Saturday, September 29, 2012

Google loses appeal, continues to be barred from enforcing German injunction against Microsoft

A U.S. appeals court has dealt the latest setback, and the most important one to date, to Google's hopes that it could address Android's huge patent infringement problems through the abusive pursuit and enforcement of sales bans based on Motorola Mobility's standard-essential patents, forcing the holders of non-standard-essential patents violated by Android into cross-license deals or mutual non-assertion pacts. The noose keeps tightening and it appears to be only a question of when, not if, Motorola will have to extend a standard-essential patent license to Microsoft on truly FRAND terms.

On Friday afternoon by Pacific Time, the United States Court of Appeals for the Ninth Circuit issued its opinion dismissing Motorola Mobility's appeal of a preliminary injunction by the United States District Court for the Western District of Washington that enjoined and, after the appeal was just turned down, continues to enjoin the Google subsidiary from enforcing a couple of German H.264-related patent injunctions that the Mannheim Regional Court had granted in May. The preliminary injunction had been granted by Judge James L. Robart, the federal judge presiding over the Microsoft v. Motorola Mobility FRAND contract dispute in the Seattle-based district court. The Ninth Circuit has now found that Judge Robart applied the correct legal standard and did not abuse his discretion in barring Motorola from enforcement in Germany.

The appeals court's ruling follows a September 11, 2012 hearing in San Francisco and means that Google must wait until Judge Robart resolves the FRAND contract issues raised by a Microsoft complaint filed in November 2010.

A bench trial in Seattle will commence on November 13 and will result in a FRAND royalty rate consistent with the FRAND promise Motorola once made to the ITU, a United Nations standard-setting organization that played a key role in developing the H.264 video codec standard in which roughly 80% of all digital video is encoded these days. Google does not want Judge Robart to resolve this contract issue as planned because it knows that its entire SEP enforcement effort against Microsoft would be brought to an end. In the opinion on the preliminary injunction, the Ninth Circuit does not want to address Motorola's objections to Judge Robart's course of action, but it comes fairly close to formally endorsing some of its key elements:

"We emphasize that we do not (indeed, we may not) decide whether the district court's partial summary judgment, or its determination that it would adjudicate a [F]RAND rate, was proper — if an appellate court is to review those determinations, it will have to do so on a final, not an interlocutory, appeal. But we do hold this much: The district court’s conclusions that Motorola's [F]RAND declarations to the ITU created a contract enforceable by Microsoft as a third-party beneficiary (which Motorola concedes), and that this contract governs in some way what actions Motorola may take to enforce its ITU standard essential patents (including the patents at issue in the German suit), were not legally erroneous. Motorola, in its declarations to the ITU, promised to 'grant a license to an unrestricted number of applicants on a worldwide, non-discriminatory basis and on reasonable terms and conditions to use the patented material necessary' to practice the ITU standards. [...]"

"In particular, the face of the contract makes clear that it encompasses not just U.S. patents, but all of Motorola's standard-essential patents worldwide. When that contract is enforced by a U.S. court, the U.S. court is not enforcing German patent law but, rather, the private law of the contract between the parties. Although patents themselves are not extraterritorial, there is no reason a party may not freely agree to reservations or limitations on rights that it would have under foreign patent law (or any other rights that it may have under foreign law) in a contract enforceable in U.S. courts. [...]"

The Ninth Circuit opinion cites to different writings and decisions on FRAND, including several quotes from Judge Posner's recent ruling. It's clear that the Ninth Circuit gave a lot of consideration to FRAND issues and that it does believe FRAND promises must be honored. It is at least very skeptical of whether the pursuit of injunctive relief is legitimate in cases in which the defendant is clearly entitled to a license on FRAND terms.

The Ninth Circuit clarifies that its affirmation of Judge Robart's antisuit injunction does not imply that there is anything fraudulent about the process in Germany. The issue is not whether the Mannheim court did the right thing or the wrong thing -- it's that Motorola engaged in forum-shopping to gain leverage in Germany before the first-filed U.S. contract issue would be resolved. In practical terms, Motorola wanted to render the Seattle proceedings meaningless by gaining enough leverage in Germany that it could get a settlement on its terms before Judge Robart would even get to adjudge the case before him. Judge Robart made it clear that he wanted to thwart that plan, and the Ninth Circuit says that he had the right to do this.

By coincidence, I discussed this complicated situation yesterday, only a few hours before the Ninth Circuit opinion in a post on the fact that the Android camp is currently enforcing only one patent injunction against Apple and none against Microsoft. If you look at item 3 of that post, you can find more detail on the procedural history of the German H.264 patent injunctions that Motorola will most likely never get to enforce.

At the start of this post I was talking about Google's strategy for addressing Android's massive patent infringement. In light of this unsuccessful appeal to the Ninth Circuit, Google should think even harder about taking a license to all those Microsoft patents that read on Android. Google should ask itself, very seriously, whether it really has a workable plan to get away with wide-ranging unlicensed infringement.

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