Tuesday, May 8, 2012

Schedules set and modified in Microsoft-Motorola FRAND obligations dispute

At a hearing yesterday, Judge James L. Robart of the United States District Court for the Western District of Washington gave both parties a rough ride according to reports from the Seattle Times and GeekWire. The judge appears inclined (though this could change by the time the actual orders come down) to deny both parties' motions for partial summary judgment. Microsoft wanted the court to find, ahead of a jury trial at which all FRAND issues would be discussed, Motorola in breach of its FRAND-related contractual obligations, while Motorola conversely asked the judge to determine that Microsoft "repudiated" its entitlement to a FRAND license by taking a dispute over FRAND terms to court within weeks of being faced with Motorola's $4 billion annual royalties demand. After a motion for partial summary judgment is denied, the relevant issues may still be on the agenda at trial.

I understand that Judge Robart reminded the parties of the fact that the temporary restraining order (TRO) granted on April 11, which bars Motorola from the immediate enforcement of a patent injunction it obtained in Germany last week, remains in effect for the time being. Under the rules of the TRO, Motorola needs a permission from the Seattle court before it can enforce the German injunction, and in order to get that permission, it has to request it, which it hasn't at this point.

Right after the German ruling, Motorola appealed the TRO, which it says should be labeled a preliminary injunction, to the Court of Appeals for the Ninth Circuit. On Friday, the Ninth Circuit set the usual briefing schedule for preliminary injunction appeals, which gives Motorola until May 30 for its opening brief, Microsoft 28 days to respond to the opening brief, and Motorola another 14 to reply to Microsoft's answer (if it so chooses). By setting the circuit's standard schedule for preliminary injunction appeals, the appeals court has not yet made a final decision on whether Motorola's claim that this TRO is a PI is correct: it merely adopted Motorola's categorization for the purpose of setting a briefing schedule.

Late on Monday, several hours after the partial summary judgment hearing, Judge Robart moved up the Seattle trial by one week, from November 26, 2012 to November 19, 2012.

Motorola has shown in its dispute with Apple that it's eager to enforce injunctions as soon as the courts allow. Judge Robart determined that his court would ultimately set the terms of a license. When Motorola sent Microsoft its royalty demand letters that triggered this FRAND enforcement action in November 2010, it attached to the H.264-related letter a list of approximately 100 declared-essential patents, which included the two patents at the heart of the Mannheim lawsuit, which was filed eight months later. A compulsory license would put the German infringement action to rest: you can't infringe patents you have a license to. When he announced the TRO, Judge Robart pointed out that Motorola "would place Microsoft at the position of a negotiation in Germany with the threat of an immediate injunction hanging over its head" -- a perspective that reminds me of an argument made by a Sony lawyer who told a Dutch court in March 2011 that Sony was prepared to negotiate a license agreement with LG (over patents essential to the Blu-ray Disc standard), "but not with a knife at the throat". The Dutch court also followed that reasoning. Germany is the only country in which certain courts have the very opposite view and are constantly on the lookout for ways to further sharpen the knife that the holders of standard-essential patents hold in their hands.

After Judge Robart issued the TRO, Motorola claimed victory in the sense that Microsoft committed to take a license on FRAND terms. However, that was not an outcome of the TRO process but already the case before the TRO motion. At a February trial in Mannheim, Microsoft's German counsel repeatedly said that his client wanted to resolve this matter through a license, and yesterday Motorola filed a proposed redaction version of the April 11 Seattle TRO hearing transcript, which includes the following passage that clarifies Microsoft committed to take a FRAND license in September 2011 at the latest:

Now, where we stand on that is that first of all we are asking this court, and we have been -- we have had it in our pleadings from day one -- to determine a RAND rate under these standards. And we have also stated, I believe unequivocally for the first time in September of 2011, not in April of 2012 as Motorola suggests, that we are committing to take such a license, and if the court agrees that we are entitled to one -- which we believe is simply a function at this point of whether the court agrees that we have not repudiated by filing this lawsuit seeking to enforce the contract.

So, we believe that because at the end of the day, and that day is hopefully not too far off, the court should rule and we hope will rule that we are entitled to a license worldwide that includes the German patents, that will dispose of all of the issues in the German case, but in particular will clearly dispose of the one issue that this TRO is focused on, and the preliminary injunction request, which that is whether Motorola can get an injunction."

If the TRO stays in force until, as Judge Robart put it yesterday, "six good citizens of the Pacific Northwest" render a verdict on what the FRAND royalty rate should be, then the terms under which Microsoft takes this license to Motorola's H.264 patents will be set in the U.S. for the very worldwide license that Motorola originally offered. It's always suboptimal if parties can't reach an agreement without help from the courts (and/or regulatory agencies), but for standard-essential patents I believe it makes a whole lot more sense for courts to set royalty rates than to ban standards-compliant products only to give FRAND abusers maximum leverage (as if they didn't have enough leverage anyway).

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