I know Apple is a brilliantly managed company represented by brilliant outside counsel. But I cannot for the life of me figure out Apple’s endgame strategy in its breach-of-contract case against Motorola in federal court in Madison, Wisconsin.
Apple had a chance to mitigate Google’s leverage from Motorola’s standard-essential patents in the smartphone wars. Instead, it squandered more than 18 months of litigation, refusing on the eve of trial to agree to abide by the court’s determination of a fair and reasonable royalty rate for Motorola’s IP unless U.S. District Judge Barbara Crabb set a rate of no more than $1 per iPhone. As a result, Crabb dismissed Apple’s case Monday, on the day she was to have begun a bench trial on Apple’s breach-of-contract claim. Her ruling means Apple may not be able to bring similar claims against Motorola in any other U.S. court, which robs the iPhone maker of powerful leverage in the global smart device war.
From my reading of Crabb’s orders and Apple’s responses in the week leading to Monday’s dismissal, Apple must have known it was at extreme risk of this outcome. The chain of events began with Crabb’s 57-page decision on Oct. 29, which outlined the scope of the trial that was scheduled to begin the following week. Apple’s lawyers at Covington & Burling and Tensegrity Law Group should have been happy with Crabb’s ruling, which held that Apple could, indeed, compel Motorola to offer Apple a license for its standard-essential IP on fair and reasonable terms. Specific performance, as that relief is known, is extraordinary in a breach-of-contract case, Crabb acknowledged, but she said that the circumstances of this dispute, in which the two sides are manifestly incapable of negotiation, justify it. Crabb went on to say (like U.S. District Judge James Robartof Seattle in Microsoft’s parallel breach-of-contract case against Motorola) that she would first have todetermine a fair licensing rate for Motorola’s patents and would then decide whether Motorola breached its obligation to license the IP to Apple on reasonable terms. If she found Motorola in breach, she said, she might order it to offer its IP to Apple on the terms she set.
Motorola’s lawyers at Quinn Emanuel Urquhart & Sullivan responded to Crabb’s ruling by calling Apple’s bluff: If Apple wanted a contract to license Motorola’s IP, Quinn said, then Crabb should require Apple to begin paying the license fee she set as soon as she set it. (Remember, Apple has refused to pay Motorola licensing fees since the introduction of the iPhone.)
That’s when things went rotten for Apple. In a brief on Oct.31, Apple said it would not necessarily agree to abide by the licensing rate Crabb set but would only accept a rate that met certain conditions. “Apple is willing to pay the (fair and reasonable) rate this court sets going forward if that rate is less than or equal to $1 per unit for its worldwide sales of covered products,” the brief said. “To the extent the court sets the rate higher than $1 per unit, Apple reserves the right to exhaust all appeals and also reserves the right available to any party offered a license: the right to refuse and proceed to further infringement litigation.”