San Jose Jury Sets RAND Royalties for Patents in LSI-Realtek Dispute

SAN FRANCISCO — In a first for California, a San Jose jury has decided how much Realtek Semiconductor Corp. should pay LSI Corp. to license two of its wireless networking patents under reasonable and nondiscriminatory terms.

After a two-week trial, the jury set a 0.12 percent royalty for U.S. Patent No. 6,452,958 and a 0.07 percent rate for U.S. Patent No. 6,707,867. Although the royalties are about half of what LSI and its lawyers at Kilpatrick Townsend & Stockton asked for, Realtek had hoped for an even deeper discount, said Realtek’s lead lawyer, Steven Baik.

“We believed that the royalty rate should have been even lower,” said Baik, who is a partner at Reed Smith. “But the way we see it, this wasn’t just an issue for us as a company but an issue for the WiFi industry as a whole.”

The eight jurors were called on to step into the arena of reasonable and nondiscriminatory, or RAND, terms after U.S. District Judge Ronald Whyte determined that LSI violated a pact with the Institute of Electrical and Electronics Engineers that it would license the two standard essential patents under RAND terms. After striking the deal, San Jose-based LSI sued Realtek in the International Trade Commission in March 2012 before offering a license.

Ruling on a motion for summary judgment in May 2013, Whyte agreed with Realtek that the move was a breach of contract. The trial to set the price for Realtek’s patents may represent the first time a RAND question was placed squarely before a jury, Baik said.

Jurors also found that LSI must pay Realtek $3.825 million to cover the legal fees it racked up in the proceedings before the ITC, where it was also represented by Reed Smith. Realtek, a Taiwan-based maker of networking products, asked jurors for $4.9 million, Baik said.

As standard essential patents become more prevalent, Baik said, he hopes the verdict sends a message to companies that commit to license their patents at reasonable rates.

“Our goal was to drive the royalty rates down as low as possible so that companies like LSI could not engage in what’s called patent holdup, where they offer RAND rates but then sue companies like us for an injunction and seek exorbitant rates,” he said.

LSI lawyer David Sipiora of Kilpatrick Townsend did not respond to a request for comment.

Contact the reporter at jlove@alm.com.

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