Motorola loses bid to reshape crucial trial on essential patents

October 11, 2012

The next great turning point in the war for global device domination comes next month, when Motorola faces two trials — one against Apple, the other against Microsoft — that will determine its ability to use its portfolio of standard-essential patents as leverage in IP disputes with its competitors. I’ve been harping on this theme for a while, but trials have a way of sharpening the issues. Both of these cases will be tried to judges, not juries, so we won’t get immediate results. But when U.S. District Judge Barbara Crabb in Madison, Wisconsin, and U.S. District Judge James Robart in Seattle issue rulings, Motorola and its rivals should have a very clear understanding of how valuable Motorola’s patents on essential wireless technology are.

The Apple trial — which will decide whether Motorola breached its agreements with international standard-setting bodies by failing to license essential technology to Apple on fair and reasonable terms — is scheduled to begin in Wisconsin on Nov. 5, but the Microsoft case in Seattle, which begins on Nov. 13, could hold greater industrywide interest. When he denied summary judgment to both Microsoft and Motorola in June, Robart said he needed more information about what exactly constitutes a fair licensing deal on standard-essential technology before he could ask a jury to decide whether Motorola breached its obligation to license its IP to Microsoft. He called for a bench trial to determine a reasonable royalty rate — an exercise that will likely expose Motorola’s licensing agreements with other counterparties and will certainly give every other Motorola licensee a starting point in future negotiations.

Over the summer, Motorola’s lawyers at Ropes & Gray and the Summit Law Group attempted to reshape the bench trial before Robart. In a motion for summary judgment they filed in July, the Motorola lawyers said that Robart’s proposed rate-setting exercise would improperly set the terms of a contract that does not exist between Microsoft and Motorola. “There is no existing licensing contract between Motorola and Microsoft,” they wrote. “Instead, Motorola submits that there is simply a right to a license. Thus, there is no existing contract for the court to interpret or in which the court can merely ‘fill in’ gaps.”

The November trial, Motorola argued, should be before a jury and should address only Microsoft’s allegations that Motorola breached its agreements with the standard-setting bodies. If the jury ruled against Motorola, the brief argued, then the parties could resume negotiations, and, if they once again failed to reach a licensing deal, they could return to court.

In a 23-page ruling Wednesday, Robart rejected Motorola’s motion. He reminded Motorola that he has previously found that its agreements with the standard-setting bodies require it to license its technology to Microsoft on fair and reasonable terms — not merely that it is required to engage in negotiations. And if Microsoft and Motorola can’t agree on fair terms en route to the licensing deal Microsoft is entitled to, Robart wrote, “the courthouse acts as an appropriate forum to resolve disputes over legal rights.”

Robart was emboldened by a ruling last month by the 9th Circuit Court of Appeals, which affirmed the injunction he issued in April against Motorola’s enforcement of relief against Microsoft in a German patent infringement case. The 9th Circuit, he said, has agreed that Microsoft is contractually entitled to a fair and reasonable licensing agreement with Motorola. If the only way to get there is to determine a fair and reasonable rate, he said, “the court declines to dismiss from Microsoft’s possible remedies the very license agreement to which the court has already determined it is entitled.”

So the Nov. 13 trial will go off as planned, the judge said: He will determine a reasonable royalty for Motorola’s standard essential patents. You can be sure the entire smart device industry will be watching.

I left messages with a Motorola spokeswoman but didn’t hear back. Microsoft is represented in the Seattle case by Calfo Harrigan Leyh & Eakes and Sidley Austin.

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