Monday, August 13, 2012

U.S. court grants Apple partial summary judgment on FRAND contract issues in Motorola case

On Friday, Judge Barbara B. Crabb, the federal judge who is presiding over an Apple v. Motorola Mobility FRAND enforcement lawsuit in the Western District of Wisconsin filed in March 2011 as a set of counterclaims to an ITC case, entered an order granting the antitrust-related part of a Motorola Mobility motion for partial summary judgment only because of an immunity rule that protects lawsuits and ITC complaints, and then granting all of Apple's partial summary judgment requests that were still relevant after the dismissal of its antitrust claims, i.e., certain contract-based and estoppel-related claims.

This decision is an important victory for those advocating that FRAND promises must be enforceable. Judge Crabb's ruling has implications not only for various Apple-Motorola cases, including an ITC investigation due to be concluded later this month, but also for the ongoing Apple v. Samsung trial in the Northern District of California (where two of Samsung's patents-in-suit raise the same issues and are unlikely to result in an injunction) and for Microsoft's FRAND enforcement dispute with Motorola Mobility in the Western District of Washington (which was always based only on the kinds of contract claims upheld in the Wisconsin order, and never involved the antitrust claims on which Judge Crabb has ruled in Google's favor).

After this partial summary judgment win, Apple is in pretty good shape with a view to the Wisconsin FRAND trial, which is scheduled to start on November 5, 2012. It still has the burden of proof on its claim that Motorola's 2.25% royalty demand is inconsistent with FRAND, and there are some other requirements to meet, but the issues have been narrowed ocnsiderably. Almost exactly a year after Google announced its acquisition of Motorola Mobility, and only days after Google announced mass layoffs at the acquired company, Friday's decision is only the latest event of many that call into question the patent strategy behind that $12.5 billion impulse buy.

Prior to Judge Crabb's summary judgment order, the case was relatively opaque due to excessive sealing. At least it was discoverable that the parties brought partial summary judgment motions in late April, that Apple made reference to Microsoft's FRAND-related progress against the same adversary, and that Apple pointed Judge Crabb to the FRAND part of Judge Posner's Apple v. Motorola Mobility ruling. Judge Crabb used to preside over the lawsuit that Judge Posner adjudicated. In fact, the transfer of that infringement action from Wisconsin to Illinois was the result of an agreement between her and Judge Posner, who volunteered to take over.

There are people out there, including some you can find quoted in the media, who say that there's a scarcity of caselaw regarding FRAND. While there certainly isn't an abundance of FRAND decisions since earlier cases typically got settled before anything important happened, one of the positive effects of the ongoing wave of smartphone patent disputes is that more FRAND issues than ever do get decided, and so far there's a clear trend across multiple federal districts that FRAND is anything but the empty word that certain notorious abusers would like it to be. District Judge Robart in Washington State, Circuit Judge Posner in Illinois (sitting by designation on a district court), District Judge Crabb in Wisconsin with the order I'm disczussing here and, on a preliminary basis, District Judge Koh in California have all given meaning to FRAND. Moreover, influential U.S. Senators, U.S. Representatives, the Federal Trade Commission and the Department of Justice have spoken out in favor of reasonable interpretations of FRAND. (The context here is U.S. law, but let's not forget about the European Commission.)

Finally, let me summarize more specifically what Judge Crabb decided. Apple had brought four kinds of claims:

  1. antitrust claims

  2. claims based on Motorola's FRAND contracts with standard-setting organizations

  3. a tortious interference claim related to Apple's relationship with Qualcomm

  4. estoppel

The reason that Motorola got the antitrust part dismissed is not that the court found that an enforcement of injunctive relief against Apple over standard-essential patents would have been above board from a competition law point of view. That important question was never reached because it hasn't happened yet: so far Motorola hasn't managed to enforce anything against Apple in the United States. Motorola's motion was granted simply on the basis that Apple could not prove that any damages had occurred by the time it brought its complaint. Apple argued that it has already spent more than $30 million ($31,948,128.31 to be precise) on its legal defense against Motorola's standard-essential patent claims at the ITC and in federal court, but Judge Crabb says that Motorola's lawsuits per se cannot be the basis of an antitrust claim due to the Supreme Court's Noerr-Pennington doctrine, which basically says that enforcing the law is not, in and of itself, an antitrust violation, unless a lawsuit is a "sham".

In other words, Apple's claims were dismissed because they were premature in terms of damage. The same claims are the actual enforcement of an actual injunction would be a different story. We'd still be talking about enforcement, but not only about the fact that Motorola brought litigation.

I did not see the Noerr-Pennington doctrine addressed in Judge Koh's order that largely upheld Apple's FRAND counterclaims against Samsung a few months ago. I wouldn't be surprised to see Samsung file a motion or a notice of judicial authority. Judge Koh actually considered the fact that Apple had incurred expenses to defend itself against Samsung's SEP assertions sufficient for the damages element of an antitrust claim.

The Friday ruling makes clear that the scope of the Noerr-Pennington doctrine is limited to claims based on litigation expenses but does not give Motorola Mobility immunity with respect to contract-based claims, nor does it matter in the context of estoppel.

Motorola's other win was the dismissal of Apple's tortious interference claim regarding its relationship with Qualcomm. This, too, was based on the absence of actual harm. Since Apple kept buying chipsets from Qualcomm and didn't incur any incremental cost (other than litigation expenses) as a result of Motorola's attempt to terminate its patent license agreement with Qualcomm, there's no basis for a damages claim. However, this is irrelevant to Apple's Southern California lawsuit that aims to enforce Apple's rights as a third-party beneficiary of the Motorola-Qualcomm cross-license agreement. That's why Motorola's related achievement in Wisconsin is much less important than its ability to avoid Apple's antitrust claims (though I guess Apple will also appeal that part at some point).

And now we're finally getting to Judge Crabb's findings in Apple's favor, which clearly up the ante for Motorola at the November trial:

a. Motorola entered into binding contractual obligations with ETSI and IEEE to license its declared essential patents on fair, reasonable and nondiscriminatory terms.

b. Apple is a third-party beneficiary of Motorola’s contractual obligations to ETSI and IEEE.

c. In submitting technical proposals to ETSI for inclusion of Motorola technology in ETSI standards, Motorola was obligated by ETSI policy to make a bona fide effort to identify essential intellectual property rights that might be required by the technical proposal before the adoption of the technical proposal into the standard.

d. Motorola was obligated to make a bona fide effort to disclose the applications leading to the issuance of its United States patents 6,175,559, 6,359,898 and 6,246,697 [the '697 patent is the one that an ITC judge held Apple, on a preliminary basis, to infringe] to ETSI before the adoption of Motorola's technical proposals, even when those patent applications were unpublished.

e. Motorola disclosed the patent applications issuing as the '898, '559 and '697 patents after the adoption of the standards to which Motorola contends those patents are essential.

Items (a) and (b) are consistent with a couple of Judge Robart's partial summary judgment decisions in Microsoft v. Motorola. That Microsoft case in the Western District of Washington will also go to trial in November, like the Apple-Motorola case in the Western District of Wisconsin. Apple and Microsoft are in similar position. Unlike Microsoft, which hasn't tried this, Apple has now scored some summary judgment wins with respect to its claims that Motorola failed to meet its obligations to disclose standard-essential patents to the relevant standard-setting organization at the appropriate time. Microsoft, however, achieved progress in other areas, such as with its preliminary injunction against Motorola's enforcement of German patent injunctions, and may benefit from a grant-back clause in a Google agreement with MPEG LA. At any rate, this is not a race between Apple and Microsoft, but each of them has a FRAND dispute with Google's Motorola Mobility. And the odds are increasingly long against the possibility of the iPhone, the iPad, Windows or the Xbox being banned in the U.S. (be it by the ITC or by a federal court) over FRAND-pledged standard-essential patents.

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