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
`
`
`
`

`
`
`
` 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 repre-
`sented by BRIAN PHILIP GOLDMAN, San Francisco, CA.
`
`
`
`LAUREN B. FLETCHER, Wilmer Cutler Pickering Hale
`and Dorr LLP, Boston, MA, for amici curiae Intel Corpo-
`ration, Dell Inc., Hewlett-Packard Company. Also repre-
`sented 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 Re-
`search Organisation (“CSIRO”) $16,243,067 for Cisco
`
`

`
`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 con-
`clude that the district court’s methodology in this case—
`insofar as it relied on the parties’ actual licensing discus-
`sions—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 there-
`fore 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 communica-
`tions. 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 non-
`discriminatory (“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
`
`

`
`
`
` 4
`
` COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC.
`
`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 technol-
`ogy. 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. Consequent-
`ly, 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 follow-
`ing table:
`
`Sales Volume
`
`Standard
`Chip Royalty
`
`Derivative
`Chip Royalty
`
`1–100,000
`
`100,001–400,000
`
`400,001–1,000,000
`
`5.0%
`
`4.0%
`
`3.0%
`
`1,000,001–3,000,000 2.0%
`
`> 3,000,001
`
`1.0%
`
`5.0%
`
`4.0%
`
`3.0%
`
`2.0%
`
`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
`
`

`
`COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC.
`
`5
`
`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. Eventu-
`ally, 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:
`
`
`
`Days from
`offer to ac-
`ceptance:
`
`Royalty per product sold
`
`< 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,
`
`

`
`
`
` 6
`
` COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC.
`
`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 in-
`fringement 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 primari-
`ly 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 prod-
`ucts 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 Cisco-
`branded products. After making various adjustments
`under Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F.
`
`

`
`COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC.
`
`7
`
`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 con-
`clusions 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 dam-
`ages 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 prod-
`uct, it provides no indication of its actual value.” Id.
`Rather than adopt one of the parties’ damages meth-
`odologies, 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.
`
`

`
`
`
` 8
`
` COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC.
`
`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 ad-
`justments 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 Georgia-
`Pacific 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 fol-
`lowing volume-tiered rate table:
`
`

`
`COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC.
`
`9
`
`
`
`Royalty per unit sold
`
`Sales Volume
`
`Linksys
`
`Cisco
`
`0–1 million
`
`1–2 million
`
`2–5 million
`
`5–10 million
`
`10–20 million
`
`> 20 million
`
`$1.38
`
`$1.23
`
`$1.09
`
`$0.94
`
`$0.80
`
`$0.65
`
`$1.90
`
`$1.70
`
`$1.50
`
`$1.30
`
`$1.10
`
`$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 follow-
`ing 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.
`
`

`
`
`
` 10
`
` COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC.
`
`A. Smallest Salable Patent-Practicing Unit
`Title 35, section 284 of the United States Code pro-
`vides 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 in-
`fringement “must reflect the value attributable to the
`infringing features of the product, and no more.” Erics-
`son, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1226 (Fed.
`Cir. 2014). This principle—apportionment—is “the gov-
`erning rule” “where multi-component products are in-
`volved.” Id. Consequently, to be admissible, all expert
`damages opinions must separate the value of the alleged-
`ly 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 evi-
`dence, that the profits and damages are to be cal-
`culated on the whole machine, for the reason that
`the entire value of the whole machine, as a mar-
`ketable 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
`
`

`
`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. Sam-
`sung Elecs. Co., 802 F.3d 1283, 1296 (Fed. Cir. 2015)
`(“[E]stimating a reasonable royalty is not an exact sci-
`ence.”); VirnetX, 767 F.3d at 1328 (explaining that a
`district court must exercise “its gatekeeping authority to
`ensure that only theories comporting with settled princi-
`ples of apportionment were allowed to reach the jury”).
`And as we have repeatedly held, “[t]he essential require-
`ment” for reliability under Daubert “is that the ultimate
`reasonable royalty award must be based on the incremen-
`tal value that the patented invention adds to the end
`product.” Ericsson, 773 F.3d at 1226. In short, appor-
`tionment.
`Our law also recognizes that, under this apportion-
`ment 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 adapt-
`ability is necessary because different cases present differ-
`ent 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 sufficient-
`ly 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 quan-
`titative 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 ac-
`cused infringer presents actual evidence of hold-up or
`stacking.”); LaserDynamics, Inc. v. Quanta Comput., Inc.,
`
`

`
`
`
` 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 deter-
`mining when an expert’s apportionment model is reliable.
`For example, the smallest salable patent-practicing unit
`principle provides that, where a damages model appor-
`tions from a royalty base, the model should use the small-
`est 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 prod-
`ucts are accused of infringement, calculating a royalty on
`the entire product carries a considerable risk that the
`patentee will be
`improperly compensated
`for non-
`infringing 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 “im-
`portant 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 reve-
`nue.” 632 F.3d 1292, 1320 (Fed. Cir. 2011).
`
`

`
`COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC.
`
`13
`
`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 Garret-
`son. 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 relia-
`bly apportion from a royalty base without that base being
`the smallest salable patent-practicing unit. That princi-
`ple 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 them-
`selves 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 apportion-
`ment. 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
`
`

`
`
`
` 14
`
` COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC.
`
`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 pa-
`tent-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 differ-
`ences 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 fo-
`cus 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 agree-
`ments 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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`COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC.
`
`15
`
`this method is typically reliable because the parties are
`constrained by the market’s actual valuation of the pa-
`tent. 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 license-
`based 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 num-
`bers, one of which is arguably in the ballpark of the jury’s
`award, particularly when it is doubtful that the technolo-
`gy of those license agreements is in any way similar to the
`technology being litigated here.”).
`
`

`
`
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` 16
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` COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC.
`
`identified unique considerations that apply to apportion-
`ment in the context of a standard-essential patent
`(“SEP”):
`When dealing with SEPs, there are two special
`apportionment issues that arise. First, the pa-
`tented 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 incremen-
`tal value that the patented invention adds to the
`product, not any value added by the standardiza-
`tion 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 ex-
`plains:
`When a technology is incorporated into a stand-
`ard, it is typically chosen from among different op-
`tions. 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 contribu-
`tion, not the value of its widespread adoption due
`to standardization.
`
`

`
`COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC.
`
`17
`
`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 en-
`cumbered 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 grap-
`ples separately with issues unique to RAND-encumbered
`patents, it is clear that Ericsson did not conflate the two
`terms. Indeed, Ericsson refers separately to RAND-
`encumbered patents and SEPs when explaining the need
`to adjust the Georgia-Pacific factors, but Ericsson explicit-
`ly 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 Georgia-
`Pacific 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 patent-
`ed 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
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` COMMONWEALTH SCIENTIFIC v. CISCO SYSTEMS, INC.
`
`because it did not account for standardization. In thor-
`oughly 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 prod-
`ucts was growing rapidly, indicating increased commer-
`cial success.” Commonwealth Sci., 2014 WL 3805817, at
`*13. As to factors 9 and 10—which relate to the ad-
`vantages 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 reason-
`ing 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 gener-
`ic 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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`COM