inc.
Appellant
Commonwealth Scientific and Industrial Research Organisation
Appellee

Document Text:

United States Court of Appeals 

for the Federal Circuit ______________________ 

COMMONWEALTH SCIENTIFIC AND INDUSTRIAL 

RESEARCH ORGANISATION,

Plaintiff-Appellee

v.

CISCO SYSTEMS, INC.,

Defendant-Appellant

______________________ 

2015-1066

______________________ 

Appeal from the United States District Court for the 

Eastern District of Texas in No. 6:11-cv-00343-LED, Chief 

Judge Leonard Davis.

______________________ 

Decided: December 3, 2015

______________________ 

 MICHAEL NG, Kobre & Kim LLP, San Francisco, CA, 

argued for plaintiff-appellee. Also represented by DANIEL 

AMON ZAHEER; BENJAMIN JEFFREY AARON SAUTER, New 

York, NY; MICHAEL F. HEIM, MIRANDA Y. JONES, Heim, 

Payne & Chorush, LLP, Houston, TX; FREDERICK 

MICHAUD, Capshaw DeRieux LLP, Washington, DC; 

JAMES WAGSTAFFE, MICHAEL JOHN VON LOEWENFELDT, 

Kerr & Wagstaffe, LLP, San Francisco, CA.

 JOHN C. O’QUINN, Kirkland & Ellis LLP, Washington, 

DC, argued for defendant-appellant. Also represented by 

Case: 15-1066 Document: 157-2 Page: 1 Filed: 12/03/2015
2 COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC. 

JASON M. WILCOX; L. NORWOOD JAMESON, JENNIFER H.

FORTE, ALISON HADDOCK HUTTON, MATTHEW YUNGWIRTH, 

Duane Morris LLP, Atlanta, GA.

 MARK S. DAVIES, Orrick, Herrington & Sutcliffe LLP, 

Washington, DC, for amicus curiae Apple Inc. Also represented by BRIAN PHILIP GOLDMAN, San Francisco, CA.

 LAUREN B. FLETCHER, Wilmer Cutler Pickering Hale 

and Dorr LLP, Boston, MA, for amici curiae Intel Corporation, Dell Inc., Hewlett-Packard Company. Also represented by REBECCA A. BACT, WILLIAM F. LEE, JOSEPH J.

MUELLER; KENNETH HUGH MERBER, Washington, DC.

 MIKE MCKOOL, McKool Smith, P.C., Dallas, TX, for 

amicus curiae Ericsson Inc. Also represented by 

THEODORE STEVENSON III; JOHN BRUCE CAMPBELL, JOEL 

LANCE THOLLANDER, Austin, TX.

 DEMETRIUS TENNELL LOCKETT, Townsend & Lockett, 

LLC, Atlanta, GA, for amici curiae Nokia Corporation, 

Nokia USA, Inc.

 ROGER BROOKS, Cravath Swaine & Moore LLP, New 

York, NY, for amicus curiae Qualcomm Incorporated.

 ALEXANDRA MCTAGUE, Winston & Strawn LLP, Menlo 

Park, CA, for amicus curiae Aruba Networks, Inc. Also 

represented by DAVID SPENCER BLOCH, San Francisco, CA. 

______________________ 

Before PROST, Chief Judge, DYK and HUGHES, Circuit 

Judges.

PROST, Chief Judge. 

Following a bench trial on damages, the district court 

awarded Commonwealth Scientific and Industrial Research Organisation (“CSIRO”) $16,243,067 for Cisco 

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COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC. 3

Systems, Inc.’s (“Cisco”) infringement of CSIRO’s U.S. 

Patent No. 5,487,069 (“’069 patent”). On appeal, Cisco 

challenges the district court’s damages award. We conclude that the district court’s methodology in this case—

insofar as it relied on the parties’ actual licensing discussions—is not contrary to damages law. However, we also 

hold that the district court erred in not accounting for the 

’069 patent’s standard-essential status and in its reasons 

for discounting a relevant license agreement. We therefore vacate the district court’s judgment and remand for 

the district court to revise its damages award. 

I. BACKGROUND

CSIRO is the principal research arm of the Australian 

federal government and conducts research in countless 

scientific fields. One such field is wireless communications. In the early 1990s, CSIRO, among many other 

organizations, set out to devise faster and more reliable 

wireless local area network technology. CSIRO’s research 

resulted in the ’069 patent, which was filed on November 

23, 1993, and issued to CSIRO on January 23, 1996. The 

’069 patent discloses techniques directed to solving issues 

from wireless signals reflecting off objects and interfering 

with each other, commonly referred to as the “multipath 

problem.”

In 1997, the Institute of Electrical and Electronics 

Engineers (“IEEE”) released the original 802.11 wireless 

standard, which provides the specifications for products 

using the Wi-Fi brand. The first revision of 802.11, called 

802.11a, was ratified in 1999, and it included the ’069 

patent’s technology. In connection with 802.11a, CSIRO 

submitted a letter of assurance to the IEEE pledging to 

license the ’069 patent on reasonable and nondiscriminatory (“RAND”) terms. The ’069 patent is also 

essential to various later iterations of 802.11 (802.11g, n, 

and ac). However, despite the IEEE’s repeated requests 

to CSIRO that it submit a letter of assurance for the ’069 

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patent for these revisions of 802.11, CSIRO refused to 

encumber the ’069 patent with a RAND commitment for 

these revisions.

When the ’069 patent issued in 1996—the early days 

of 802.11—a group of individuals involved in the ’069 

patent’s research attempted to commercialize the technology. Along with David Skellern and Neil Weste, both 

professors at Macquarie University in Australia, Terry 

Percival, a CSIRO scientist and named inventor on the 

’069 patent, founded a company called Radiata, Inc. to sell 

wireless chips in at least the United States. Consequently, Radiata and CSIRO entered into a license agreement—

the Technology License Agreement (“TLA”)—for the ’069 

patent. Under the TLA, Radiata agreed to pay CSIRO 

tiered royalties for each chip sold according to the following table:

Sales Volume Standard 

Chip Royalty

Derivative 

Chip Royalty

1–100,000 5.0% 5.0%

100,001–400,000 4.0% 4.0%

400,001–1,000,000 3.0% 3.0%

1,000,001–3,000,000 2.0% 2.0%

> 3,000,001 1.0% 0.5%

In November 2000, Cisco publicly announced its plans 

to acquire Radiata. The acquisition was completed in 

early 2001. As part of the acquisition, Cisco, Radiata, and 

CSIRO amended the TLA in February 2001, largely to 

allow Cisco to take Radiata’s place in the TLA. Cisco and 

CSIRO amended the TLA again in September 2003. Cisco 

paid royalties to CSIRO under the TLA until 2007, when 

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Cisco ceased using Radiata-based chips in its products. 

Over the course of the TLA, Cisco paid CSIRO over 

$900,000 in royalties. 

Around 2003, CSIRO decided to offer a license to the 

’069 patent to other Wi-Fi industry participants. Eventually, it developed a form license offer, called the “Rate 

Card,” which it began offering to potential licensees in 

2004. The Rate Card was structured as follows:

Royalty per product sold

Days from 

offer to acceptance:

< 90 < 120 < 150 < 180 > 180

Sales Volume

0–1 million $1.90 $2.38 $2.85 $3.33 $3.80

1–2 million $1.80 $2.25 $2.70 $3.15 $3.60

2–5 million $1.70 $2.13 $2.55 $2.98 $3.40

5–10 million $1.60 $2.00 $2.40 $2.80 $3.20

10–20 million $1.50 $1.88 $2.25 $2.63 $3.00

> 20 million $1.40 $1.75 $2.10 $2.45 $2.80

The lowest Rate Card rates, corresponding to acceptance 

of CSIRO’s offer within ninety days, were $1.40–$1.90 per 

unit. CSIRO did not execute any licenses under the Rate 

Card terms.

In 2004, CSIRO approached Cisco and offered Cisco a 

license to the ’069 patent on the Rate Card rates. Cisco 

did not accept CSIRO’s offer. However, the district court 

found that in subsequent discussions in 2005, Dan Lang, 

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Cisco’s Vice President of Intellectual Property, informally 

suggested to CSIRO that a $0.90 per unit rate may be 

more appropriate. Commonwealth Sci. & Indus. Research 

Org. v. Cisco Sys., Inc., No. 6:11-CV-343, 2014 WL 

3805817, at *12 (E.D. Tex. July 23, 2014). This rate was 

not much lower than what Cisco was already paying 

CSIRO under the TLA, though over time the TLA rates 

declined dramatically due to rapidly decreasing chip 

prices. Despite both parties’ apparent willingness to 

negotiate a license, CSIRO and Cisco failed to agree on 

terms.

On July 1, 2011, CSIRO filed the instant suit for infringement of the ’069 patent against Cisco. Nearly two 

years later, the district court accepted a joint stipulation 

that Cisco would not contest infringement or validity, so 

the only issue left for trial was damages. The district 

court conducted a four-day bench trial commencing on 

February 3, 2014. 

At trial, the parties’ experts presented competing 

damages models. CSIRO contended that the benefits of 

802.11 products that practice the ’069 patent over 802.11

products that do not practice the ’069 patent “are primarily attributable to the technology of the ’069 Patent.” Id. 

at *5. “Based on this claim, CSIRO contend[ed] that the 

difference in profit Cisco captured between accused 

802.11a and 802.11g products and unaccused 802.11b 

products largely represents the value attributable to the 

’069 Patent.” Id. Therefore, James Malackowski, 

CSIRO’s damages expert, compared the market prices at 

the time of the hypothetical negotiation of 802.11 products that practice the ’069 patent and 802.11 products 

that do not practice the ’069 patent. Mr. Malackowski 

then attributed Cisco’s profit premiums on those products 

to the ’069 patent. These ranges were $6.12–$89.93 for 

Linksys-branded products, and $14.00–$224.00 for Ciscobranded products. After making various adjustments 

under Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. 

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Supp. 1116 (S.D.N.Y. 1970), Mr. Malackowski concluded 

that the outcome of the hypothetical negotiation would be 

a volume-tiered rate table ranging from a $1.35 to $2.25 

royalty per end unit sold. Mr. Malackowski then opined 

that total damages were $30,182,922.

Cisco based its damages model on the TLA. Under 

the TLA rates, the per chip royalty ranged from $0.04–

$0.37 for Linksys products and $0.03–$0.33 for Cisco 

products over the damages period. Cisco’s damages 

expert, Christopher Bakewell, opined that, using this 

method, Cisco owed CSIRO just over $1,050,000.

The district court issued its findings of fact and conclusions of law on July 23, 2014. In its order, the district 

court rejected both parties’ proffered damages models. 

The district court faulted CSIRO’s model for, among other 

reasons, performing “arbitrary” final apportionment and 

having broad profit premium ranges. As to Cisco’s model, 

the district court found that the TLA was not comparable 

to the license Cisco and CSIRO would negotiate in a 

hypothetical negotiation. Significantly, the district court 

determined that “the primary problem with Cisco’s damages model is the fact that it bases royalties on chip 

prices.” Commonwealth Sci., 2014 WL 3805817, at *11. 

According to the district court, “[t]he benefit of the patent 

lies in the idea, not in the small amount of silicon that 

happens to be where that idea is physically implemented.” 

Id. The district court reasoned that “[b]asing a royalty 

solely on chip price is like valuing a copyrighted book 

based only on the costs of the binding, paper, and ink 

needed to actually produce the physical product. While 

such a calculation captures the cost of the physical product, it provides no indication of its actual value.” Id.

Rather than adopt one of the parties’ damages methodologies, the district court created its own based on 

CSIRO’s 2004 Rate Card offer and the informal rate 

suggestion made in October 2005 by Cisco’s Mr. Lang. 

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The district court noted that both data points were near 

the hypothetical negotiation dates of May 2002 for 

Linksys-branded products and October 2003 for Cisco 

products. “Based on these data points,” the district court 

found, “a range of $0.90 to $1.90 is a reasonable starting 

point for negotiations between the parties in 2002 and 

2003.” Id. at *12. 

The district court then proceeded with an analysis of 

the Georgia-Pacific factors. As an initial matter, the 

district court held that “[a]lthough other courts have 

made specific adjustments to the Georgia–Pacific factors 

to take a RAND commitment into account, specific adjustments to the overall framework are not necessary 

here” because CSIRO was obligated to license on RAND 

terms for only 0.03% of the accused products. Id. The 

district court next considered all Georgia-Pacific factors. 

Id. at *12–13. To summarize the district court’s GeorgiaPacific analysis, the district court found that factors 3, 4, 

and 5 favored a downward adjustment; factors 8, 9, and 

10 favored an upward adjustment; and all other factors 

were neutral. The district court concluded that, “[w]ith 

the sum of the factors essentially in equipoise, CSIRO and 

Cisco would have been in substantially equal bargaining 

positions at the hypothetical negotiations.” Id. at *13. 

“Accordingly, no overall adjustment [was] needed to the 

baseline rates and a range of $0.90 to $1.90 [was] the 

appropriate outcome of the hypothetical negotiation here.” 

Id. 

Finally, the district court adjusted the royalty rate 

range downward for Linksys-branded products, as the 

parties agreed that the Lang offer only pertained to Cisco 

products, and Linksys products had a lower profit margin. 

The district court found that the royalty rate range for 

Linksys was $0.65–$1.38.

The result of the district court’s calculus was the following volume-tiered rate table:

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COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC. 9

Royalty per unit sold

Sales Volume Linksys Cisco 

0–1 million $1.38 $1.90

1–2 million $1.23 $1.70 

2–5 million $1.09 $1.50 

5–10 million $0.94 $1.30 

10–20 million $0.80 $1.10 

> 20 million $0.65 $0.90 

After some further calculations, the district court entered 

judgment for CSIRO in the amount of $16,243,067. Cisco 

appeals. This court has jurisdiction under 28 U.S.C. 

§ 1295(a)(1).

II. DISCUSSION

“This court reviews a district court’s judgment following a bench trial for errors of law and clearly erroneous 

findings of fact.” Allen Eng’g Corp. v. Bartell Indus., Inc., 

299 F.3d 1336, 1343–44 (Fed. Cir. 2002). 

Cisco alleges two separate legal bases for reversal: (1) 

the district court erred in not beginning its damages 

analysis with the wireless chip, which it found to be the 

smallest salable patent-practicing unit; (2) the district 

court did not adjust the Georgia-Pacific factors to account 

for the asserted patent being essential to the 802.11 

standard. Cisco also argues that the district court clearly 

erred in not crediting the TLA evidence. We address each 

issue in turn.

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A. Smallest Salable Patent-Practicing Unit

Title 35, section 284 of the United States Code provides that “[u]pon finding for the claimant the court shall 

award the claimant damages adequate to compensate for 

the infringement, but in no event less than a reasonable 

royalty for the use made of the invention by the infringer 

. . . .” Under § 284, damages awarded for patent infringement “must reflect the value attributable to the 

infringing features of the product, and no more.” Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1226 (Fed. 

Cir. 2014). This principle—apportionment—is “the governing rule” “where multi-component products are involved.” Id. Consequently, to be admissible, all expert 

damages opinions must separate the value of the allegedly infringing features from the value of all other features. 

VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1329 (Fed. 

Cir. 2014). 

Apportionment is not a new rule. Indeed, it dates at 

least to Garretson v. Clark, 111 U.S. 120, 121 (1884)

(quotation marks omitted), where the Supreme Court 

explained: 

The patentee . . . must in every case give evidence 

tending to separate or apportion the defendant’s 

profits and the patentee’s damages between the 

patented feature and the unpatented features, 

and such evidence must be reliable and tangible, 

and not conjectural or speculative; or he must 

show, by equally reliable and satisfactory evidence, that the profits and damages are to be calculated on the whole machine, for the reason that 

the entire value of the whole machine, as a marketable article, is properly and legally attributable 

to the patented feature.

In Garretson, the Supreme Court affirmed a special 

master’s report that the patentee had submitted no proof 

of its damages because it failed to apportion to the value 

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COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC. 11

of the patented feature. Id. at 121–22. Likewise today, 

given the great financial incentive parties have to exploit 

the inherent imprecision in patent valuation, courts must 

be proactive to ensure that the testimony presented—

using whatever methodology—is sufficiently reliable to 

support a damages award. See Summit 6, LLC v. Samsung Elecs. Co., 802 F.3d 1283, 1296 (Fed. Cir. 2015)

(“[E]stimating a reasonable royalty is not an exact science.”); VirnetX, 767 F.3d at 1328 (explaining that a 

district court must exercise “its gatekeeping authority to 

ensure that only theories comporting with settled principles of apportionment were allowed to reach the jury”). 

And as we have repeatedly held, “[t]he essential requirement” for reliability under Daubert “is that the ultimate 

reasonable royalty award must be based on the incremental value that the patented invention adds to the end 

product.” Ericsson, 773 F.3d at 1226. In short, apportionment.

Our law also recognizes that, under this apportionment principle, “there may be more than one reliable 

method for estimating a reasonable royalty.” See Apple 

Inc. v. Motorola, Inc., 757 F.3d 1286, 1315 (Fed. Cir. 

2014), overruled on other grounds by Williamson v. Citrix 

Online, LLC, 792 F.3d 1339 (Fed. Cir. 2015). This adaptability is necessary because different cases present different facts. And as damages models are fact-dependent, “[a]

distinct but integral part of [the admissibility] inquiry is 

whether the data utilized in the methodology is sufficiently tied to the facts of the case.” Summit 6, 802 F.3d at 

1296. In practice, this means that abstract recitations of 

royalty stacking theory, and qualitative testimony that an 

invention is valuable—without being anchored to a quantitative market valuation—are insufficiently reliable. See 

Ericsson, 773 F.3d at 1234 (“The district court need not 

instruct the jury on hold-up or stacking unless the accused infringer presents actual evidence of hold-up or 

stacking.”); LaserDynamics, Inc. v. Quanta Comput., Inc., 

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12 COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC. 

694 F.3d 51, 68 (Fed. Cir. 2012) (“It is not enough to 

merely show that the disc discrimination method is 

viewed as valuable, important, or even essential to the 

use of the laptop computer.”). “[W]here the data used is 

not sufficiently tied to the facts of the case,” Summit 6, 

802 F.3d at 1296, a damages model cannot meet “the 

substantive statutory requirement of apportionment of 

royalty damages to the invention’s value,” Ericsson, 773 

F.3d at 1226.

Recognizing that each case presents unique facts, we 

have developed certain principles to aid courts in determining when an expert’s apportionment model is reliable. 

For example, the smallest salable patent-practicing unit 

principle provides that, where a damages model apportions from a royalty base, the model should use the smallest salable patent-practicing unit as the base. See 

LaserDynamics, 694 F.3d at 67 (“[I]t is generally required 

that royalties be based not on the entire product, but 

instead on the “‘smallest salable patent-practicing unit.’”). 

Our cases provide two justifications for this principle. 

First, “[w]here small elements of multi-component products are accused of infringement, calculating a royalty on 

the entire product carries a considerable risk that the 

patentee will be improperly compensated for noninfringing components of that product.” Id.; see also

Garretson, 111 U.S. at 121 (“[The patentee] must separate 

[the patented improvement’s] results distinctly from those 

of the other parts, so that the benefits derived from it may 

be distinctly seen and appreciated.”). Second is the “important evidentiary principle” that “care must be taken to 

avoid misleading the jury by placing undue emphasis on 

the value of the entire product.” Ericsson, 773 F.3d at 

1226. As we stated in Uniloc USA, Inc. v. Microsoft Corp., 

disclosure of the end product’s total revenue “cannot help 

but skew the damages horizon for the jury, regardless of 

the contribution of the patented component to this revenue.” 632 F.3d 1292, 1320 (Fed. Cir. 2011). 

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In addition to the smallest salable patent-practicing

unit principle, we have also explained that “[t]he entire 

market value rule is a narrow exception to this general 

rule” “derived from Supreme Court precedent” in Garretson. LaserDynamics, 694 F.3d at 67. Under the entire 

market value rule, if a party can prove that the patented 

invention drives demand for the accused end product, it 

can rely on the end product’s entire market value as the 

royalty base. Id. 

Fundamentally, the smallest salable patent-practicing 

unit principle states that a damages model cannot reliably apportion from a royalty base without that base being 

the smallest salable patent-practicing unit. That principle is inapplicable here, however, as the district court did 

not apportion from a royalty base at all. Instead, the 

district court began with the parties’ negotiations. At 

trial, the district court heard evidence that, around the 

time of the hypothetical negotiations, the parties themselves had brief discussions regarding Cisco taking a 

license to the ’069 patent. According to the district court’s 

factual finding—which is supported by the testimony at 

trial—Cisco informally suggested $0.90 per unit as a 

possible royalty for the ’069 patent. The district court 

used this rate as a lower bound on a reasonable royalty. 

For the upper bound, the district court looked to the $1.90 

per unit rate requested by CSIRO in its public Rate Card 

license offer. Because the parties’ discussions centered on 

a license rate for the ’069 patent, this starting point for 

the district court’s analysis already built in apportionment. Put differently, the parties negotiated over the 

value of the asserted patent, “and no more.” Ericsson, 773 

F.3d at 1226. The district court still may need to adjust 

the negotiated royalty rates to account for other factors

(see infra Section II.B), but the district court did not err 

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in valuing the asserted patent with reference to end 

product licensing negotiations.1

The rule Cisco advances—which would require all 

damages models to begin with the smallest salable patent-practicing unit—is untenable. It conflicts with our 

prior approvals of a methodology that values the asserted 

patent based on comparable licenses. See VirnetX, 767 

F.3d at 1331; ActiveVideo Networks, Inc. v. Verizon 

Commc’ns, Inc., 694 F.3d 1312, 1333 (Fed. Cir. 2012); 

Finjan, Inc. v. Secure Computing Corp., 626 F.3d 1197, 

1211–12 (Fed. Cir. 2010). Such a model begins with rates 

from comparable licenses and then “account[s] for differences in the technologies and economic circumstances of 

the contracting parties.” Finjan, 626 F.3d at 1211. 

Where the licenses employed are sufficiently comparable,2

1 The choice of royalty base—which is often the focus of the apportionment analysis—is irrelevant to the 

district court’s analysis. The particular rates relied on by 

the district court were contemplated as cents per end unit 

sold by Cisco, but they could equally have represented 

cents per wireless chip without affecting the damages 

calculation.

2 Note, of course, that this court has often excluded 

proffered licenses as insufficiently comparable. See, e.g.,

LaserDynamics, 694 F.3d at 77–78; ResQNet.com, Inc. v. 

Lansa, Inc., 594 F.3d 860, 870–71 (Fed. Cir. 2010); Lucent 

Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1327–28 

(Fed. Cir. 2009). Grounds for exclusion in our past cases 

have included, but are not limited to: the license being a 

litigation settlement agreement, LaserDynamics, 694 F.3d 

at 77 (“The propriety of using prior settlement agreements to prove the amount of a reasonable royalty is 

questionable.”); and the patented technology’s lack of a 

relationship to the licensed technology, ResQNet.com, 594 

F.3d at 871 (“Dr. David offers little or no evidence of a 

 

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this method is typically reliable because the parties are 

constrained by the market’s actual valuation of the patent. See Georgia-Pacific, 318 F. Supp. at 1120 (declaring

the first factor relevant to damages calculations to be 

“[t]he royalties received by the patentee for the licensing 

of the patent in suit, proving or tending to prove an 

established royalty”). Moreover, we held in Ericsson that 

otherwise comparable licenses are not inadmissible solely 

because they express the royalty rate as a percentage of 

total revenues, rather than in terms of the smallest 

salable unit. Ericsson, 773 F.3d at 1228. Therefore, 

adopting Cisco’s position would necessitate exclusion of 

comparable license valuations that—at least in some 

cases—may be the most effective method of estimating 

the asserted patent’s value. Such a holding “would often 

make it impossible for a patentee to resort to licensebased evidence.” Id. 

Accordingly, we conclude that the district court did 

not violate apportionment principles in employing a 

damages model that took account of the parties’ informal 

negotiations with respect to the end product. 

B. Standardization

Cisco also contends that the district court 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. We agree. Ericsson

link between the re-bundling licenses and the claimed 

invention.”); Lucent, 580 F.3d at 1329 (“[A] lump-sum 

damages award cannot stand solely on evidence which 

amounts to little more than a recitation of royalty numbers, one of which is arguably in the ballpark of the jury’s 

award, particularly when it is doubtful that the technology of those license agreements is in any way similar to the 

technology being litigated here.”).

 

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identified unique considerations that apply to apportionment in the context of a standard-essential patent 

(“SEP”):

When dealing with SEPs, there are two special 

apportionment issues that arise. First, the patented feature must be apportioned from all of the 

unpatented features reflected in the standard. 

Second, the patentee’s royalty must be premised 

on the value of the patented feature, not any value 

added by the standard’s adoption of the patented 

technology. These steps are necessary to ensure 

that the royalty award is based on the incremental value that the patented invention adds to the 

product, not any value added by the standardization of that technology.

773 F.3d at 1232. Consequently, the idea that “the patent 

holder should only be compensated for the approximate 

incremental benefit derived from his invention . . . is 

particularly true for SEPs.” Id. at 1233. Ericsson explains:

When a technology is incorporated into a standard, it is typically chosen from among different options. Once incorporated and widely adopted, that 

technology is not always used because it is the 

best or the only option; it is used because its use is 

necessary to comply with the standard. In other 

words, widespread adoption of standard essential 

technology is not entirely indicative of the added 

usefulness of an innovation over the prior art. 

This is not meant to imply that SEPs never claim 

valuable technological contributions. We merely 

hold that the royalty for SEPs should reflect the 

approximate value of that technological contribution, not the value of its widespread adoption due 

to standardization.

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Id. “In other words, a royalty award for a SEP must be 

apportioned to the value of the patented invention (or at 

least to the approximate value thereof), not the value of 

the standard as a whole.” Id. Therefore, damages awards 

for SEPs must be premised on methodologies that attempt 

to capture the asserted patent’s value resulting not from 

the value added by the standard’s widespread adoption, 

but only from the technology’s superiority. Id. 

CSIRO argues that Ericsson applies only to SEPs encumbered with an obligation to license on RAND terms. 

But CSIRO’s perspective is wrong for several reasons. 

First, the above quotes from Ericsson discuss SEPs, not 

only RAND-encumbered patents. As Ericsson also grapples separately with issues unique to RAND-encumbered 

patents, it is clear that Ericsson did not conflate the two 

terms. Indeed, Ericsson refers separately to RANDencumbered patents and SEPs when explaining the need 

to adjust the Georgia-Pacific factors, but Ericsson explicitly holds that the adjustments to the Georgia-Pacific

factors apply equally to RAND-encumbered patents and 

SEPs. Ericsson, 773 F.3d at 1231 (“Several other GeorgiaPacific factors would at least need to be adjusted for 

RAND-encumbered patents—indeed, for SEP patents 

generally.”). Second, a reasonable royalty calculation 

under § 284 attempts to measure the value of the patented invention. Id. at 1232. This value—the value of the 

technology—is distinct from any value that artificially 

accrues to the patent due to the standard’s adoption. Id. 

Without this rule, patentees would receive all of the 

benefit created by standardization—benefit that would 

otherwise flow to consumers and businesses practicing the 

standard. We therefore reaffirm that reasonable royalties 

for SEPs generally—and not only those subject to a RAND 

commitment—must not include any value flowing to the 

patent from the standard’s adoption.

The district court—which did not have the benefit of 

the Ericsson opinion at the time of its decision—erred 

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18 COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC. 

because it did not account for standardization. In thoroughly analyzing the Georgia-Pacific factors, the district 

court increased the royalty award because the ’069 patent 

is essential to the 802.11 standard.

This error impacted the district court’s analysis on all 

three factors that it weighed in favor of CSIRO. With 

respect to factor 8—“[t]he established profitability of the 

product made under the patent; its commercial success; 

and its current popularity,” Georgia-Pacific, 318 F. Supp. 

at 1120—the district court found that “[a]t the time of the 

hypothetical negotiations, the market for wireless products was growing rapidly, indicating increased commercial success.” Commonwealth Sci., 2014 WL 3805817, at 

*13. As to factors 9 and 10—which relate to the advantages of the patented invention—the district court 

concluded that “[a]lternative technologies in the wireless 

industry, such as PBCC, MBCK, and PPM, failed to 

achieve commercial success.” Id. However, the district 

court never considered the standard’s role in causing 

commercial success. Ericsson calls out factors 8, 9, and 10 

as all being irrelevant or misleading in cases involving 

SEPs. Ericsson, 773 F.3d at 1231. We therefore conclude 

that the district court erred in failing to account for 

standardization when it evaluated the Georgia-Pacific

factors.3

3 Furthermore, much of the district court’s reasoning in favor of CSIRO is based on evidence that the ’069 

patent is central to the 802.11 standard. But it makes 

little sense to adjust the starting royalty rate upward for 

this reason. The argument that the ’069 patent is more 

valuable than a typical patent essential to the 802.11 

standard is only relevant if the court begins with a generic royalty rate for a generic 802.11 patent. But in this 

case the court began with rates mentioned by the parties 

in negotiation. Even the lowest of these rates—$0.90—is 

 

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Additionally, the district court failed to account for 

the possibility that the $0.90 and $1.90 per unit rates that 

it used as a starting point may themselves be impacted by 

standardization.4 The parties do not dispute that CSIRO 

actively refused to submit a letter of assurance to the 

standard-setting body for later iterations of the 802.11 

standard, after the ’069 patent was locked into the standard. It seems quite possible, then, that CSIRO’s Rate 

Card rates attempt to capture at least some value resulting from the standard’s adoption. CSIRO’s offer was not 

accepted by a single entity. On remand, the district court 

should consider whether the initial rates taken from the 

parties’ discussions should be adjusted for standardization.

In sum, the district court erred in failing to account 

for value accruing to the ’069 patent from the standard’s 

adoption. This error manifests in at least two parts of the 

district court’s analysis: (1) in its discussion of the Georgia-Pacific factors, and (2) in 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. As these are legal 

errors under Ericsson, we must vacate the district court’s 

damages award and remand for a new determination of a 

reasonable royalty.

much higher than a rate derived from dividing the value 

of the standard by the number of patents essential to the 

standard. The starting rates themselves thus appear to 

account—at least to some extent—for the centrality of the 

’069 patent to the 802.11 standard.

4 Upon remand, the district court may also wish to 

consider how other factors, such as prospective litigation 

costs or the falling chip price, may have affected the 

parties’ suggested royalty rates.

 

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20 COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC. 

C. TLA

Finally, Cisco argues that the district court clearly 

erred in basing its damages model on the parties’ negotiating positions, rather than on the TLA between CSIRO 

and Radiata. As the district court heard competing 

testimony regarding the relevance of the TLA, the Rate 

Card, and the Lang offer, the district court’s decision 

about how to weigh and credit this varying evidence is a 

finding of fact entitled to deference. See Santarus, Inc. v. 

Par Pharm., Inc., 694 F.3d 1344, 1358 (Fed. Cir. 2012)

(“The district court’s findings of fact are entitled to deference . . . .”). However, we find clear error in at least three 

of the district court’s reasons for rejecting the TLA, and 

therefore direct the court on remand to reevaluate the 

relevance of the TLA in its damages analysis.

In brief, the district court provided four reasons for rejecting the TLA evidence. First, the district court found 

that the close relationship between CSIRO and Radiata—

Radiata was founded by three Australian individuals on 

CSIRO’s campus—“belies the view that the negotiations 

leading to the TLA were purely disinterested business 

negotiations.” Commonwealth Sci., 2014 WL 3805817, at 

*10. Second, the district court found that the TLA’s 

development requirements meant that: 

Radiata had significant obligations to CSIRO, including disclosing its business plans concerning 

the patented technology, a requirement to use its 

best efforts to exploit the technology, and minimum performance obligations. CSIRO was also 

entitled to a royalty-free license to any improvements Radiata contributed to the technology and 

an assignment of all rights in those improvements 

upon termination of the TLA.

Id. Third, the district court found that “[a]nother obstacle 

to relying on the TLA rates is the timing of the agreement.” Id. The TLA was signed in 1998, four and five 

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COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC. 21

years, respectively, before the hypothetical negotiation 

dates of 2002 and 2003, during which time the 

“[c]ommercial viability of the technology escalated sharply

. . . .” Id. Finally, the district court found that “the primary problem with Cisco’s damages model is the fact that 

it bases royalties on chip prices.” Id. 

The majority of these findings do not support a wholesale rejection of the TLA. Most importantly, as to reason 

three—timing—the district court ignored evidence that 

CSIRO and Cisco twice amended the TLA, once in conjunction with Cisco’s purchase of Radiata in 2001, and 

again in September 2003. These amendments occurred at 

about the time the hypothetical negotiations would have 

taken place, and therefore bear consideration. While 

Commonwealth argues that the amendments are irrelevant because Commonwealth could not have renegotiated 

the royalty rates at the time, that is untrue. At the time 

of the 2001 and 2003 amendments, Commonwealth had 

the right to terminate the agreement or permit a sublicense. Both of these options provided a lever with which 

Commonwealth could have renegotiated royalty rates

during the amendment process. 

The amendments also refute the district court’s first 

reason for discounting the TLA—the close relationship 

between Commonwealth and Radiata. By the time of the 

amendments, the special relationship between Commonwealth and Radiata no longer existed, and therefore does 

not provide reason to reject the relevance of the asamended TLA to the hypothetical negotiation. 

Finally, the district court’s fourth reason—that the 

TLA uses chip prices as the royalty base—runs afoul of 

Ericsson’s holding that a license may not be excluded 

solely because of its chosen royalty base. Ericsson, 773 

F.3d at 1228.

Because many of the district court’s reasons for discounting the TLA were flawed, we direct the court on 

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22 COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC. 

remand to reevaluate the relevance of the as-amended 

TLA in its damages analysis. This agreement is the only 

actual royalty agreement between Cisco and Commonwealth; it is contemporaneous with the hypothetical 

negotiation; it was reached before the 802.11g standard 

was adopted; and it focuses on the chip. To be sure, some 

other obligations running from Cisco to Commonwealth 

survived the amendments, e.g., the licensing of improvements. These factors, among others, should be taken into 

account in the district court’s analysis. 

III. CONCLUSION

For the foregoing reasons, we vacate the damages 

award and remand for further proceedings consistent 

with this opinion.

VACATED AND REMANDED

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