No summary judgment for Microsoft or Motorola in Seattle case

June 7, 2012

If you stopped reading at page 21 of the 28-page summary judgment ruling that U.S. District Judge James Robart issued Wednesday in Microsoft’s contract case against Motorola, you’d figure Microsoft had won the all-important dispute over Motorola’s standard-essential patents. But this is an opinion you have to read all the way to the end.

Microsoft, as you probably recall, accused Motorola in federal court in Seattle of breaching its agreement with two standard-setting bodies to license essential wireless patents on reasonable terms. Microsoft and its lawyers at Danielson Harrigan Leyh & Tollefson and Sidley Austin contended that when Motorola contacted Microsoft about a licensing deal, it demanded unreasonable fees – more than $4 billion, according to Microsoft’s calculations. Microsoft asked Robart to rule that, as a matter of law, Motorola’s offer was so manifestly absurd that it amounted to a breach of those contracts.

At a May 7 summary judgment hearing, Motorola’s lead counsel, Jesse Jenner of Ropes & Gray, challenged two previous rulings by Robart that would have undone Microsoft’s argument. Motorola contended that its contracts with the standard-setting bodies didn’t require it to reach licensing agreements with third parties but merely to make an offer. Robart disagreed, upholding his own prior rulings that Motorola had promised to license its patents and that Microsoft was a third-party beneficiary of those contracts.

Robart also ruled that Microsoft had not repudiated its third-party rights under the contracts when it refused to negotiate with Motorola and sued instead. Motorola had asked the judge to grant summary judgment on that point, arguing first that Microsoft never requested a license – Motorola suggested terms to Microsoft before Microsoft approached Motorola – and second, that Microsoft refused to engage with Motorola in good faith. Robart said Motorola’s contract with the standard-setting bodies didn’t require either condition, which would “run contrary to the purpose of Motorola’s commitments.”

If Motorola had prevailed on the repudiation point, that would have been the end of Microsoft’s case – a devastating result for Microsoft, which had won a preliminary injunction from Robart that could insulate it from adverse rulings in Germany and at the ITC that threaten the import and sales of the Xbox. It was hugely important for Microsoft, and for its fellow Motorola foe Apple, that Robart concluded Microsoft didn’t give up its rights to a fair license when it filed a breach-of-contract suit against Motorola.

But Robart showed at the conclusion of the May 7 hearing that he’s nobody’s patsy. “The court is well aware that it is being played as a pawn in a global industrywide business negotiation,” he said, according to Geekwire. “The conduct of both Motorola and Microsoft has been driven by an attempt to secure commercial advantage, and to an outsider looking in, it has been arbitrary, it has been arrogant and frankly it appears to be based on hubris.”

So in the final pages of Wednesday’s ruling, Robart took a hard look at Microsoft’s summary judgment argument and found it insufficient. Microsoft had asserted that Motorola’s licensing offer was patently unreasonable, but according to Robart, Motorola offered evidence of other licensing deals on supposedly comparable terms. To determine the relevance of those agreements, Robart said, “the court must engage in a factual comparison between the circumstances of each prior agreement and the circumstances that exist between the parties to this litigation with the benefit of complete briefing.”

Nor, he ruled, had Microsoft shown that Motorola made its initial licensing offer in bad faith. Robart said that’s also a factual dispute that has to be explored at trial. He set a trial date of Nov. 19, 2012.

A Microsoft spokesman sent an email statement from Microsoft Deputy General Counsel David Howard: “Today’s decision underscores that Motorola made a promise to the industry which it now must keep and we look forward to the November trial to determine the appropriate licensing royalty.”

Motorola said in a statement: “Motorola Mobility has acted in good faith and we will prove that at trial. We are pleased that the court is holding Microsoft to its word – to license our essential patents just as the vast majority of the industry has done.”

Robart’s preliminary injunction, which Motorola has appealed, is expected to remain in place until the contract case is decided.

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