Thursday, September 22, 2011

Google and Motorola Mobility may amend merger agreement to keep Apple lawsuits going

Ten days ago I reported on Apple's motions to stay proceedings in the Western District of Wisconsin and the Southern District of Florida until Google's acquisition of Motorola Mobility (MMI) is completed, arguing that the terms of the merger agreement call into question MMI's actual control over its patents. Yesterday (Wednesday, September 21, 2011), MMI responded in Wisconsin (and will probably make a similar filing in Florida soon). MMI wants all of its patent infringement lawsuits to carry on regardless of the merger.

MMI's lawyers make a very interesting request toward the end of 15 pages of legal arguments and factual representations contradicting Apple. Here's a screenshot from the document (click to enlarge, or simply read that passage below the image, where you can find the text in a more legible size):

This is the text again:


To grant a stay, this Court must find that, despite the express terms of the Merger Agreement and Plaintiffs' own admissions to the contrary, Motorola has ceded exclusionary rights to Google through the Merger Agreement such that Motorola cannot proceed in this action alone. Should the Court so hold, Motorola respectfully requests a limited period of time before the entry of any such order so that Motorola can attempt to cure the defects in standing identified by the Court. See Schreiber Foods, 402 F.3d at 1202-04 (holding that the temporary loss of standing during a patent case can be cured before judgment)."

How would MMI "cure the defects in standing" that the court may identify? If there's a problem with the Google-MMI merger agreement, the only cure can be an amendment to that agreement. Such an amendment would most likely come in the form of an additional agreement that modifies the existing merger agreement with respect to MMI's disposal of its patents.

Under the merger agreement, MMI agreed not to do a variety of things, such as settling pending patent litigation, without Google's consent. The merger agreement also says that Google must not withhold such consent unreasonably. It's conceivable that a district court might conclude that MMI isn't in control of its patents. At the very least, I believe Apple has a strong case as far as MMI's right to settle is concerned. If a court decided not to spend its scarce resources on litigation that can't be settled without a third party's consent, MMI would want a chance to address the issue. And the only way to address it would be a more specific agreement between Google and MMI as far as control over MMI's patents is concerned.

MMI doesn't say explicitly that it has talked to Google about this, or that Google is prepared to amend the agreement. If MMI admitted any coordination of this with Google, Apple would turn it against them in some way. It could also raise issues since MMI's management must operate the company independently, within the parameters of the merger agreement, until the transaction is closed. But to the extent that the two parties are allowed to talk to each other, I'm sure MMI checked with Google on this.

History of discussions between Apple's and MMI's lawyers concerning the implications of the merger agreement

It seems that MMI didn't have a clear position on Apple's motion to stay right after Apple made the proposal. Apple's lawyers wrote a letter to MMI's lawyers on August 22 to request further disclosures concerning the merger. I don't mean to impute to Apple that they bring up this whole motion just to spy on the terms of the merger agreement (many of which are confidential), but it's a fact that even if Apple's motion failed, it (or at least its lawyers) might find out more about the merger agreement than otherwise.

On September 2, Apple's lawyers wrote to MMI's lawyers again, referring to a conversation that took place the previous day. Apparently, Apple's lawyers pointed out that at least with respect to FRAND-committed patents, MMI's inability to grant a license without a third party's (meaning Google's) consent would raise a serious issue. I would also agree with Apple on that one.

On September 6, an email thread between the lawyers started with Apple requesting contact concerning its motion. After MMI's lawyers asked what the motion would be about, Apple's lawyers outlined their plan.

On Thursday, September 8, the lawyers had a conference call. MMI's lawyers requeste case citations, which Apple's lawyers provided shortly after the call. Apple's lawyers also announced their intent to file the motion the next day at 12 noon and wanted to know "whether or not Motorola will oppose a stay". MMI's lawyers didn't like this ultimatum. They complained that this wasn't a good-faith course of action and said they would need more time to review the cited cases and discuss this with their client (MMI). They said they would get back to Apple's lawyers the following week. Apple's lawyers then pointed out that they had been trying since August 22 to receive more information concerning the merger and that their client "is expending enormous resources litigating toward final judgments that may be invalid if Motorola lacks standing". MMI's lawyers then asked, rhetorically, what "enormous resources" Apple was going to spend between the Friday on which the filing was going to take place (and actually did take place) and the following Tuesday.

A merger situation is always an unusual circumstance, and it could be that MMI's lawyers just needed more time to discuss this matter with MMI and the lawyers working on the merger. But if there had been a quick decision on MMI's part to oppose a stay, they could have said so right away.

Now Apple knows MMI's position and will have to respond shortly. If the court shares Apple's concerns about MMI's standing (its right to sue) even just in part, things will get interesting.

Apple raises similar issues in litigation with S3 Graphics, which is being acquired by HTC

MMI is not the only company that is being acquired while litigating with Apple. S3 Graphics is being acquired by HTC, and the related ITC investigation is now at the stage of Commission review.

On Monday, Apple filed a "Motion to Terminate the Investigation Based on S3G's Lack of Standing or, in the Alternative, for Further Evidentiary Proceedings to Determine the Ownership of the Asserted Patents" in that ITC case. The document itself is not available. Only the headline I quoted entered the public record. [Update] It turned out later that ATI (AMD) claims, surprisingly, to own the patents asserted by S3G. [/Update]

While MMI's answer to Apple's motion starts off claiming that Apple is "seeking to avoid Motorola's patents and has apparently even grown tired of pursuing [its] own claims", it looks like Apple is just trying to stall certain lawsuits while pursuing the ones in which only Apple's own patents are at stake. That would obviously be desirable for Apple. Also, with all of the infringement lawsuits Apple is party to, I'm sure its internal IP litigation department is very busy and can always make use in various ways of resources freed up temporarily on some fronts.

I wouldn't read any weakness into Apple's motions. A party that tries to capitalize on external circumstances isn't necessarily afraid of anything. More likely, this is just opportunistic behavior.

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