What is a reasonable RAND royalty rate and range?

To ensure sophisticated electronic devices all work together, global standards-setting organizations (such as the International Telecommunications Union and the Institute of Electrical and Electronics Engineers) require member companies to license essential patents at “reasonable and non-discriminatory rates,” or RAND.

In Microsoft Corporation v. Motorola, Inc., the parties have asked for a judicial determination of a reasonable RAND royalty. According to Microsoft, the proper framework for determining a RAND royalty rate is an “ex ante, multi-lateral negotiation” involving full participation of essential patent holders as well as all potential implementers. Motorola maintains that international standards clearly state that RAND license agreements are “bilateral in nature, such that they occur between only the patentee and the implementer.”

Although academic and standard-setting sources have discussed the importance of RAND rates and industry standards, thefederal district court was quick to note the lack of any precedent on determining RAND rates and ranges. “Limited publication exists on the methodology a court should employ to determine a RAND royalty rate which in some way reconstructs the negotiation that would have taken place between Microsoft and Motorola.”

In the end—and citing the adaptability of the Daubert standard to new technical and scientific areas—the court permitted both parties’ experts to present their respective opinions, then held a RAND hearing, promising a RAND rate and range in the near future.

Read the complete digest of Microsoft Corporation v. Motorola, Inc., 2012 LEXIS 152244 (Oct. 22, 2012), in the January 2013 Business Valuation Update; the court’s opinion will be posted soon at BVLaw.