Wednesday, March 13, 2013

Microsoft proposes August trial on Motorola's breach of FRAND contract -- too early for Google

Microsoft and Google's Motorola have different preferences for the schedule in their FRAND contract dispute in the Western District of Washington. In a joint filing made today, Microsoft "requests that trial be scheduled between August 5 and August 20, 2013", while Google would like it to "occur between September 23 to October 25". But if the court doesn't schedule a trial during either window, "the parties agree that trial should be scheduled to begin on Monday, November 11, 2013, or as soon thereafter as the Court’s schedule permits".

A first trial was held in November to provide Judge James Robart, the federal judge presiding over this litigation, with information relevant to his upcoming FRAND rate-setting decision. Post-trial briefing was completed earlier this month. Microsoft and Google write in their memorandum that they "that the Court will issue its decision from the November, 2012 bench trial [...] in the near future".

Judge Robart intends to determine a range of FRAND rates as well as a particular rate (a point within the range). This will serve two purposes. Microsoft has declared itself bound by the court's FRAND determination and will receive a license to Motorola's standard-essential patents (SEPs) on those terms. Additionally, there's the question of whether Motorola breached the contractual obligations it had under its FRAND licensing pledges through its original (October 2010) royalty demand. Motorola demanded (and for a long time insisted on) a royalty of 2.25% of the selling price of end products (such as entire PCs) coming with IEEE 802.11 (WiFi, or WLAN) functionality or running Microsoft software implementing the H.264 video codec standard, which in a conservative estimate would have amounted to $4 billion per year. Counsel for Motorola acknowledged at a hearing about a year ago that a "blatantly unreasonable" initial royalty demand would constitute a breach of contract.

The question is now who will answer the question of whether Motorola's original demand was "blatantly unreasonable" relative to the upcoming court-determined FRAND rate, and when. From Microsoft's perspective it's been clear all along that Motorola's demand was outrageous, and it would have liked this question resolved at the summary judgment stage. But Judge Robart preferred a more diligent and deliberate approach no matter how clear the case may have been. While the rate-setting trial was a bench trial (i.e., the parties presented their positions and evidence only to the judge and not to a jury), the second trial (on breach of contract) could be a jury trial or a bench trial. Last week Microsoft brought a motion to confirm that the second trial will also be a bench trial, arguing that Motorola failed to request a jury trial in time and highlighting efficiency gains. Motorola agrees on efficiency (the parties agree in today's filing that a bench trial would take only 4 trial days, while a jury trial would require 7 trial days) but disagrees on the trial type. Today's joint filing says that "the time required for trial will depend on the Court's ruling on Microsoft's pending Motion to Confirm Bench Trial of Breach of Contract Issues, filed on March 8, 2013."

Microsoft and Google agree that some further discovery is needed "on at least certain issues relating to Microsoft's [breach-of-contract] claims", and that "additional summary judgment briefing may be warranted based on the Decision from the First Trial". A procedural question relates to how long in advance of a trial date any dispositive motions must be filed. The court's usual cutoff rule would requires such motions to be filed at least 120 days prior to the trial date. If there's an "extraordinary basis", that period could be shorter. Microsoft prefers an expedited schedule, and Google does not. And that's reflected by their different preferred schedules.

If Motorola's original demand, which an ITC judge said neither Microsoft nor any other company in its position could ever have accepted, the court-determined range of FRAND rates falls far outside the court-determined FRAND range, a second trial may become unnecessary. In that case, the question of whether the original demand was "blatantly unreasonable" could be answered by summary judgment. In a filing after the first trial Microsoft already argued that there was a breach of contract if the original demand is not within the FRAND range the court will determine (even if not by far).

A second trial would also become unnecessary if the parties reached a settlement in the coming months. This is fairly possible in my view considering that Microsoft now has the upper hand in a strategically important lawsuit in Germany that may very well result in an injunction. The requested injunction would greatly reduce the usefulness of Google Maps to German users unless Google and its Motorola Mobility subsidiary take a royalty-bearing patent license. Counsel for Microsoft clarified in open court that a license only for Germany would be out of the question: there would have to be a global settlement of all pending issues.

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