Wednesday, May 2, 2012

FRAND abuse: German court hands Motorola an injunction against Windows 7 and Xbox 360

This morning, Judge Dr. Holger Kircher of the Landgericht Mannheim (Mannheim Regional Court) handed down his postponed ruling on a set of four closely-related Motorola lawsuits against Microsoft. Motorola won an injunction (which it won't be allowed to enforce, at least not immediately, for reasons discussed below) against the further distribution of (as well as an order to recall from retail and destroy) Windows 7, the Internet Explorer, the Windows Media Player and the Xbox gaming console in Germany based on the following two patents:

  • EP0538667 on an "adaptive motion compensation using a plurality of motion compensators" (filed in 1992)

  • EP0615384 on an "adaptive compression of digital video data" (filed in 1994)

These old patents are, at least according to Motorola and its favorite court, essential to the H.264 video codec standard. H.264 is the format in which roughly 80% of all digital videos are recorded. Motorola actually has an obligation to make licenses to those patents available to all implementers on fair, reasonable and non-discriminatory (FRAND) terms, but instead of honoring its promise and complying with applicable antitrust laws, it demanded royalties that would amount, in a conservative estimate, to $4 billion annually. Microsoft obviously didn't accept those terms, and Motorola didn't even genuinely expect it to: from the beginning it just wanted to win injunctions in order to force Microsoft into a broad cross-license agreement.

The European Commission is formally investigating Motorola over suspicions that this conduct violates EU antitrust law. Brussels will certainly take note of today's ruling, and EU antitrust law trumps German law at the end of the day. At any rate, the Mannheim court didn't bless Motorola's royalty demands: only here, the rule is that an injunction will be denied only if a refusal of an offer by someone to take a license on certain terms is deemed an antitrust violation.

Today's decision was the most anticipated German patent ruling ever, especially after Microsoft recently said that it was moving its European distribution center out of Germany (to the Netherlands) in order to avoid disruption of its European logistics chain as a result of the German legal situation, and after a U.S. federal court prophylactically ordered a temporary restraining order against Motorola's near-term enforcement of today's ruling.

Mannheim was easy for Motorola -- now comes the hard part

Back to Mannheim. Based on Judge Dr. Kircher's extremely broad interpretation of Motorola's patents and the problematic tactics with which he obligated Microsoft at the February trial to withdraw its challenge to the validity of the patents-in-suit, it comes as no surprise that Motorola won a permanent (but appealable) injunction from this court.

This was the easy part for Motorola, which submitted an expert report to the court in which it likened standard-essential patents to bullets in a gun ("it only takes one bullet to kill"). The hard part comes now. In order to actually enforce this injunction, Motorola needs to provide security and overcome two more hurdles in other courts:

  1. Since the injunction will definitely be appealed by Microsoft right away, it can only be enforced on a preliminary basis, which means Motorola is liable for damages of premature enforcement should the injunction turn out to have been improperly-granted (which I believe it ultimately will be). Therefore, Motorola is required to provide security as a prerequisite to enforcement. The court determined that Motorola would have to post a bond or make a deposit amounting to hundreds of millions of euros. The judge only announced one of the four rulings, and the security required for the injunction of that one ruling amounted to 60 million euros, but he said that the amounts vary and include even greater amounts for the other three rulings. All four cases are closely related: they are about two patents targeting three different Microsoft legal entities (Microsoft Corporation, a subsidiary based in Ireland, and the German subsidiary). Motorola will certainly provide this security. It has already made three or more deposits over 100 million euros each to enforce a couple of rulings against Apple, which will cost German taxpayers millions of euros/dollars.

  2. The appeals court, the Oberlandesgericht Karlsruhe (Karlsruhe Higher Regional Court), can suspend the enforcement of this injunction. It will do so if its initial analysis is that Microsoft's appeal is more likely than not to succeed. For example, it may determine that Motorola's FRAND abuse is so egregious that enforcement must be stayed for the duration of the appellate proceedings (which typically take a year and a half, or sometimes more).

  3. The third major challenge for Motorola is probably the steepest one: Judge James L. Robart of the United States District Court for the Western District of Washington won't allow an end-run around his FRAND case. In November 2010, eight months before Motorola brought these German lawsuits, Microsoft filed a complaint with the United States District Court for the Western District of Washington in order to enforce Motorola's own FRAND licensing promise on a worldwide basis, and if Microsoft keeps on winning decision after decision in that litigation, Motorola won't get to enforce the German decision. On April 11, Judge Robart odered the aforementioned temporary restraining order. On May 7 (next Monday), there will be a hearing on a Microsoft motion for summary judgment of its breach-of-contract claim. If Motorola's $4 billion demand is considered "blatantly unreasonable", Motorola will be found to have breached its contract. The existing temporary restraining order will be in effect until Judge Robart's decision after that hearing (it could come down later the same day, but it could also take longer). In a recent post I explained the significance of that hearing and the possible next steps, which I believe will include further restraints on Motorola provided that Microsoft's summary judgment succeeds or, should the judge agree with Motorola that a jury needs to be asked, Judge Robart sees that Microsoft is sufficiently likely to succeed on the merits.

    In the build-up to the May 7 hearing, Motorola didn't dispute the $4 billion figure: it merely called it "misleading" without explaining this claim in the publicly-accessible part of the filing. It also told Judge Robart that its demand was "in fact reasonable [F]RAND". Unbelievable.

    Motorola is very well aware of the fact that Seattle is the center of gravity for this FRAND dispute. Last week, an ITC judge sided with Motorola on a non-final basis (over a case targeting the Xbox with three FRAND-pledged patents and one non-standard-essential one), and a few days before that recommendation came down, Motorola basically argued that a U.S. import ban could stil be prevented by the findings of the Seattle-based court.

Microsoft can prevent the enforcement of this Mannheim injunction by convincing the Karlsruhe Higher Regional Court of the merits of its appeal and/or winning further decisions in Seattle. Motorola, however, needs to fend off both challenges, the one in Karlsruhe and the one in Seattle.

Related German litigations

Motorola is also suing Apple over standard-essential patents in Germany. It won a Mannheim injunction based on a patent allegedly essential to a wireless data transmission standard names GPRS. It temporarily forced Apple to remove certain products from its German online store but can't currently enforce that particular injunction following a decision by the Karlsruhe-based appeals court.

I previously mentioned Motorola's enforcement of a push notification patent against Apple. Motorola is also suing Microsoft over that one (also in Mannheim). A decision is scheduled for May 11, 2012 (next week's Friday).

Both Apple and Microsoft countersued Motorola in Germany only after Motorola opted for the geographic escalation of disputes that originated in the United States. Apple has already won two injunctions against Motorola in Munich, and Motorola is under pressure from various Microsoft patents, particularly one on system event management.

Motorola is currently the only Android device maker to be embroiled in litigation with Microsoft

A couple of days ago, Microsoft and Nook maker Barnes & Noble announced the settlement of their Android-related patent dispute. Other major device makers such as Samsung, HTC and LG have taken a license from Microsoft. Licensing is the rule, litigation is an exception. No matter what Motorola tries in Germany or elsewhere, I have no doubt that it's only a question of when, not if, Motorola will also pay royalties to Microsoft in order to address Android's infringement in a constructive and commercially reasonable manner.

Implications for Google's proposed acquisition of Motorola Mobility

Regulators in the U.S. and the EU approved Google's envisioned acquisition of Motorola Mobility only with reservations concerning MMI's use of FRAND-pledged standard-essential patents and Google's endorsement of MMI's litigation tactics. Currently the closing of the deal depends on the Chinese Ministry of Commerce (MOFCOM). I don't have any information (at least no official or otherwise verifiable information) concerning the state of the Chinese merger review. Today's German ruling may have implications for the Chinese proceedings if it's true that FRAND plays a key role there, but again, there's no way of knowing at this stage.

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