Royalty Based on Price of Physical Product Inappropriate In Light of “Rampant Infringement”

Following a bench trial on damages, the court found defendant's expert's damages model to be unreliable. "[T]he primary problem with [defendant's] damages model is the fact that it bases royalties on chip prices. [Plaintiff] did not invent a wireless chip. Although it is largely undisputed that the inventive aspect of the [patent-in-suit] is carried out in the PHY layer of the wireless chip, the chip itself is not the invention. . . . Compounding this problem is the depression of chip prices in the damages period resulting from rampant infringement which occurred in the wireless industry. Prior to 2008, outside of the [a single entity], no company in the industry sought a license from [plaintiff] to the [patent-in-suit] and [plaintiff] received no royalties whatsoever for that technology. It is simply illogical to attempt to value the contributions of the [patent-in-suit] based on wireless chip prices that were artificially deflated because of pervasive infringement. Basing 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."

Commonwealth Scientific and Industrial Research Organisation v. Cisco Systems, Inc., 6-11-cv-00343 (TXED July 23, 2014, Order) (Davis, J.)