In Microsoft Co., v. Motorola, Inc., No. 2:10-cv-01823-JLR (W.D. WA), the court provided basic guidelines for assessing FRAND royalty for standard essential patents (SEPs). The guidelines are based on the Georgia-Pacific analysis of the reasonable royalty (Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970)) modified for taking into account SSOs’ primary goals for adopting FRAND commitments. The court provided five primary goals for adopting FRAND commitments: 1. Promotion of widespread adoption of SSOs’ standards; 2. Avoidance of patent hold-up; 3. Avoidance of royalty stacking; 4. Creation of valuable standards; 5. Exclusion of hold-up value in the reasonable royalty. The court, then, modified the Georgia-Pacific factors to account for the five primary goals for adopting FRAND commitments. The key modification to the Georgia-Pacific factors leads to the reasoning that a royalty in a patent pool for the specific SEPs at issue or comparable licensing transactions as a candidate for the royalty established through negotiation under FRAND commitments. Thus, the royalty rate in the recently formed LTE patent pool may provide expected FRAND licensing revenue.
Via licensing’s LTE patent pool set the royalty rate as 3% for end user producuts (e.g. smartphones), 1% for data terminals (e.g. data cards), and 2% for Femtocell devices with volume discount up to 30%. According to LTE market research by Signals and Systems Telecom, LTE devices shipment in the world market will reach around 600 million units in 2016. Thus using the royalty about $2 per unit, 4G LTE patents FRAND licensing revenue is expected to be around $1.2 billion in 2016 globally. Because the royalty per unit is not dependent on the number of holders of SEPs, one may calculate licensing revenue for each holder of SEPs proportional to its number of SEPs (e.g. http://techipm-innovationfrontline.blogspot.com/2013/05/4g-lte-standard-essential-patent.html).