Monday, May 20, 2013

Judge confirms Google's right to jury trial on Microsoft's breach-of-FRAND-contract claims

The breach-of-contract and related damages issues in the Microsoft v. Motorola FRAND contract case in the Western District of Washington will be put before a jury when the second trial in this litigation takes place (starting August 26, 2013). Judge James L. Robart, the federal judge presiding over this case, just denied Microsoft's motion to confirm that the court would hold a bench trial. Judge Robart determined that Google's Motorola had not waived its right to a jury trial, but even if had found otherwise on this question, "it would not overcome the court's earlier determination that Motorola may reasonably rely on Microsoft's jury demand on the breach of contract issues in the Motorola Action [a patent infringement case over standard-essential patents] which was transferred to this district and consolidated into this action".

In November 2012 Judge Robart held a six-day bench trial, which resulted in last month's already-famous FRAND rate-setting decision, which found that Google was entitled to a tiny fraction (less than one twentieth of a percent) of Motorola's original (fall 2010) demand: Microsoft estimates annual payments on the order of $1.8 million, while the original demand, in a conservative estimate, would have amounted to $4 billion annually. Not only did Judge Robart set a specific rate at which Google is now going to have to extend to Microsoft a license to its declared-essential H.264 (video codec) and IEEE 802.11 (WiFi, or WLAN) patents but he also determined a range. At the August 2013 trial the first question is going to be whether Motorola breached its FRAND contract through its original royalty demands from Microsoft, an intended beneficiary. Motorola's counsel conceded last year that a "blatantly unreasonable" initial demand would constitute a breach of contract. In my opinion, $4 billion is so far outside of a range that is in the millions that I can't imagine any other finding than a breach, but Google will get its day in court and can try to defend Motorola's conduct.

If and when there is a finding of a breach of contract, damages will have to be awarded, and documents filed earlier this month revealed that the parties are already wrangling over them. Microsoft's damages theories include the cost of relocating its European distribution center in order to mitigate the impact of an H.264 SEP injunction Motorola was seeking (and indeed ended up winning, but never got to enforce) in Germany. I couldn't help but conclude from the related documents that Google is trying very hard to stall this FRAND contract case. By insisting on a jury trial (which is, however, a constitutional right), Google is trying to inject some imponderabilities into this case -- which could also backfire and result in a damages award greater than what the judge would have awarded, but we'll never know. It may also hope that a jury trial provides it with more ammunition for an appeal (criticizing instructions etc.) and opportunities for trying to win some delay between now and late August. The presentations to the jury will be duplicative of significant parts of what was presented to Judge Robart in November. But again, they're entitled to it no matter what the agenda is. Maximum efficiency is not the objective. This much is certain.

This FRAND enforcement case has gone very well for Microsoft as far as the major substantive decisions are concerned. Shortly after the rate-setting trial Microsoft won a summary judgment against Google's (Motorola's) pursuit of injunctive relief and previously prevented Motorola from enforcing the aforementioned German injunction (Google appealed this part, but the Ninth Circuit affirmed it). And the rate-setting decision was a clear win for Microsoft (there was unanimous consensus about that outcome in the media). But the issue adjudicated today -- the type of trial -- is the third noteworthy context in this case in which Judge Robart declines to manage the case according to Microsoft's preference for swift resolution and shortcuts. About a year ago he denied Microsoft's motion for partial summary judgment on the breach-of-contract question and, at the related hearing, criticized both parties for gamesmanship. And in the rate-setting decision he found that Microsoft was an intended third-party beneficiary of a grant-back provision in Google's H.264-related license agreement with patent pool firm MPEG LA, but merely used that fact as an indicator of a FRAND rate as opposed to finding that the agreement would determine the rate -- which I attribute to the fact that Microsoft (as it told the judge at a hearing) didn't want to add Google to that case as an additional defendant because such a move could cause major delay.

It's not just that Microsoft would like to have the FRAND licensing issues resolved at the earliest opportunity. Last year the court also stayed the parties' mutual infringement claims pending in that district (where all of the parties' U.S. federal claims have been transferred except for Motorola's federal companion lawsuit to its Xbox ITC complaint, which is currently stayed and will probably be transferred as well if and when it resumes) in order to focus on the FRAND issues first. Microsoft won a U.S. import ban about a year ago at the ITC and has already won three German injunctions against Motorola's Android-based devices (1, 2, 3), and is likely to win a fourth one, relating to Google Maps, in two weeks from today. But most of the patents it asserted against Motorola haven't come to judgment yet, due to the court's focus on FRAND. This, too, benefits Google. But it was a stipulation between the parties and I don't know how it came into being. I just doubt that Microsoft wanted to slow things down. Google's Motorola is one of a very few significant Android device makers to have refused so far to take a royalty-bearing patent license covering Google's mobile operating system.

Here's today's order denying a bench trial if you're interested in the reasons for which the judge sided with Google on this procedural question:

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