In a ruling on post-trial motions in Broadcom v. Emulex, the Central District of California clarified its requirements on what it takes for a license agreement to be “comparable” and the importance of the “smallest saleable unit” and other licenses when determining the royalty base.
The court first considers Defendant’s claim that Plaintiff relied upon a license agreement without sufficiently proving comparability. The court finds that although the technologies are not similar, they are sufficiently comparable because they are contained in modules installed on the same chips then used in other products, and because the technologies/agreements were sufficiently explained to the jury. For example, the jury heard testimony that the license was comparable in contribution to the performance of the overall product at issue (the chip) as well as testimony about the running royalty / lump sum terms. The court also distinguishes the license at issue here from the licenses rejected by the Lucent and ResQNet courts.
The court then reviews Defendant’s claim that the royalty base should not be the chips, but rather the smaller cores (which directly included the patented technology). The court focuses its ruling on what was the smallest saleable unit. The Plaintiff says the chip was the smallest saleable unit (because the infringer never sold cores even if others did) and that the chip was used as the royalty base in other agreements. Defendant counters that these cores had been sold individually by other merchants; thus, the cores are the smallest saleable unit. The court rules for Plaintiff for those reasons.
However, in focusing on “the smallest saleable unit,” the court seems to differ from other Federal Circuit rulings. Specifically, this court states that “the requirements of the entire market value rule must be met only if the royalty base is not the smallest saleable unit with close relation to the claimed invention,” citing Cornell v. HP. In other words, if we’ve already identified the smallest saleable unit, we need not consider whether or not the claimed invention is the basis for demand for it. Although this may be a fair reading of Cornell, it seems at odds with subsequent Federal Circuit opinions such as Lucent and Uniloc, which called for a paring down of the royalty base below the level of “smallest saleable unit” because the EMV rule was not met. In those cases, the Federal Circuit rejected software sales as the royalty base because the EMV rule was not met, thus requiring a smaller subset as a royalty base. Yet here in Broadcom v. Emulex, the court notes that “[n]either party contends that the entire market value rule requirements have been met.”
Although we don’t know the exact facts of this case, from an intuitive sense it seems logical for this court to use the larger chip as the royalty base since other agreements used the chip and because the infringer itself hadn’t sold anything smaller. But it’s not clear that’s what the Federal Circuit wants. As we have noted here at IP Value Blog, the district courts are all over the board on this issue.
Broadcom Corp. v. Emulex Corp, el al., 8-09-cv-01058 (C.D. CA, December 13, 2011, Order) (Selna)