Wednesday, October 10, 2012

U.S. court denies Motorola motion, will set FRAND terms at Microsoft trial next month

Earlier today I reported on the ITU Patent Roundtable and said that, absent an agreement among industry players, the courts will have to "resolve the pending and steadily-progressing disputes with the means at their disposal". A few hours after I said so, Judge James L. Robart, the federal judge presiding over the Microsoft v. Motorola Mobility FRAND obligations case in the Western District of Washington, demonstrated once again that he keeps forging ahead with his efforts to resolve the FRAND licensing dispute between these two companies. Judge Robart today denied a motion filed in mid-July with which Motorola Mobility was trying to narrow the scope of next month's FRAND trial, hoping to keep the door open for a continued pursuit of injunctive relief. The judge wants to make sure that when his court is done with this, a standard-essential patent license agreement will be in place to take care of this for good (apart from any appeals, of course).

While the introductory paragraph of today's order says that "the court GRANTS in part and DENIES in part Motorola's motion", the final paragraph describes the decision as an outright denial (click on the image to enlarge or read the text below the image):


Based on the foregoing, the court DENIES Motorola's motion for partial summary judgment dismissing Microsoft's claim that the court create a license agreement for Motorola's standard essential patents (Dkt. # 362). This matter will proceed to the November 13, 2012 trial under the schedule currently in place and to adjudicate issues in accord with this order.

I couldn't see a clear indication of a grant of any part of Motorola's motion anywhere in the 23-page document. Wherever the order specifies a decision, the decision is a denial. The closest thing to an agreement with Motorola's position that I found is that after the November 13 FRAND-rate-setting bench trial, there will at some point be a jury trial to determine whether Motorola's original $4 billion royalty demand was made in bad faith. But this is something the court had planned to do anyway. What Motorola wanted, however, was a game plan under which it would again be able to "negotiate" with Microsoft (and the word "to negotiate" was simply a euphemism for "to enforce injunctions") unless a breach is determined. Judge Robart rejected Motorola's proposal, because "a return to the negotiation table, without any adjudication as to what in fact constitutes a [F]RAND royalty rate, will accomplish nothing more than delay". The parties would "return to the bargaining table precisely where they started--negotiating and disagreeing over what in fact constitutes a [F]RAND license agreement".

This judge means business. He doesn't want more tactical gamesmanship. He wants a definitive solution for this issue. He told both parties at a hearing in the spring that he had them figured out: he basically said they are both pursuing their business interests and trying to use his court for their purposes -- but that's something that all companies do in commercial litigation. It doesn't mean that Judge Robart would tolerate FRAND abuse. He has already determined in a previous summary judgment decision that Google's Motorola has a contractual obligation to grant a FRAND license to Microsoft, and there's no point in playing games with him in an effort to avoid this outcome:

"Without the ability to create (or at the very least enforce creation of) the very license Motorola has promised to grant, Motorola's obligations would be illusory. The court finds such a result illogical and declines to adopt Motorola's position."

The order clarifies that "the November 13 trial will not result in the creation of a RAND license agreement, but instead will determine a [F]RAND royalty range and a [F]RAND royalty rate". Or, in more detail, "(1) a [F]RAND royalty range for Motorola's standard essential patents; and (2) a [F]RAND royalty point for Motorola's standard essential patents". The range is needed to give guidance to the future jury on whether Motorola's initial offer was a breach of its FRAND pledge. If Motorola made a royalty demand so far above the FRAND range that the discrepancy cannot be considered a good-faith mistake, it committed a serious breach. But a range wouldn't ensure that there is standard-essential patent peace between this parties: Motorola would demand the high end of the range, and Microsoft would argue that the outcome should be the low end, or at least something closer to the low end. By determining a particular number within that range, Judge Robart eliminates the potential for this kind of dispute as well.

This clarification of the objectives of the November 13 bench (i.e., non-jury) trial does not mean that the court won't create a license agreement if it has to. Judge Robart will hold Motorola to its FRAND promise one way or the other. My interpretation of his order is that after he has set the rate, Motorola will have another chance to grant Microsoft a cash-only license on that basis, but if it still refused to (which is likely to happen in my view), the court would do what's in its power to ensure that such an agreement is entered into, and Motorola would be unable to enforce any injunction against Microsoft until this happens.

In its early-August opposition to Motorola's now-denied motion, Microsoft had said that "Motorola's efforts to evade its [F]RAND commitments are collapsing". And indeed, the Google subsidiary has suffered several FRAND-related setbacks in the meantime. In mid-August, Apple prevailed on some contract-related FRAND issues in a summary judgment decision against Motorola in Wisconsin. In late September, the Ninth Circuit affirmed Judge Robart's anti-enforcement injunction. And now there's today's order, which quotes from the Ninth Circuit opinion. Not only had the Ninth Circuit upheld the anti-enforcement injunction that bars Motorola from enforcing a couple of H.264 patents against Microsoft in Germany but it also went beyond the call of duty and endorsed Judge Robart's position on a couple of FRAND contract issues.

Motorola's most powerful adversary in this isn't actually Microsoft. It's common sense. Judge Robart and the Ninth Circuit agree that there must be a way to enforce a FRAND licensing commitment, but if a standard-essential patent holder can enforce injunctions before he has to honor his FRAND promise, the FRAND pledge is meaningless because the threat of an injunction, or the actual enforcement of one, would force the implementer of a standard to agree to non-FRAND terms. It's as simple as that -- and it's absolutely consistent with Judge Posner's take on FRAND. Today's ruling by Judge Robart addresses important issues that weren't before Judge Posner (Judge Posner's case was an infringement case while Judge Robart's case is a contract case). The combination of the two decisions is dynamite. Not only do both decisions address different aspects of FRAND disputes but the two judges also have very distinct styles -- and in their unique ways they arrive at complementary and consistent conclusions.

It's too early to tell how the trial will go. Some key pre-trial motions have yet to be adjudicated. But the course of action is clear: there will be a FRAND licensing agreement in the end, and Motorola can't threaten with SEP-based sales bans anymore. This dispute is now only about money. That's what all FRAND disputes should be exclusively about.

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