Wednesday, October 16, 2013

Microsoft and Google want final FRAND breach ruling, disagree only on details

The final clean-up for the FRAND contract dispute between Microsoft and Google's Motorola in the Western District of Washington is underway. A partial final judgment ("partial" because there are also some patent infringement claims pending in what is formally the same case) will come down soon, and Google will appeal it shortly thereafter.

After Judge James Robart determined a FRAND royalty range and rate following a bench trial held last year, a federal jury in Seattle found Motorola to have breached its FRAND pledge and awarded damages of $14.5 million relating to the need for Microsoft to relocate its European distribution center out of Germany and the cost of its defense against Motorola's push for injunctions over standard-essential patents (SEPs). In late September, a few weeks after the jury verdict, Judge Robart denied the parties' motions for judgment on the pleadings.

On September 25, Microsoft brought a motion for partial final judgment on its breach-of-contract claim. The judgment proposed by Microsoft would consist of only two sentences, the second one being:

"Finding no just cause for delaying entry of final judgment on this claim, it is ordered that Microsoft recover on its breach of contract claim from Defendants Motorola, Inc. (now Motorola Solutions, Inc.), Motorola Mobility LLC (formerly Motorola Mobility, Inc.) and General Instrument Corporation the amount of $14,524,406, with post-judgment interest pursuant to 28 U.S.C. § 1961, along with costs."

Originally Microsoft requested a motion hearing to be held on October 11 (last Friday), but it re-noted its motion for next Friday (October 18).

Google's Motorola responded late on Tuesday. It "does not disagree that certain claims may now be deemed final under Rule 54(b)". Obviously, Google is extremely dissatisfied with the key decisions that have been made, and it wants to appeal them to the Federal Circuit. But it disagrees with the proposed language of the ruling and "accordingly opposes Microsoft's motion unless the relief requested is modified".

The number one underlying issue here is that Motorola doesn't want to grant Microsoft a license at a rate determined by Judge Robart. Back in June it already became known that the Google subsidiary refused to accept a $7 million payment. Its strategy to avoid or at least delay the conclusion of a license agreement on those terms is not just to argue that Judge Robart arrived at the wrong numbers. More fundamentally, Google wants to call into question Judge Robart's jurisdiction over this issue, and it disputes that Microsoft's pleadings and prayers for relief in this case entitle it to a license:

"[T]here is no claim before the Court, final or otherwise, that Microsoft has a right to enter into any particular license at the rate or range determined by the Court, for Microsoft made no such pleading, [...] the Court has never purported to set any terms of such a license other than a suggested RAND rate and range, and Microsoft's so-called request for a judicial 'accounting' [...] is beside the point here because a suit to determine what contract damages Motorola might owe Microsoft has nothing to do with what patent royalties Microsoft might owe Motorola [...]"

Of course, if Google lost out on the jurisdictional question, it would at least want to get the amount adjusted. The way I understand Google's response to Microsoft's motion for partial final judgment, Google wants to ensure that there are specific items in a partial final judgment from the district court that it can challenge on appeal in order to address not only the question of whether there has been a breach but also the whole rate-setting process and the question of Microsoft's entitlement to a license on court-determined terms.

This is now all about the scope and other parameters of an appeal. As far as the district court is concerned, there is no lack of clarity. For example, Motorola argues that the jury verdict on breach does not dispose of its counterclaim for declaratory judgment that it has complied with its FRAND licensing obligation. At most, this means that Judge Robart may have to formally state that the relevant counterclaim failed, if anyone really doubted this. Also, some of the items Motorola proposes to list in the partial final judgment have undoubtedly been addressed before, in the form of summary judgment decisions (such as Motorola's counterclaim "for declaratory judgment that Microsoft has repudiated and/or rejected the benefits of Motorola's RAND statements and that Motorola is entitled to seek an injunction against Microsoft on the Motorola patents at issue".

Motorola wants the court to find that Microsoft's promissory estoppel claim failed, but I believe it simply wasn't reached and could theoretically play a role only if the case was remanded after a reversal of the breach-of-contract finding. So these are legal technicalities that have nothing to do with the real issues in this case. The parties must ensure that they preserve their record with a view to the appeal as well as a potential remand. This is going to be sorted out soon, and then Google can and will appeal.

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