Opinion ID: 4461580
Heading Depth: 3
Heading Rank: 1

Heading: TCL’s “Top-Down” Implementation

Text: TCL proposed a “top-down” approach “which begins with an aggregate royalty for all patents encompassed in a standard” and “then determines a firm’s portion of that aggregate.” J.A. 29. In other words, this approach is “topdown” because it starts by determining the value of the whole royalty pie corresponding to a given standard (e.g., 2G, 3G, 4G) and then determines Ericsson’s slice of the pie for that standard. To determine the maximum aggregate royalty assigned to each standard, TCL relied on Ericsson’s own public statements about what that ceiling rate should be. Ericsson made these statements prior to ETSI’s adoption of each standard. For example, in 2008, Ericsson indicated on its website that it believed the “reasonable maximum aggregate royalty level” for the then-upcoming LTE standard to be “6–8% for handsets.” J.A. 48. TCL’s top-down approach computed a different FRAND rate for licensing Ericsson’s SEP portfolio for each standard based on the following general equation: 𝑭𝑭𝑭𝑭𝑭𝑭𝑭𝑭𝑭𝑭 𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓 𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓 = (𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎 𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂 𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓 𝒓𝒓𝒂𝒂𝒂𝒂𝒂𝒂) × (𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬𝑬′𝒔𝒔 𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑 𝒔𝒔𝒔𝒔𝒔𝒔𝒔𝒔𝒔𝒔) × (𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂𝒂 𝒇𝒇𝒇𝒇𝒇𝒇𝒇𝒇𝒇𝒇𝒇𝒇𝒇𝒇) TCL COMMC’N TECH. v. TELEFONAKTIEBOLAGET LM 11 For each standard, Ericsson’s proportional share was computed by dividing the number of SEPs owned by Ericsson (numerator) by the total number of SEPs in that standard (denominator). The proportional share was then adjusted by various factors, such as “importance and contribution of each patent family,” to account for the “relative strength” of Ericsson’s SEPs compared to other SEPs in a particular standard. J.A. 41–42, 64–66. According to TCL’s top-down methodology, the rates proposed in Ericsson’s Option A and Option B were not FRAND-compliant because they substantially exceeded the FRAND rates yielded from the topdown approach.