Hat tip to Matt Rizzolo for suggesting I listen to the recording of yesterday's Federal Circuit oral argument in Ericsson, Inc. v. D-Link Systems, Inc. (available here). Much of the argument centers on whether the jury instructions adequately informed the jury how to calculate FRAND damages. I found this exchange (beginning at 55:27 of the oral argument recording) between Judge Taranto and Ericsson's counsel Douglas Cawley interesting (I think I've identified the speakers correctly, my apologies if I'm in error):
Judge Taranto: "You agree that it's error to allow them to include the value from the standardization?"Mr. Cawley: "In the rate. Not in the base . . . . The rate must be attributable to the value of the invention. The base may be greatly increased due to the value, the fact that it was standardized."
This could mean somewhat different things, but if the court and the parties are in agreement that a reasonable royalty should equal (1) the ex ante rate the parties would have negotiated, taking into account the ex ante expected value of the patent in comparison with the ex ante expected value to be derived from the use of the next-best available noninfringing alternative, times (2) the ex post value of the appropriate units sold (as would be appropriate for any running royalty), I think they've got the theoretical framework right. The framework properly excludes potential holdup value while capturing the value of the invention over alternatives. Of course, this still leaves open the question of what the appropriate ex ante comparison is (can you actually compare individual patents in competing standards ex ante, or only the competing standards themselves, and if the latter how do you allocate value among individual patents in those standards?), and how you actually translate the theoretical framework into something that is practically usable at trial. Still, I think it's progress.