Opinion

Alison Frankel

Microsoft win in rate-setting case vs Motorola is call to litigation

Alison Frankel
Apr 26, 2013 22:15 UTC

For the first time ever, a federal district judge has decided what constitutes a reasonable license rate for a portfolio of standard-essential patents. U.S. District Judge James Robart ruled late Thursday that Motorola is entitled to royalties of a half cent per unit for Microsoft’s use of standard-essential video compression patents and 3.5 cents per unit for Motorola’s wireless communication patents. According to Microsoft, those terms would require it to pay Motorola a grand total of about $1.8 million a year in royalties – a far cry indeed from the billions Motorola requested in a royalty demand to Microsoft in 2010. It’s still to be determined at a trial this summer whether Motorola breached its obligation to license its essential technology to Microsoft on reasonable terms. But make no mistake: Robart’s ruling on reasonable royalties is a dreadful outcome for Motorola and its parent, Google.

In fact, there’s a good argument that the framework Robart used to determine a fair royalty rate is bad news for all patent holders that depend on license fees for essential technology. Until the smart device wars, when Microsoft and Apple balked at Motorola’s licensing demands, product makers generally considered themselves to be at the mercy of companies that developed essential technology adopted by international standard-setting boards. Robart’s ruling, if it is eventually upheld by the 9th Circuit Court of Appeals, gives so-called implementers like Microsoft and Apple not only the methodology to whittle down patent holders’ licensing demands but also a recourse if negotiations stall. Implementers now know they can go to court and ask a judge to decide a fair royalty based on the relative value of essential patents to their final product. We’ve already seen courts and regulators blunt the threat of injunctions by holders of standard-essential patents. Robart’s decision shifts the balance of power even further away from patent holders.

To understand why, let’s run quickly through the findings in the 207-page opinion. The judge said early on that he agreed with Motorola’s lawyers at Ropes & Gray and The Summit Law Group that the best way to set a fair royalty rate would be to consider a hypothetical bilateral negotiation. He rejected Microsoft’s proposed “incremental value” approach, which would have based the value of essential patents on the cost of adopting alternative technology. But that was just about the only positive aspect of the ruling for Motorola.

Robart proceeded to analyze the relative significance of Motorola’s patents to the two standard-essential technologies at issue in the case, one involving video compression and the other wireless communication. Motorola’s role in both, Robart found, was minor. Of the thousands of contributions to each technology, Motorola was responsible for 16 patents related to the video compression standard and 24 to the standard wireless communications technology. The company presented “scant evidence” at a bench trial last November that its patents were at the core of either standard, Robart said.

Nor, he found, was Motorola’s IP at the core of any Microsoft products. Motorola’s video compression patents, the judge said, involve technology that’s increasingly irrelevant in the marketplace. (Even Google doesn’t use the Motorola tech on its Android platform or at YouTube.) And the 11 Motorola wireless communications patents incorporated in Microsoft products are only minimally important, according to the judge. Those factors would undermine the value of Motorola’s IP in a hypothetical negotiation, Robart said.

Motorola loses bid to reshape crucial trial on essential patents

Alison Frankel
Oct 11, 2012 22:22 UTC

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.”

No summary judgment for Microsoft or Motorola in Seattle case

Alison Frankel
Jun 7, 2012 17:27 UTC

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.

Up Monday: Crucial hearing in Microsoft v. Motorola RAND case

Alison Frankel
May 4, 2012 22:00 UTC

For Microsoft, the last two weeks have brought bad news in its patent war with Motorola Mobility. On Apr. 24, an administrative law judge at the U.S. International Trade Commission issued an initial determination that Microsoft’s Xbox infringes four Motorola patents – rejecting Microsoft’s defense that three of the patents were essential to standard wireless device technology and that Motorola had breached an agreement to license the IP on reasonable terms. Then, on Wednesday, a judge in Mannheim, Germany ruled that the Xbox and certain versions of Windows infringe Motorola patents. He ordered the products removed from sale in Germany.

But Microsoft believes that if it wins its breach-of-contract case against Motorola in federal district court in Seattle, neither the ITC nor Mannheim rulings will have much significance. That’s why Monday’s hearing before U.S. District Judge James Robart is so critical. Robart will hear arguments on two summary judgment motions by Microsoft and one by Motorola. If he ends up agreeing with Microsoft that Motorola was obligated under its contracts with standard-setting bodies to license essential patents to Microsoft on fair and reasonable terms – and that Motorola breached its obligation by demanding unreasonable fees of $4 billion a year from Microsoft – the practical effect will be that Motorola must license the patents to Microsoft. That would spell the end of Motorola’s ITC and German infringement claims on standard-essential patents. (One of the patents in the ITC case isn’t in that category.)

Motorola, meanwhile, has moved for a summary judgment that Microsoft repudiated its licensing rights when it sued Motorola in Seattle in 2010. If Motorola wins, that’s the end of Microsoft’s case. If it loses, however, Robart’s prior rulings would likely lead him to conclude, as a matter of law, that Microsoft is entitled to license the Motorola technology.

Who won Microsoft v. Barnes & Noble patent litigation?

Alison Frankel
May 1, 2012 00:19 UTC

Thanks to Monday’s joint announcement of Microsoft’s $300 million investment in a new Barnes & Noble’s digital and college textbook subsidiary, we will never know who actually won the patent showdown between the software and bookselling giants. An administrative law judge at the U.S. International Trade Commission last week put off an initial determination in Microsoft’s patent infringement case against B&N, which was tried in February. Now that the two are partners in the e-book business, the patent litigation will end without a ruling on the merits from the ITC or from the U.S. district judge overseeing Microsoft’s parallel infringement suit in Seattle federal court.

But that doesn’t mean we can’t talk about which side won the case.

It’s easier to argue that Barnes & Noble (and its vast army of lawyers from Cravath, Swaine & Moore, Kenyon & Kenyon, Quinn Emanuel Urquhart & Sullivan, and Boies, Schiller & Flexner) came out ahead. The dispute began, you’re recall, when Microsoft tried to get Barnes & Noble to license its IP for use in the bookseller’s Android-powered e-reader, the Nook. After Barnes & Noble balked at Microsoft’s fee demands, Microsoft sued B&N in Seattle and at the ITC. Barnes & Noble countered with a defense that Microsoft was misusing its patent portfolio to demand unconscionable fees from Android users, even taking its antitrust allegation to the Justice Department. But B&N’s patent misuse defense was knocked out in the ITC case — making it all the more (apparently) remarkable that in Monday’s deal, Microsoft paid B&N, the patent defendant, a sum of money that exceeded the marketplace value of its investment. How often does a patent plaintiff pay the defendant in a settlement? Especially when that defendant is on the ropes and urgently searching for a strategic investor?

Barnes & Noble’s shareholders clearly regarded the deal as a huge victory for the company. B&N stock nearly doubled before settling back in a down market. So if you’re another Android user thinking about saying no to Microsoft when it comes around with a licensing demand, you have to be emboldened by the B&N story: After enduring a year under scrutiny as a defendant, Barnes & Noble ends up with $300 million and drastically improved business prospects. That’s not the scorched-earth result you might fear from taking on Microsoft and its lawyers. (In this case, Sidley Austin; Orrick, Herrington & Sutcliffe; Woodcock Washburn; and Adduci, Mastriani and Schaumberg.)

‘Astounding’ Seattle TRO ruling could remake smartphone wars

Alison Frankel
Apr 13, 2012 19:11 UTC

With a single ruling this week, U.S. District Judge James Robart of Seattle federal court may have fundamentally altered the balance of power between Motorola Mobility and the leading opponents of Motorola’s soon-to-be-parent Google, Microsoft and Apple.

In another indication that the smartphone war is shifting away from individual infringement suits, Robart granted Microsoft’s motion for a temporary restraining order, which effectively bars Motorola from acting to enforce whatever relief it’s granted in an ongoing German patent case. In that case, before a court in Mannheim, Motorola has claimed Microsoft Windows and Xbox products infringe German patents that are part of Motorola’s standard-essential portfolio. The Seattle judge, according to this transcript of the order he issued in open court, agreed with Microsoft that the German patents are already at issue in Microsoft’s case before him, which accuses Motorola of breaching its obligation to offer standard-essential patents on fair and reasonable licensing terms.

Robart granted the TRO under the Anti-Suit Act, which is intended to restrict forum-shopping and harassing litigation. That’s how Microsoft and its counsel at Sidley Austin described Motorola’s German suit. According to Microsoft, Motorola first tried to extract exorbitant licensing fees for a portfolio of about 100 worldwide standard-essential patents. Then, after Microsoft filed a Seattle federal-court suit asserting that Motorola’s licensing demand was a breach of its contract with a European standard-setting body, Motorola sued Microsoft in Germany for infringing German patents that were part of the portfolio at issue in Seattle.

Apple and Microsoft v. Google: patent war shifts to antitrust

Alison Frankel
Apr 4, 2012 19:27 UTC

In a really smart piece last month, my Reuters pal Dan Levine wrote that Steve Jobs’ promise to kill Google’s Android operating system has not been fulfilled. Instead, wrote Levine and co-author Poornima Gupta, Apple’s patent war against Android users Motorola, Samsung, and HTC had become “a costly global war of attrition.” Both sides have won skirmishes, but no battle has been decisive. The Reuters story quoted Judge Richard Posner of the 7th Circuit Court of Appeals, who is overseeing a Motorola case in U.S. District Court in Chicago. “You’re not going to shut down the smartphone,” Posner told Apple’s lawyer. “[And] they’re not going to shut down the iPhone.”

The exact same thing could be said of Microsoft’s patent war with Google and its Android acolytes. When the smartphone patent infringement cases launched in 2009 and 2010, maybe it was feasible that one or two of the big three could kill off another of them. But since then, with Apple and Microsoft teaming up to buy Nortel patents and Google countering with its purchase of Motorola Mobility, this war has become a standoff that can only be resolved with cross-licensing deals.

That’s why antitrust arguments — as opposed to patent infringement claims — have been creeping into the spotlight over the last few months. On Tuesday, the European Union announced that it has opened antitrust investigations of Motorola’s demands for licensing fees on standard-setting patents, following complaints by both Microsoft and Apple. (Google’s Android partners, of course, have lobbed similar allegations of patent extortion at Microsoft.) The goal of such claims is to drive down the cost of licensing one another’s patents. In other words, if you can’t beat ‘em, pay as little as possible to join ‘em.

Barnes & Noble’s patent-misuse claim v. Microsoft: not dead yet!

Alison Frankel
Feb 2, 2012 15:31 UTC

On Tuesday, administrative law judge Theodore Essex of the U.S. International Trade Commission dealt a blow to Barnes & Noble. As the bookseller heads into trial next week on Microsoft’s claim that its e-readers infringe four Microsoft patents, Essex dismissed Barnes & Noble’s patent-misuse defense. B&N, you’ll recall, has waged an aggressive antitrust campaign against Microsoft, claiming that Microsoft is attempting to squelch the Android operating system by improperly asserting its patents. But next week’s trial won’t consider whatever evidence Barnes & Noble’s antitrust lawyers — at Cravath, Swaine & Moore and Boies, Schiller & Flexner — have amassed. The ALJ will determine only the validity of Microsoft’s patents and whether Barnes & Noble infringes them.

Florian Mueller of FOSS Patents, who was the first to report on Essex’s patent-misuse ruling, interpreted the dismissal as a broad repudiation of Barnes & Noble’s antitrust case against Microsoft. I’m not so sure about that — and my understanding is that when the ITC case is over, the bookseller can and will fire up its patent-misuse claims in the parallel Seattle federal court litigation between Barnes & Noble and Microsoft.

The ITC docket is a journalist’s nightmare. Just about every substantive document is confidential, including Microsoft’s brief on patent misuse, the ITC staff’s recommendation on the B&N defense, and Essex’s ruling, so we don’t know for sure why Essex ruled the way he did. But there’s guidance in the leading en banc decision on patent misuse by the U.S. Court of Appeals for the Federal Circuit. In its August 2010 opinion in Princo Corporation v. International Trade Commission, the Federal Circuit held that the ITC should construe patent-misuse defenses narrowly, looking only at the patent-holder’s assertion of the patents at issue in the underlying infringement case.

Following Google, Microsoft tries to unring a bell

Alison Frankel
Nov 17, 2011 20:03 UTC

The big guns are rolling out on both sides of Microsoft’s patent infringement suit against Barnes & Noble at the U.S. International Trade Commission. Microsoft has no fewer than four firms (Sidley Austin; Orrick, Herrington & Sutcliffe; Woodcock Washburn; and Adduci, Mastriani and Schaumberg) working on the six-month-old case, in which it accuses Barnes & Noble’s Nook e-readers of infringing Microsoft patents. Barnes & Noble this week supplemented its team of Cravath, Swaine & Moore and Kenyon & Kenyon with Paul Brinkman‘s group from Quinn Emanuel Urquhart & Sullivan. The Quinn addition is notable because Barnes & Noble’s devices use Google’s Android operating system; Quinn, which is one of Google’s go-to IP firms, previously defended the Android system in Apple’s ITC case against HTC.

When it comes to Android, Microsoft and Google don’t exactly think the same way, as you’ll see below. But there is one issue on which they have a peculiar alignment of interests: they’re both trying to put the kibosh on supposedly confidential information that’s jumped from litigation into the public domain.

Google, as you’ll no doubt recall, has been fighting for months to undo the damage an email written by one of its Android engineers has apparently caused to Google’s defense of Oracle’s Java infringement claims. (The engineer, Tim Lindholm, said all alternatives to Java “suck” and Google should license the software code.) Google has been arguing, without any success, that Oracle improperly introduced the damning email into the record and all traces of it should be purged — even though, by now, Lindholm’s email is plastered all over the Internet.

Nortel IP sale will help Google win OK for Motorola bid

Alison Frankel
Aug 18, 2011 22:43 UTC

Remember the Cold War military doctrine of Mutually Assured Destruction? The idea was that if the United States and the Soviet Union both knew the enemy had enough weapons to wipe the entire country off the map, neither would actually use those weapons. Mutually Assured Destruction got the entire world through the age of fallout shelters and Barry Goldwater. So the doctrine should be powerful enough to get Google, Apple and Microsoft past Justice Department antitrust regulators.

It’s a given that Google’s $12.5 billion Motorola bid is going to be scrutinized for its antitrust implications. Google’s law firm on the deal, Cleary Gottlieb Steen & Hamilton, has conceded that point; the firm announced that David Gelfand – who previously escorted Google unscathed through antitrust reviews of its DoubleClick and AdMob acquisitions — will be antitrust counsel on the Motorola bid. The $4.5 billion acquisition of Nortel’s intellectual property by a consortium led by Microsoft and Apple is already under review by the DOJ’s antitrust division. I’m betting that each patent plays will have an easier time passing regulatory muster because of the other.

Before I get to why, there’s the issue of which agency will be investigating the Google deal. Both the Federal Trade Commission and the Justice Department have the power to conduct premerger antitrust reviews. They’ve both looked at Google acquisitions in the past: the FTC green-lighted the 2007 DoubleClick and 2010 AdMob deals; the DOJ rejected Google’s proposed advertising partnership with Yahoo in 2008 and approved, with some modifications, its deal with ITA Software in 2011. The FTC is also reportedly conducting a widespread antitrust investigation of Google’s search engine business. But I have it on good authority that the Justice Department will be handling the Motorola review, partly because DOJ has historically overseen competition in the telephone industry and is already reviewing the AT&T merger with T-Mobile and the Nortel IP sale.

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