Five days ahead of a FRAND contract trial in the Western District of Wisconsin, Apple has formally declared to the court its willingness to pay Motorola Mobility for a license to its standard-essential wireless patents ("wireless" meaning cellular and WiFi standards in this context), but it will only write an immediate check to the wholly-owned Google subsidiary if the per-unit royalty does not exceed $1. If the court sets a FRAND rate at or below $1, Apple will take a license and start to pay right away. Otherwise Apple will appeal the decision and exhaust all of its legal options before Google gets anything.
Apple's lawyers made this declaration, which may be the biggest smartphone patent news on Halloween 2012, on their client's behalf in a response to a Motorola motion for clarification. That motion was filed yesterday and pointed out that Microsoft, whose FRAND contract case against Motorola will go to trial on November 13, had explicitly committed to the conclusion of a license agreement on court-ordered terms. Apple's position in the somewhat similar case in Wisconsin is basically that Microsoft's actions don't create legal obligations for others. But Apple seeks to demonstrate to the court that it is serious about resolving the wireless SEP dispute with Motorola Mobility through a license agreement on FRAND terms. Here's the passage from Apple's filing that contains the commitment to take a license at a court-determined rate of up to $1 per unit:
"Apple has however been an outspoken leader in the industry on FRAND and has repeatedly urged that a rational and consistent framework for determining FRAND rates for wireless standards-essential portfolios must be set. Apple's actions in both licensing and litigation have matched its words in public. Because of that, Apple is willing to pay the FRAND rate this Court sets going forward if that rate is less than or equal to $1 per unit for its worldwide sales of covered products, as further discussed below in Section II.D. This is the rate that Apple believes is appropriate in these circumstances, a rate that flows from Apple's articulated FRAND framework, and the only rate that can be supported by experts at this trial. To the extent the Court sets the rate higher than $1 per unit, Apple reserves the right to exhaust all appeals and also reserves the right available to any party offered a license: the right to refuse and proceed to further infringement litigation. The Court has stated that it intends to set the “current fair license rate for purposes of specific performance.” Dkt. No. 424 at 18. With regard to Motorola’s request for an order requiring Apple to pay Motorola for the past (which is also beyond the scope of the specific performance remedy requested), Apple is confident that parties can negotiate a resolution once the Court sets a FRAND rate going forward."
Apple made this conditional commitment from a position of strength. Its filing notes that Judge Barbara Crabb has laid out her plan, which may very well culminate in a court order requiring Google's Motorola to make Apple a licensing proposal on court-determined FRAND terms. Apple also recalls that Motorola is going to face a major problem at the upcoming trial because its only expert, Dr. Leonard, "cannot testify about a particular rate at trial" because the court held that he "did not offer any opinion about what particular rate or range or rates would constitute a FRAND royalty". Indeed, the court's pretrial decisions largely favor Apple, as I said yesterday.
At next week's trial, Apple intends to support its no-more-than-$1 position not only with expert testimony but also with "copious real-world evidence--including Motorola's contemporaneous licenses--that establishes a ceiling for the FRAND rate Motorola could charge Apple for Motorola's worldwide portfolio".
Apple's position is that it wants a solution but the price must be fair. Otherwise, litigation over Motorola's SEPs will continue, which Apple would much prefer to avoid. Given that Motorola has not been able to enforce any SEP against Apple in the United States, Apple is prepared to take its chances if necessary:
"Motorola cannot offer evidence at this trial that the rate should be higher than $1 per phone, but to the extent the Court sets the rate higher than $1 per unit, Apple reserves the right to exhaust all appeals and needs also to reserve the right available to any party offered a license: the right to refuse and proceed to further infringement litigation. Make no mistake, that is not an outcome Apple desires. The parties have spent an exhausting two years litigating against each other around the world. But if the Court were to set, for example, the rate Motorola is seeking (2.25% of Apple’s covered product revenue), that would amount to billions of dollars per year. That is orders of magnitude more than Apple is paying for even substantially larger standards-essential patent portfolios. Indeed, over several years such a figure would eclipse the recent entire cost of acquisition of Motorola. In such circumstances, Apple may need Motorola to demonstrate that its declared essential patents are in fact essential patents and worth that amount of money, a hurdle Motorola has thus far been unable to clear with what are presumably its best patents."
Motorola's motion for clarification also asked the Wisconsin court to let a German court (presumably the Mannheim Regional Court, which I regard extremely highly for its technical expertise and case management but with which I have previously disagreed on FRAND issues) set a FRAND rate for Germany. Apple argues that the U.S. litigation that gave rise to next week's FRAND trial predates Motorola's German lawsuits, and if the Wisconsin-based court sets a rate, it should apply on a worldwide basis and "moot the later-filed German rate-setting action".
I will report on this again (or update this post) once Judge Crabb enters her decision on Motorola's motion for clarification. Whatever the decision will be, I'm convinced that Motorola is never ever going to get anything close to 2.25% of Apple's revenues. Apple's "$1 maximum" position may be justified from a FRAND point of view (I guess it is) but such a deal wouldn't give Google the strategic leverage over Apple that it hoped to get when it paid $12.5 billion for Motorola Mobility.
A few months ago, Apple valued Samsung's wireless SEPs at a rate of about half a cent per patent and unit.
Motions in limine adjudged in Microsoft v. Motorola FRAND case
I also have an update on the Microsoft-Motorola FRAND case in Seattle. A week after ruling on the parties' Daubert motions, Judge James Robart adjudged the other motions in limine (motions to exclude testimony or argument). He didn't issue a written order but instead made the decisions at a pretrial conference on Monday. The bottom line is that he largely denied both parties' motions in limine, and on some of the issues (for example, the question of whether Motorola's royalty demand would have to be consistent with the Entire Market Value Rule) he just pointed to the reasons underlying his Daubert decisions. A denial of a motion in limine doesn't mean that a party has lost on the issue it tried to resolve: it merely means that it will have to object to specific arguments or representations as opposed to the court imposing broader restrictions on the other party. And even spurious arguments and evidence of questionable probative value can survive a motion in limine but still won't have much weight. In this case, since there's no jury that can be confused, the judge is going to be aware of all arguments anyway when setting FRAND terms.
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