Apple and Motorola talk arbitration. End in sight to patent war?

By Alison Frankel
November 20, 2012

In the two weeks since U.S. District Judge Barbara Crabb of Madison, Wisconsin, unceremoniously tossed Apple’s breach-of-contract against Motorola just as a trial to determine a fair licensing rate for Motorola’s standard-essential wireless tech patents was to begin, Apple’s lawyers at Covington & Burling andTensegrity Law Group have been struggling to persuade the judge to change her mind and dismiss the case without prejudice. I already told you about the bench memo Apple submitted on Nov. 5, after Crabb said at a hearing that if Apple wouldn’t agree to abide by the licensing rate she set, she would dismiss its declaratory judgment and specific performance claims. Apple argued, in essence, that since Crabb was dismissing on jurisdictional grounds, she hadn’t reached the merits of Apple’s case, so she couldn’t preclude Apple from refiling its claims. Apple repeated those arguments in a brief filed last week, responding to a Nov. 14 brief by Motorola’s lawyers at Quinn Emanuel Urquhart & Sullivan that urged Crabb to stick by her decision to toss the case with prejudice. “No litigant,” Motorola wrote, “should be permitted to try to engineer a judgment to its liking on the eve of the trial, then seek to walk away so that it can reengineer and refile its claims elsewhere, at some later date.”

That might seem like the same old bomb-throwing by two companies that have spent the last three years (and untold millions of dollars) attempting to litigate the other’s smart devices into oblivion, but last week’s briefing, as well as another brief Motorola filed Monday, revealed something new: a tantalizing step toward arbitration that could be, to quote Winston Churchill, the end of the beginning of the smartphone patent wars.

Don’t get too excited, because Apple and Motorola are still squabbling over the terms of such an arbitration. But here’s where things stand. At the Nov. 5 hearing before Crabb, Motorola suggested, apparently for the first time in open court, that it would be willing to submit to binding arbitration to set a fair and reasonable licensing rate for both its portfolio of patents essential to wireless technology and Apple’s corresponding portfolio. Apple General Counsel Bruce Sewell followed up with a letter on Nov. 8 to Motorola GC Kent Walker(cc’ing Google lawyer David Drummond). “Your offer to arbitrate made before Judge Crabb on November 5, 2012, was … welcome news,” the Apple letter said. “We agree to arbitrate the value of mutual licenses to our respective (standard-essential patent) portfolios.”

Apple suggested certain conditions, however. It wanted the arbitration to cover all standard-essential patents held by Motorola and Apple, to “ensure an efficient process.” It called for a common royalty base that takes into account the relative importance of the patents at issue. And it called for a worldwide “litigation stand down,” in which both sides would agree not to seek injunctions or licensing rate determinations on any standard-essential patents in any court until the arbitration is complete. Specifically, Apple’s Sewell s aid Motorola’s ongoing rate case in Germany would have to be stayed.

Motorola’s Walker replied to Apple’s letter on Nov. 13. He said his company was looking for an even broader resolution of the patent dispute, encompassing all of the intellectual property Motorola and Apple have accused one another of misappropriating. But if Apple wanted to arbitrate just standard-essential licenses, Motorola had a few conditions of its own. One involved a suit Apple has filed in federal court in San Diego, claiming that it is entitled to fair and reasonable license from Motorola by virtue of an agreement between Motorola and the chip maker Qualcomm. Motorola’s Nov. 13 letter said that any standstill agreement would have to encompass Apple’s case in San Diego. Motorola also said, however, that its rate-setting case in Germany, in which there’s already a well-developed record, should continue — and should even, perhaps, simply be extended so that the German court’s findings would apply worldwide. In addition, Motorola’s letter said that the arbitration panel should have the power to set a royalty base and rate without any preconditions. “In short,” the Motorola letter said, “this proceeding would be the forum for all issues between us relating to the use of and payment for either party’s (standard-essential patents).” (Groklaw, which was thefirst to report on the disclosure of potential arbitration, contended that Google is controlling Motorola’s position. “Google’s reply,” Groklaw said, “makes it clear (that) there will be a real deal or none. Google didn’t just fall off a turnip truck.”)

In its brief to Crabb last week, Apple couched the exchange of letters as the beginning of a dialogue that could lead to a real resolution of its licensing dispute with Motorola. The company urged Crabb to permit the process to roll on by dismissing its case without prejudice. “Apple remains hopeful that the parties will agree to arbitration terms, and it is therefore important that this dismissal be without prejudice, so as to provide no excuse to Motorola that the underlying dispute — whether Motorola has offered Apple a (fair and reasonable) license — has been dispositively resolved,” Apple said.

Motorola responded Monday with a warning that the judge shouldn’t be deceived by Apple’s offer to arbitrate. Apple, it implied, had already duped the court and Motorola by seeming to agree to a rate-setting exercise and then saying that it wouldn’t necessarily abide by Crabb’s determination. According to Motorola, Apple’s offer to arbitrate could be something of a Trojan horse unless the two can resolve their differences on the German litigation and potential preconditions. “In the discussion between the parties about how best to progress arbitration,” Motoro la said, “Apple continued to take the same position it took before this court: that any neutral determination of … patent cross-license issues be preconditioned on agreement with Apple’s preferred methodology rather than the approach used in Motorola’s other cross-licenses.”

So that’s the current state of affairs. Apple and Motorola are either truly willing to stop throwing money at patent litigation and sincerely working to negotiate terms of arbitration — or they’re gaming Crabb to improve their position in future patent suits. For the sake of everyone except the IP bar that’s been fattening up in the smartphone wars, let’s hope it’s the former.

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