Saturday, April 7, 2012

Motorola doesn't want to be barred by a U.S. court from enforcing an injunction it might win in Germany

On March 28, Microsoft filed a motion for a temporary restraining order and preliminary injunction against Motorola Mobility's enforcement of a German patent injunction that it might win on April 17. The court had previously allowed this motion (which Motorola sought to avoid entirely). After Microsoft's motion, it put this matter on a particularly expedited schedule. Microsoft asked for a hearing on April 20, but Judge James L. Robart scheduled it for April 11 (this coming Wednesday), which reflects a sense of urgency.

Microsoft argues that its lawsuit over Motorola's alleged breach of FRAND licensing obligations in the Western District of Washington, which was filed in November 2010, predates Motorola's German H.264-related infringement lawsuits (filed in the following summer), but if Motorola was allowed to enforce a German injunction over such FRAND-pledged patents ahead of the U.S. court's decision on its licensing obligations, this would effectively constitute an "end-run" around the U.S. case.

Yesterday, Motorola filed its opposition brief. Now that both parties have stated their positions, it's pretty clear what the legal issues are.

I have been following the Seattle case from the outset and attended the Mannheim trial that covered the four closely-related cases at issue, and on that basis I think there's a real possibility of the court in the U.S. concluding that Microsoft asks for relatively little in order to prevent the alleged "end-run" that could have severe consequences. If the court in Seattle denied Microsoft's motion, Motorola might soon have so much leverage in Germany that the FRAND case in the U.S. would become irrelevant in whole (if Microsoft was forced to accept that a German court will set the terms of a worldwide license agreement) or at least in part (if the U.S. court no longer had the ability to decide on the terms of a license with respect to the German market, one of the largest markets in the world).

But Judge Robart said, at the hearing at the end of which he authorized this motion, that this "certainly is outside the realm of what [he] normally do[es]". And it's never easy to win a preliminary injunction or temporary restraining order. However, such a motion can succeed if the arguments in favor of an injunction outweigh its potential negative side effects. Microsoft and Motorola agree that the standard for an injunction that interferes with a foreign court proceeding is higher than otherwise. Microsoft argues that its requested relief would affect only Motorola and not a foreign jursidiction, and says that its motion satisfies even the higher standard of an anti-suit injunction, while Motorola says that the higher standard applies exclusively.

In this regard, and with respect to what I said above about Microsoft asking for relatively little, it's actually worth thinking about what Microsoft does and does not seek to accomplish with its motion:

  • Microsoft does not ask the court in Seattle to interfere with the decision the court in Mannheim will take. Motorola argues that anti-suit injunctions are always directed at a party, not at a foreign court, but as far as the ongoing Mannheim litigations are concerned, Microsoft doesn't request any relief that would force Motorola itself to influence the outcome of those pending cases (such as obligating it to withdraw its lawsuit or to drop certain claims or prayers for relief).

  • Microsoft wants to ensure that Motorola won't seek enforcement of an injunction it might win, which it can only do after actually winning it. A declaration by Microsoft's German counsel states that "[i]n Germany, the majority of prevailing patentees do not enforce an injunction while a matter is on appeal". That is also my understanding, and it's obvious since premature enforcement of a sales ban that later turns out to have been improperly-granted can result in substantial liability.

    In a declaration attached to Motorola's opposition brief, MMI's German counsel states that "[p]osting [...] a bond to make the injunction binding (i.e. to enforce it) is not unusual in the German practice". Instead of contradicting Microsoft's counsel on what the majority does, he merely says that it's "not unusual". Based on what I heard from lawyers as well as a reporter covering a lot of litigation in Germany, I actually have the impression that is unusual, but "not unusual" is a vague term that does not correspond to any particular quantity (while "majority" clearly means the range above 50%).

  • Microsoft does not ask for anything that would pose a risk that Motorola would not receive a FRAND royalty should any of its patents be deemed valid and infringed. Microsoft offered a $300 million bond and indicated that it could be increased if there was a reaseon for it, but Motorola just isn't interested: its opposition brief does not dignify that offer with even one word.

    As Microsoft's motion pointed out (and as I can confirm as an observer of the process), there's no doubt that Motorola's absolute priority is the pursuit (and subsequent enforcement) of a German injunction. Microsoft's motion noted that Motorola is trying to gain such leverage even though its financial interests would be protected anyway, and even though it doesn't compete with the accused products (Windows 7, Xbox 360, etc.). It could become a problem for Motorola that the judge may conclude from its actions, not its words, that its end game for this dispute is really the one Microsoft claims it is.

Since Motorola's opposition brief discusses only the legal standard for an anti-suit injunction with international implications, I am now going to assume, only for the sake of discussing the parties' positions, that this is the relevant standard. (If it's not, then it's easier for Microsoft to win because some of the issues addressed below would be less relevant, or even irrelevant.)

Under U.S. law, injunctions are evaluated under a four-factor test. Irreparable harm is one particularly important consideration. Another very important one is "likelihood of success on the merits", which Motorola argues must be replaced with the following three-part test for an anti-suit injunction:

  1. the outcome of the United States litigation must be dispositive of the foreign suit;

  2. the court must have an equitable justification for intervening in the foreign suit, a requirement that can be satisfied by meeting any one of the following four criteria:

    1. the foreign litigation would frustrate a policy of the forum issuing the injunction, or

    2. be vexatious or oppressive; or

    3. threaten the issuing court's in rem or quasi in rem jurisdiction; or

    4. prejudice other equitable considerations.

  3. and the court must determine that an injunction will not have undue adverse implications for international comity.

Motorola puts "international comity" front and center; Microsoft also addressed reasons for which it believes that no German court would be offended, but didn't explicitly reference "comity".

Concerning the first criterion (U.S. litigation dispositive of foreign lawsuit), Microsoft needs to state a connection of this kind, but at the same time it doesn't want to create the impression of interference with a foreign court proceeding through the requested preliminary injunction. While Microsoft's successful enforcement of Motorola's FRAND licensing obligations in the U.S. would be dispositive of litigation in Germany, a restraint on Motorola's ability to seek enforcement of an injunction in the very near term does not weaken the Mannheim court's authority. That temporary restraint would go away after the FRAND case is decided in Seattle, and most patentees winning a German infringement lawsuit wouldn't enforce at that stage anyway.

Motorola makes one central argument based on which it denies irreparable harm (saying that it could be avoided), the frustration of a policy of the Seattle court, the claim that enforcement is vexatious and/or oppressive, and contradicts other arguments made by Microsoft. That central argument on Motorola's part is that it says "it remains within Microsoft's power to avoid any injunctive relief from taking effect in Germany" by making an offer to take a license on initially-unspecified FRAND terms, which would later have to be agreed upon by the parties or (if they can't agree) set by a German court. Should a German court set a rate in excess of what the Seattle court believes Motorola was entitled to, "then it would also follow that any injury Microsoft suffers from paying a royalty rate in Germany above what it is contractually entitled to could be recovered as contract damages".

Motorola basically argues that it's Microsoft's own fault if it doesn't make use of this option under the German Orange-Book-Standard framework but instead insists that the Mannheim court rule on a specific offer Microsoft made, resulting in an injunction if the Mannheim court concludes it's too low. Motorola also says this:

"Under the Orange Book procedures, Microsoft could have guaranteed [emphasis NOT mine] itself a license in Germany for Motorola's standard-essential patents and preclude any injunction by making a binding commitment to accept a license on terms that are 'non-discriminatory and non restrictive' and paying an estimated license fee into the court."

The problem with this much-emphasized cornerstone of Motorola's argument is that it mischaracterizes the German legal framework as it stands today. Contrary to what Motorola would have Judge Robart believe, the process in Germany could result in a worldwide license agreement, the terms of which would be set by a German court, as opposed to merely "a license in Germany". And even though the ultimate determination of the FRAND royalty rate (whether for a German or worldwide license) could be postponed, Microsoft might have to make all sorts of concessions that will influence the result of such determination.

Motorola's brief asserts legal certainty that simply does not exist in Germany as we speak. Less than three weeks ago, I attended a conference on litigation over standard-essential patents at which Judge Dr. Peter Tochtermann, vice president of one of the Mannheim Regional Court's two intellectual-property-specialized chambers (panels), explained the German law concerning FRAND patents. His tenth slide stated four open questions -- legal issues that have not yet been adjudicated on a definitive, reliable basis (and it's hard to think of someone who would have better information on this question than this particular judge). Two of those four open questions -- merely by being open as opposed to "guaranteed" -- show that Motorola's argument about what Microsoft could/should do to avoid irreparable harm isn't accurate:

  • "Can the license offer limit itself to the patent in suit or does it have to extend to the whole (standard-essential) portfolio and/or foreign intellectual property rights of the claimant?"

  • "Is it really possible to postpone the discussion on the amount of damages to be paid and the license fee to subsequent proceedings?"

This presentation is less than three weeks old, and there haven't been any rulings since that would have taken these questions off the list of unresolved questions.

The word "foreign" in the first item above clearly shows that German courts might still conclude that an Orange Book offer has to relate to a license of greater geographic scope than just "in Germany". If Microsoft made an offer on initially-unspecified FRAND terms only with respect to Germany, an appeals court might decide that only a worldwide offer is reasonably acceptable to Motorola. In that case, Microsoft would have to amend its offer accordingly in order to prevent further enforcement of a German injunction. Such a worldwide offer would then have terms that German courts -- and not the court in Seattle, where Microsoft firstly brought an action to make Motorola comply with its FRAND licensing obligations -- would determine.

Under such duress, a German appeals court and Motorola could obligate Microsoft to waive its right to have that rate adjusted based on whatever the court in Seattle might decide later. In my observation, German courts are really very demanding in the Orange Book context, and they are particularly demanding if they believe there might be loopholes in favor of the defendant. They could tell Microsoft in a point-blank situation to make its choice: it either has to make an offer that the court considers to satisfy the Orange Book requirements, or else it will be excluded from the market. That's exactly the situation Microsoft seeks to avoid with its Seattle motion.

From my point of view, Motorola's proposal (in yesterday's opposition brief) for what Microsoft should do is a clearer confirmation of the risk of the German process frustrating the Seattle FRAND case than anything Microsoft itself ever said.

Furthermore, the fact that Orange Book offers might have to be worldwide in nature also puts Motorola's "international comity" argument to rest. Motorola's brief stops short of suggesting that there will be a diplomatic crisis between President Obama and Chancellor Merkel if Microsoft's motion is granted. If the German courts -- according to one of their leading patent law experts -- might, under the threat of (continued) enforcement of an injunction, require Microsoft to make a worldwide license agreement with Motorola subject to German law (as far as royalty rates are concerned), why shouldn't the United States District Court for the Western District of Washington take a temporary measure to ensure that its older FRAND case will be settled before those German Orange Book dynamics come into play and change the whole picture? Once those dynamics unfold (with an injunction in place and Microsoft having to make an offer that a Geman appeals court will consider acceptable), it will be too late for the court in Seattle to protect its own FRAND case. In those Orange Book situations, decisions sometimes have to be made during a 10-minute court recess, or within a very few days at the most.

Microsoft will now have to reply on Monday, the hearing will take place on Wednesday, and I guess there will be a decision later that week, or the following week.

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