On March 20, 2013 Microsoft requested permission to submit an amicus curiae brief to the United States Court of Appeals for the Federal Circuit on the standard-essential patents (SEPs) part of the "Posner appeal" (Apple v. Motorola). The motion was granted last Tuesday, and a public version of the brief, which was already attached to the March 20 motion, has now become available.
Microsoft's support of fair, reasonable and non-discriminatory (FRAND) licensing of SEPs is well-known. It stated its position -- including a clear-cut promise not to seek injunctions over FRAND-pledged SEPs -- in a February 8, 2012 corporate blog post. Apple, too, has taken a clear, loophole-free "no SEP injunction" position. But, as Microsoft's brief mentions, "other holders of such patents are, like Motorola, actively pursuing injunctions in both the federal courts and the International Trade Commission". That's why the SEP-related part of Judge Posner's Apple v. Motorola ruling is on appeal at all: Google still wants to preclude Apple from implementing certain industry standards and claims that this behavior is not inconsistent with the proposed FTC consent order.
So much has been written over the last couple of years, and especially over the last twelve months, on SEP injunctions and FRAND royalties that I focus in my reporting on exceptionally compelling arguments and on aspects that some documents emphasize uniquely or at least to a far greater extent than others. Microsoft's amicus curiae brief in support of Apple (and, by extension, Judge Posner) says a lot of things I agree with, and there are two respects that I consider most interesting:
Microsoft argues that Google (Motorola) has raised broad SEP/FRAND questions in its appeal that go beyond the scope of Judge Posner's ruling and aren't properly before the appeals court:
Google claims that Judge Posner's ruling devalues SEPs, but Microsoft says "the district court rejected Motorola's damages theories on grounds unrelated to [SEPs]": the testimony Motorola presented was insufficient to establish damages, which "had nothing to do with the valuation of a [F]RAND royalty for standard-essential patents".
Microsoft also disagrees with Motorola's claim that Judge Posner created a "bright-line rule permitting continued infringement" and points to the fact that Judge Posner explicitly did not rule out injunctive relief in a scenario in which "Apple refuse[d] to pay a royalty that meets the FRAND requirement". Microsoft says Google "is ignoring eBay, which it purports to invoke".
Microsoft is not disputing that the Federal Circuit has jurisdiction over the Posner appeal -- this is undoubtedly a patent infringement action. It just believes the appeals court should decline Google's invitation to speak out on broader issues and focus on the case-specific logic of the district court's ruling. But for the event that the Federal Circuit accepts Google's invitation to address these broader issues, Microsoft says "the positions [Google's] Motorola asks the Court to adopt are wrong as a legal matter and terrible as a policy matter". Among other things, Microsoft argues that "[t]he judicially-enforceable [F]RAND commitment--an unequivocal contractual commitment to license a patent to anyone on reasonable terms and conditions--is a substantial relinquishment of the right to exclude, and the right to extract whatever royalties the market will bear, that is presumed elsewhere in patent law". This distinction between SEPs and non-SEPs, which companies such as Google and BlackBerry attempt to blur, is key.
There's one thing Microsoft stresses a lot more than other submissions on FRAND SEP that I've read, and it's an extremely important point to keep in mind: the very process of standardization raises competition issues unless FRAND promises are made and kept so as to ensure that the procompetitive aspects of standard-setting outweigh the negative ones. Standard-setting means that companies use their collective market power to define, for example, which encryption or compression methods must be implemented in order for devices to be compatible with the standard, excluding the numerous and sometimes literally countless technical alternatives that exist. This sentence in Microsoft's brief is my favorite one:
"More bluntly, a 'reasonable royalty' is not the value of an agreement among competitors that would, but for the [F]RAND commitment, constitute a blatant antitrust violation and provide the patentee with compensation far in excess of any actual contribution to the 'useful arts.'"
(The previous sentence explains that a FRAND royalty for an SEP must reflect "the actual value of the patent".)
In this context Microsoft cites Allied Tube v. Indian Head, a 1988 Supreme Court decision, which already explained this. I'm now going to quote the whole passage from which Microsoft's brief quotes only one (abbreviated) sentence because it's very instructive -- to enhance reading flow I'll omit citations:
"The relevant context is thus the standard-setting process of a private association. Typically, private standard-setting associations, like the Association in this case, include members having horizontal and vertical business relations. [...] (trade and standard-setting associations routinely treated as continuing conspiracies of their members). There is no doubt that the members of such associations often have economic incentives to restrain competition and that the product standards set by such associations have a serious potential for anticompetitive harm. [...] Agreement on a product standard is, after all, implicitly an agreement not to manufacture, distribute, or purchase certain types of products. Accordingly, private standard-setting associations have traditionally been objects of antitrust scrutiny. [...] When, however, private associations promulgate safety standards based on the merits of objective expert judgments and through procedures that prevent the standard-setting process from being biased by members with economic interests in stifling product competition, [...], those private standards can have significant procompetitive advantages. It is this potential for procompetitive benefits that has led most lower courts to apply rule-of-reason analysis to product standard-setting by private associations."
I may quote some other statements from this brief during the further process and in other SEP injunction contexts. For now I just wanted to highlight what I considered most significant. If you're interested in these issues, I encourage you to read this brief, which I've uploaded to Scribd:
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