Last week I reported on what's left of the Apple-Motorola FRAND dispute in Wisconsin after the trial was canceled. At this stage it all comes down to the question of whether the dismissal would be with or without prejudice. In the former case, Apple fears that its ability to raise certain FRAND defenses against the Google subsidiary's infringement claims would be impaired by the res judicata effect of dismissals with prejudice. In the latter case, Motorola says it might have to relitigate issues on which the parties already spent a lot of time and money (and which also required resources of the U.S. court system) in the Wisconsin proceeding, which it would consider unfair.
The minute order on the November 5 dismissal of the bench trial originally scheduled to commence later that day was a dismissal with prejudice. But Apple filed a bench memorandum after the hearing and three days later, Judge Barbara Crabb reaffirmed and explained in writing here decision to dismiss the case, but semi-surprisingly opened the door to reconsideration on the question of prejudice, saying that "[t]he court will decide whether the dismissal is with or without prejudice after the parties have completed briefing on the issue."
Yesterday Motorola filed its reply brief to Apple's memorandum. The Google subsidiary concedes that "Apple is correct that a dismissal for lack of jurisdiction or standing is typically without prejudice", only to argue, of course, that this "is far from the typical case". Motorola's theory for why a dismissal for lack of jurisdiction or standing should come with prejudice in this case is based upon the procedural history of this litigation. Motorola says that the way Apple originally brought the case, it was a contract case and about monetary damages, and it could have been adjudged, but "[o]nly by deciding (for strategic reasons) to drop its damages claim and instead seek only a non-binding FRAND rate to be used as a bargaining chip in ongoing negotiations did Apple, in essence, affirmatively prompt dismissal by defeating its own claims" -- more than a year and a half after Apple brought the original claims.
I agree with Motorola that it should not be subjected to "the risk of repeat litigation"(other than whatever may result from Apple's appeal), but I also believe it would be fundamentally unjust to deprive Apple of any or potentially even all of its FRAND defenses only because it overplayed its hand in Judge Crabb's court. There are a couple of major differences between the two scenarios. In a defensive situation, litigation would be brought or would continue only because Motorola wants to enforce standard-essential patents against Apple. It would not be a situation in which Apple would bring "repeat litigation". More importantly, it wouldn't really make sense to let Motorola prevail on offensive claims that it isn't entitled to prevail on, only because of tactical issues in the Wisconsin case. If a defense is valid, it must be adjudged, and if Judge Crabb didn't want to support Apple's litigation and negotiation tactics, that's a separate issue from whether Motorola should get away with FRAND abuse.
It's always been my impression that Judge Crabb wanted to be a peacemaker, and last week's written explanations only serve to strengthen it. This is a good attitude per se, but it will be interesting to see how the appeals court views her legal reasoning. Her whole dismissal theory hinges on the position that the third of the three factors for standing (the right to sue) is not satisfied by Apple if it doesn't commit to take a license on court-determined terms. The three standing factors are injury, causation and redressability. Apple's position is, in a nutshell, that Motorola breached its contractual obligations to make a FRAND offer, and the way to redress this is for the court to order Motorola to make such a FRAND offer to Apple. I don't understand why Apple didn't just do what Microsoft did and committed to take a license, but I'm absolutely unconvinced that Apple can really be required to do so. Apple's theory of an enforceable options contract makes a whole lot of sense to me.
Judge Crabb says that if she ordered Motorola to make Apple an offer on FRAND terms, there would be no redress because litigation might continue anyway (in the event that Apple doesn't accept the offer). I think Judge Crabb, whose reasoning on some other issues I really liked a lot, defines "redress" far too broadly here. Motorola's refusal to make an offer on truly FRAND terms would definitely be redressed by the court order Apple proposed. I don't think "redress" means "global peacemaking" like the Apple-HTC settlement. There's a very specific kind of wrongdoing here -- Motorola's outrageous 2.25% royalty demand -- and it can be redressed even if Apple later takes the offer and tries to negotiate down from there, as Motorola says (and I also tend to believe) it would.
In yesterday's filing, Motorola once again proposed binding arbitration as a path to a solution. I'm not sure that this proposal is serious. Before any arbitration proceeding could start, the parties would have to agree on a variety of parameters and issues, and especially on at least one person (an arbitrator who is independent from both parties, either as the only arbitrator or as the third or fifth one, given that the parties' own appointees would probably end up in a stalemate). Maybe Motorola thinks that arbitration would be more likely than a regular court proceeding to result in a middle ground, with Motorola getting about half of the 2.25% it's demanding, while in federal court the outcome could and likely would be a small fraction of that amount. But Motorola's tactics have recently been to Judge Crabb's liking, while Apple's proposals, such as the idea of having the court set the terms for a standard-essential patent cross-license, weren't well received. In her November 8 order she wrote the following:
"At the November 5 hearing, Motorola suggested that the parties engage in binding arbitration to resolve their dispute. If the parties really wish to resolve this licensing dispute, this is the obvious solution. It would have many advantages to the parties. It would be conducted in private; the parties would not be bound by their pleadings; they would be able to negotiate any and all of the many aspects of their licensing agreement on which they disagree; and they would finish the process with an agreement that would determine once and for all what amount of licensing fees Apple is required to pay Motorola. In the end, this seems to be the best way, if not the only way, for the parties to negotiate a rate that takes into account the many elements of a licensing fee that are not part of this case but are critical to the determination of a fair, reasonable and non-discriminatory rate."
Courts obviously don't like to resolve rate-setting issues in such complex contexts. They seek to avoid this. And Apple didn't necessarily behave like a party that perfectly deserves to get help from the courts in this dispute. If arbitration was an appropriate solution, the parties are sophisticated enough not to need Judge Crabb's summary of the benefits of arbitration. No matter how many alternative dispute resolution proposals the judge makes, the appeals court will have to address the question of redressability, and if the dispute isn't settled in the meantime, it may very well be remanded to the Western District of Wisconsin. To the extent that Apple merely seeks to enforce Motorola's promise to offer licenses on FRAND terms, I support its cause.
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