Thursday, July 19, 2012


After a stay of all patent infringement claims pending between Microsoft and Google subsidiary Motorola Mobility in the Western District of Washington, the next milestone in that district will be the FRAND trial scheduled to start on November 13. Late on Wednesday, Motorola Mobility brought a motion for partial summary judgment that seeks to narrow the scope of that trial in its favor.

Simply put, Google doesn't want the trial to result in a standard-essential patent license agreement on terms set by the court because it would be game over, on a worldwide basis, for its assertions of SEPs against Microsoft once there is a license in place. It wants to negotiate with Microsoft on a heads-I-win-tails-you-lose basis on which the latter still faces the threat of injunctive relief. Google therefore proposes to evaluate only one issue at trial: whether its subsidiary breached its FRAND licensing obligations by demanding a 2.25% royalty. Motorola wants to be considered a winner if it prevails on only that one issue, and if not, it wants to win anyway because it could make another demand and Microsoft would have to accept it or risk an injunction.

In a nutshell, Motorola Mobility's legal theories are that the court doesn't have the authority, under Washington state law, to set the terms of a license agreement (in the Google subsidiary's opinion, it could only make an addition to an existing agreement such as inserting a clause that the parties simply forgot to address), and it argues that Microsoft's original complaint and amended complaint didn't explicitly ask the court to set the terms of a license agreement.

At this stage I don't want to comment on the merits of Motorola's theories. Suffice it to say that some of its arguments are reminiscent of arguments that the court previously rejected, but the overall idea of limiting the scope of the trial to the breach-of-contract issue is new. Also, Motorola tries to capitalize on the fact that Judge Robart denied summary judgment in Microsoft's favor on the breach-of-contract issue (not because Microsoft's theories didn't make sense but only because the judge felt that some of the issues relevant to his decision on this matter would have to be put before a jury).

We'll see how Microsoft responds to, and how the court decides on, this new motion. As the process unfolds, I'll certainly talk some more about the chances of the motion. At this stage, however, I want to focus on what Motorola hopes to achieve and what its motivations appear to be.

When I read the motion for the first time, there were two paragraphs that caught my attention more than everything else. This is Motorola's proposed course of action:

"Motorola respectfully submits that, in view of this clear and controlling precedent, the appropriate procedure is for the Court to hold the breach of contract trial first, in November. If the jury finds no breach, then the relief actually requested by Microsoft (damages) should be denied, Microsoft’s complaint should be dismissed, and the parties should be instructed to continue good-faith, bilateral negotiations, as expected by the SSOs and outlined in their policies.

If on the other hand the jury finds breach, it can determine damages (if any) and the Court can enjoin Motorola from enforcing its 802.11 and H.264 standard essential patents against Microsoft unless and until Motorola makes an offer that is consistent with RAND. If necessary (i.e., if Microsoft refuses Motorola's final offer), the Court can review Motorola’s final offer for the purpose of determining if Motorola's final terms are consistent with its RAND commitments. If it is, Microsoft can either accept the offer (as it has told the Court it will do) or forego the right to a RAND license and be subject to all available remedies."

The first paragraph is Motorola's red herring: it's always claimed that Microsoft should never have brought this FRAND enforcement lawsuit but instead should have negotiated. And Google's/Motorola's perspective on negotiation is that the other party should have to negotiate on the basis of a totally out-of-this-world initial demand and, especially, under the threat of injunctions in different jurisdictions. Its reference to the expectations of standard-setting organziations makes mockery of what the SSOs really want. There's widespread, profound concern over Motorola Mobility's and some other parties' conduct relating to SEPs. For example, the ITU (the SSO whose FRAND policies concerning the H.264 video codec standard are part of what's at issue between Microsoft and Motorola Mobility) has announced high-level talks to discuss litigation issues. They obviously didn't blame Motorola Mobility explicitly, but the issues that are going to be on the table (royalty rates, royalty base, injunctive relief) are the ones that also gave rise to the FRAND enforcement case in the Western District of Washington.

The second paragaph quoted above is defensive in the sense that Motorola says the court can enjoin it from enforcing its SEPs against Microsoft until it makes an offer that the court, upon review, considers to be consistent with its FRAND licensing obligations. In that scenario, we'd be talking about negotiations that still take place under the threat of an injunction as I'll explain below.

Motorola's motion notes that this procedure would be somewhat closer to the German Orange-Book-Standard approach. Under German rules, a right holder is likely to get a royalty rate at the outer limit of legality in the worst case and an outrageous, anticompetitive rate in a more realistic scenario (after the parties agree on a license deal, there would be no more review of the terms agreed upon, so they could be far outside the range of terms that a right holder cannot refuse without violating antitrust law). In the Seattle case, Motorola would "only" get a rate at the outer limit of legality approved by the court, but even that one would be higher than any rate that the court (with help from a jury) would set in an effort to define fair, reasonable and non-discriminatory terms.

So what would Motorola gain despite the fact that it actually accepts to be barred from enforcing SEPs against Microsoft?

  1. It would make Microsoft's entire entitlement to a FRAND license dependent on the breach-of-contract claim. Otherwise, the court would simply set the terms of such a license agreement and the SEP part of the dispute would be over (except for an appeal).

  2. Even if Motorola lost and was found to have committed a breach of contract, it would then be able to delay resolution of the FRAND licensing issue forever. Under its proposal it would to be barred from further SEP enforcement, but it would not have an obligation to offer FRAND terms. It would just have to talk to Microsoft, so it would have to make demands and somehow respond to counterproposals. But it would make a "final offer" at some point of its choosing, and then Microsoft would either have to accept this or risk an injunction. That offer would not be one that Motorola thinks the court is never going to consider compliant with its FRAND obligations, but it would likely still be a very aggressive one since Microsoft would have far more to lose (from an injunction if it rejects an offer that the court considers acceptable) than Motorola (which would lose all of its SEP-related leverage once there's an agreement on truly FRAND terms in place). Like I said above, this is a game of "heads, I win; tails, you lose" from Motorola's perspective.

  3. As a side effect, Motorola would get the chance to delay the process. Only its "final" offer would be reviewed by the court. By starting with extremely high demands, Motorola could go down many times before reaching the point at which it declares its offer "final". In the meantime, the court would be very unlikely to resume the stayed infringement claims, including a number of Microsoft claims (all of which are over non-standard-essential patents, some of which Motorola is presumably afraid of).

Motorola's legal theories concerning the court's ability to set the terms of a license agreement will have to be evaluated on their merits, but it certainly won't be able to mislead Judge Robart as to the negotiation dynamics that its proposal would bring about. So far, all of the U.S. judges who have spoken out on the SEP-related issues in these cases -- not only Judge Posner, though his FRAND ruling was the best one so far -- were fully aware of the problem. They either mentioned it explicitly or they made other statements that reflected this awareness. The only jurisdiction in which some judges turn a blind eye to the problem of negotiating at the threat of an injunction is Germany, and that's about 5,000 miles from Seattle.

Considering what Motorola hopes to accomplish with this motion, it's clearly very afraid of the Seattle FRAND trial in the form in which Judge Robart has envisioned it to date. It now tries to instill doubts in Judge Robart concerning his jurisdiction and authority over certain issues, hoping that he will modify his plans for the November trial. Now the next step is for Microsoft to address Motorola's theories.


Share with other professionals via LinkedIn: