Monday, May 14, 2012

U.S. court extends ban: Motorola can't enforce German patent injunction against Microsoft

On Monday afternoon local time, less than two weeks after the Mannheim Regional Court handed Motorola Mobility a German patent injunction against Microsoft over two patents allegedly essential to the ubiquitous H.264 video codec standard, Judge James L. Robart of the United States District Court for the Western District of Washington entered a preliminary injunction (PI) order that effectively extends a temporary restraining order (TRO) barring Motorola from actual enforcement of the German ruling.

In late March, Microsoft requested both a TRO and a PI. The TRO came down on April 11 as an initial measure covering the period until the district court would decide on a summary judgment motion following a hearing that was scheduled for, and indeed took place on, May 7. In the blog post I just linked to, I already explained (and described as the most likely next step) that there would be a follow-on order preventing Motorola from enforcement in Germany for some more time. That's exactly what happened on Monday. Here's the PI order, which I'll discuss further below:

12-05-14 MSFT MMI Preliminary Injunction

In a formal sense, this order converts the TRO into a PI. The distinction between the two kinds of orders was already raised by Motorola in its recent appeal to the Federal Circuit.

The final sentence of the PI order defines the term as follows:

"This preliminary injunction shall remain in effect until this court is able to determine whether injunctive relief is an appropriate remedy for Motorola to seek with respect to Microsoft’s alleged infringement of Motorola's standard essential patents."

In practical terms, this most likely includes the trial of Microsoft's FRAND enforcement lawsuit, which was recently moved up by one week and is presently scheduled to start on November 19, 2012.

The parties' partial summary judgment motions discussed at last week's hearing may be dismissed. At least that's the inclination Judge Robart indicated at the end of the hearing. But such dismissals won't be relevant to the PI. They merely have the effect that issues need to be discussed at trial instead of being resolved beforehand.

In connection with the analysis of irreparable harm, Judge Robart highlights a practical business issue resulting from the threat of injunctions that I think his colleagues at the ITC, in Germany and in many other jurisdictions should also attach a lot of importance to:

"It would seem clear that a negotiation where one party (Microsoft) must either come to an agreement or cease its sales throughout the country of Germany fundamentally places that party at a disadvantage. Moreover, if it is shown later that injunctive relief was indeed improper, any licensing arrangement resulting from such negotiations may not easily be undone."

I have, as I said in a recent post on Apple's German lawsuits against Samsung, the greatest respect for the grasp of technical issues that the Mannheim judges demonstrate at the many trials I attend up there. At the same time, I regret that their approach to FRAND-pledged standard-essential patents is largely -- in my view, to an undesirable extent -- driven by the desire to give patent holders leverage against infringers. I'm all for law and order, and for (reasonable) intellectual property enforcement. But what Judge Robart wrote above is exactly why the German Orange-Book-Standard framework and the way it is applied (not only in Mannheim, but most of the recent FRAND cases have been brought there) put implementers of standards into an extremely precarious situation -- and potentially at the mercy of FRAND abusers. There are many situations in which abusers get their way. As the second sentence of my above quote from Judge Robart notes, "any licensing arrangement resulting from such negotiations [under the threat of an injunction] may not easily be undone" -- that is actually an understatement considering that implementers typically don't have a way out of the contractual obligations they must enter into under this kind of duress.

As a native, citizen and resident of Germany, I definitely wouldn't want U.S. courts to meddle with our local affairs. But there are exceptional situations. The German Orange-Book-Standard mess is so dramatic that I welcome any help from outside of Germany until our politicians and/or judges fix it. What's more important is that this here isn't an undue interference with a German dispute. Judge Robart's order explains why Motorola's argument that this kind of restraint adversely affects the comity of nations didn't succeed:

"The lawsuit was initiated by an American company (Microsoft) against another American company (Motorola). Central to the lawsuit are the October 21 and October 29 Letters—sent by Motorola from its Libertyville, Illinois office to Microsoft at its Redmond, Washington office--which Microsoft alleges breached Motorola's commitments to the IEEE and ITU to grant licenses for all of its patents, both domestic and foreign, on RAND terms to all applicants on a worldwide basis. Accordingly, this court is fully capable of adjudicating the issues before it. To the contrary, the lawsuit lacks international issues and foreign government involvement."

In a related context, the PI order also notes the following:

"Second, the court finds that the timing of the filing of the German Action raises concerns of forum shopping and duplicative and vexatious litigation. In this action, Microsoft filed its initial complaint in November 2010 invoking this court's jurisdiction to determine the worldwide rights and obligations of Motorola's commitments to the ITU and IEEE with respect to all Motorola’s standard essential patents, including the two European Patents. It was not until June 2011, over six months after Microsoft initiated its action, that Motorola initiated the German Action seeking injunctive relief for Microsoft's alleged infringement of the European Patents. The court's concerns over forum shopping and duplicative and vexatious litigation are heightened by the fact that Motorola's commitments to the ITU involved approximately 100 Motorola-owned patents, yet Motorola invoked the German Action implicating only two (the European Patents) of these patents and sought injunctive relief in Germany before this court could adjudicate that precise issue."

Irrespectively of the previous TRO and the new PI order, the German courts can continue to evaluate and adjudicate this issue. Microsoft announced right after the Mannheim ruling that it was going to appeal the matter to the Karlsruhe Higher Regional Court. The PI only bars Motorola from seeking enforcement for the next six months or so. Most German patent holders don't enforce while an appeal is pending because they have to make deposits and are, without a deposit constituting a limit, fully liable for damages if an injunction turns out to have been improperly-granted.

As a matter of fact, this PI order saves German taxpayers money because the state of Baden-W├╝rttemberg would owe Motorola interest on the deposit (to the tune of 1% per annum) without being able, under the rules it has to respect, to make use of those funds (for the temporary repayment of debt or through investments). Any one of several deposits Motorola has made to enforce different rulings against Apple results in an annual amount of interest in excess of what the state of Baden-W├╝rttemberg (home to companies like SAP, Mercedes, Porsche and Hugo Boss) paid to all depositors (not just in patent cases) over the last three years, a comparison that shows how unusual an enforcement of injunctions at this stage is.

Motorola's use of H.264-related patents against patents led to the aforementioned Mannheim injunction but has government agencies both in the United States and the European Union profoundly concerned. Last month, the European Commission launched two formal investigations of Motorola's suspected abuse of standard-essential patents. Even more recently, Judge David Shaw of the United States International Trade Commission (ITC) issued an initial determination on a Motorola complaint against Microsoft's Xbox 360 gaming console, which includes a variety of findings that validate Judge Robart's and the European Commission's concerns. For example, Motorola's royalty demands "could not possibly have been accepted by Microsoft" and "the evidence supports Microsoft's conclusion that Motorola was not interested in good faith negotiations and in extending a [F]RAND license to it". Therefore, Judge Shaw considered Motorola's statements to certain standard-setting organizations, and to the public, "misleading".

Judge Robart's PI was not the only bad news on the patent litigation front for MMI on Monday. Earlier in the day, Judge Robert Scola in the Southern District of Florida consolidated two cases pending in Miami. Apple had requested this full consolidation while Motorola advocated partial consolidation and a far more ambitious schedule.

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