Late on Friday, Microsoft filed a few documents in its FRAND enforcement dispute with Google subsidiary Motorola Mobility in the Western District of Washington. While only a limited amount of information entered the public record, it suggests that a license agreement between Google and MPEG LA, a patent pool firm that manages most H.264-related patents on behalf of several dozen industry players, could be outcome-determinative in Microsoft's favor as far as Motorola's pursuit of injunctive relief is concerned.
Microsoft asks the court for permission to supplement the record of a pending motion for partial summary judgment that was filed on December 15, 2011. That motion asks the court to throw out Motorola's prayer for injunctive relief with respect to H.264 patents in light of Motorola's FRAND licensing obligations arising under its commitments to a standard-setting organization, the International Telecommunications Union (ITU). The court has not yet adjudicated that motion. Microsoft would like to submit as additional evidence in support of that motion a letter that Microsoft's counsel sent to Google's counsel on Friday. The letter is sealed because it references a confidential license agreement between MPEG LA and Google (which is attached to that letter and, obviously, also sealed).
Microsoft's request for permission to supplement the record states that "Microsoft believes [the letter including the MPEG LA-Google agreement] is relevant to the issues raised in its [December 15, 2011] Motion" and is also prepared to "raise this issue by formal motion".
All that Microsoft's public filings say about that confidential agremeent is the following:
"The AVC Patent Portfolio License is a license agreement between third-party MPEG LA and Motorola’s parent company, Google, which MPEG LA has designated as containing confidential information under the terms of the Protective Order entered in this action."
I don't know anything about the terms that Google, which makes use of H.264 on YouTube (and possibly in other ways), agreed upon with MPEG LA. A couple of years ago I received a copy of MPEG LA's standard AVC license agreement from MPEG LA itself. I was allowed to talk about it on my blog (but not to publish it). It contained a clause dealing with the scenario of an MPEG LA licensee (such as Google) litigating against an MPEG LA licensor (such as Microsoft). The agreement I saw had a reciprocity clause, ensuring that an MPEG LA licensee would have to grant an MPEG LA licensor a FRAND license to his H.264-essential patents, and the FRAND terms would have to be consistent with the MPEG LA license fees, taking into consideration the number of relevant patents.
Motorola was part of the ITU standard-setting process but never contributed its own H.264 patents to the MPEG LA AVC pool, and to the best of my knowledge, Motorola never took a license from the pool -- presumably because it wanted to avoid this reciprocity requirement. But Google was in a different position. When Google decided to take a license from MPEG LA, it didn't hold any patents that it could assert against implementers of the H.264 standard. That's why Google presumably just accepted the reciprocity clause. Now that Google has acquired Motorola Mobility (a fact that was formally notified to the district court by way of a corporate disclosure statement), the situation has changed and Motorola may no longer be able to pursue injunctive relief over H.264 patents against Microsoft and other MPEG LA contributors, such as Apple.
This new contractual situation may also help Microsoft in its appeal against a German ruling. The Mannheim Regional Court granted Motorola an injunction against Microsoft in early May. Google formally closed its acquisition of Motorola Mobility three weeks later. Microsoft announced its intent to appeal the Mannheim decision to the Karlsruhe Higher Regional Court. There was no shortage of reasons to disagree with the Mannheim ruling, but the new situation arising from Google's acquisition of Motorola could finally tip the scales in Microsoft's favor.
In retrospect it's now clear why the aformentioned decision, which I published, mentions that Microsoft had asked the Mannheim court to stay the case pending the completion of Google's acquisition of Motorola Mobility. Normally, the mere fact that a company is undergoing a potential change of ownership is not a reason to stay its patent enforcement actions. But in this case, the fact that Google is bound to the terms of MPEG LA's license agreement could make a difference.
The MPEG LA license agreement that I saw clearly binds affiliates, and a wholly-owned subsidiary is the ultimate affiliate. What's key here is not that someone wouldn't be allowed to sue at all -- obviously Motorola brought those lawsuits before it was acquired. It's that the reciprocity clause may provide Microsoft with another basis for demanding a license on FRAND terms, and with an understanding of FRAND rates that's fundamentally different from Motorola's approach: on a per-patent basis, Motorola demands many thousands of times the pool rate, while MPEG LA's reciprocity clause applies the pool rate to the non-contributor's patents. The implications for back-royalties (or damages for past use) may be a bit more complicated (though the result may very well be the same), but Microsoft's motion for partial summary judgment is entirely focused on the question of injunctive relief.
Motorola also asserts patents related to other standards than H.264, such as 3G/UMTS and IEEE 802.11 (WiFi, or WLAN). The MPEG LA reciprocity clause wouldn't cover those.
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