Alison Frankel

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.

That would tee up Microsoft’s two summary judgment motions. In one, Microsoft asserts that Motorola’s licensing demand was so unreasonable that it represents a breach of Motorola’s obligations to standard-setting bodies. Microsoft argues under this theory that Motorola’s patent infringement suits were improperly filed, and so it asserts that it’s entitled not only to license Motorola patents on reasonable terms but also to damages. Microsoft is also asking Robart to rule that Motorola may not seek an injunction based on any patent it is obliged to license to Microsoft on reasonable terms.

Robart has already indicated that he’s very receptive to Microsoft’s arguments. Last month, as I’ve reported, he issued a shocker of a temporary restraining order, ruling that Motorola must not act to enforce whatever relief it might win in Germany. Microsoft said after the Mannheim ruling Wednesday that the Robart injunction will insulate it from any immediate consequences of the ruling.

The Seattle judge said that his temporary restraining order will remain in effect until he rules on the summary judgment motions he will hear Monday. Motorola has appealed the TRO, which it regards as a preliminary injunction. That raises an interesting question of whether Robart or the 9th Circuit Court of Appeals has jurisdiction over the injunction if the trial judge reaches summary judgment rulings before the 9th Circuit decides the appeal.

Robart’s summary judgment decisions will also have a big impact on Apple’s parallel breach-of-contract suit against Motorola in California. The Seattle judge’s rulings won’t be considered binding in Apple’s case, since the parties aren’t the same. But you can be sure that Robart’s opinions will show up on the Apple docket as soon as they’re entered in Seattle.

Motorola’s lead counsel at Monday’s hearing is expected to be Jesse Jenner of Ropes & Gray. Arthur Harrigan of Danielson Harrigan Leyh & Tollefson and David Pritikin of Sidley Austin will argue for Microsoft.

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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.)

But there’s a line in Microsoft and Barnes & Noble’s joint announcement of the deal that might give Microsoft challengers pause — and makes it unclear which side will come out on top in the long run. Both Barnes & Noble and Microsoft publicly emphasized the synergies of their new partnership, which gives Microsoft an entry point into a market it believes will be shaped by advanced software add-ons to simple e-books and gives Barnes & Noble a presence on Microsoft’s soon-to-be-released tablets, as well as a much-needed investor. The announcement also included a note that Barnes & Noble and the new digital and textbook subsidiary “will have a royalty-bearing license under Microsoft’s patents for its NOOK eReader and tablet products.”

So Barnes & Noble is licensing Microsoft IP after all. If you’re wondering about the terms, keep wondering. Microsoft has jealously guarded any disclosure of its licensing arrangements in the Barnes & Noble litigation, to the extent that the company demanded that B&N patent misuse filings be removed from the ITC record. There are no available specifics on what B&N and the new subsidiary have agreed to pay, so for all we know, Microsoft is getting all it originally wanted in Nook royalties.

It’s a cliche for settling parties to claim they’re both better off for resolving their differences. Maybe this time it’s actually true.

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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.

The judge agreed that Motorola appeared to have run to Germany to obtain an injunction there before he could decide the merits of Microsoft’s contract case. Microsoft’s U.S. suit, he said, included the same patents Motorola was asserting in Germany, because those German patents were part of the portfolio for which Motorola demanded allegedly improper licensing fees. Robart concluded that under the Anti-Suit Act, he has the power to block Motorola from enforcing whatever relief it wins in Germany until he rules on the larger question of reasonable licensing fees for standard-essential patents. Here’s what the judge said at Wednesday’s hearing:

The battleground in this… is whether the United States action, or resolution of it, would be dispositive of the foreign action to be enjoined… And I will add, for the edification of the Court of Appeals, so it knows where I’m coming from, that I consider the preservation of my ability to resolve this dispute to be something that needs to be carefully guarded, otherwise we run into the possibilities of conflicting resolutions, duplicative litigation, and unfortunate results that don’t follow appropriate law.

Why is the ruling so significant? Injunctions are hard to obtain in U.S. patent litigation, so, as you know, patent holders in the last five or so years have taken advantage of easier injunction standards in Germany and elsewhere to gain leverage in global patent disputes. The Robart ruling holds that, at least in cases involving worldwide standard-setting portfolios, U.S. litigation trumps cases elsewhere. That’s a potentially significant shift in the balance of power between patent holders and licensees.

Expect to see Apple, for instance, point to the ruling in its own standard-essential litigation with Motorola. Apple sued Motorola in San Diego federal court in February, making essentially the same argument as Microsoft: It claimed Motorola’s German assertion of standard-setting patents against Apple violates Motorola’s contract with the standard-setting body. The parallels with Microsoft’s case suggest that Apple will also be able to use the Robart ruling to block Motorola from enforcing any German injunction it obtains.

The leading authority on standard-setting patents, Jorge Contreras of American University’s Washington College of Law, told me Robart’s ruling is “pretty astounding.” He said he’s never before seen a contract case involving standard-essential patents serve as the basis of an Anti-Suit injunction — and said that the U.S. judge’s assertion of his authority to block foreign patent actions is “very surprising.” Motorola, he said, has to offer a worldwide portfolio of patents to licensees of standard-essential technology. So to say that such an offer precludes litigation over patents in the portfolio outside of the U.S. “seems like a significant reach…I can see this being a really important decision.”

Microsoft deputy general counsel David Howard told Reuters that the ruling means “Motorola can’t prevent Microsoft from selling products until the court decides whether Motorola has lived up to its promise.” Motorola, pointing to the $100 million bond Robart ordered Microsoft to post, said the ruling means Microsoft is committed to license its standard-essential patents. I left a message for Motorola patent counsel K. McNeill Taylor and outside counsel Steven Pepe of Ropes & Gray but didn’t hear back.

Motorola has not said whether it intends to appeal the TRO, which is set to last only until a May 7 hearing on Microsoft’s motion for summary judgment. The Mannheim court, meanwhile, is expected to issue its ruling in Motorola’s German injunction bid on May 2.

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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.

We should have a much better idea of the strength of Microsoft’s assertions against Motorola by next week, when Microsoft’s lawyers at Sidley Austin will get to air their arguments about Motorola’s alleged abuse of its industry-standard patents at a preliminary injunction hearing before U.S. District Judge James Robart in federal court in Seattle. Microsoft moved for the injunction on March 28, asking the judge to stop Motorola from taking any action to block certain Microsoft products from the German market. Microsoft said it had brought the Seattle suit in 2010 “to force Motorola to honor its commitment to license its standard-essential patents.” Instead, according to Microsoft, Motorola went to German courts, seeking its own injunction against Microsoft. Microsoft argued in its Seattle motion that it needs a restraining order to preserve the U.S. judge’s ability to decide the merits of its case.

It outlined those purported merits in a summary judgment motion filed last Friday. According to Microsoft, Motorola made a “blatantly unreasonable” demand that it pay $4 billion (yes, billion) in annual royalties for the use of 50 Motorola patents in Microsoft Windows. The demand “was so overreaching that no rational company could ever have accepted it or even viewed it as a legitimate offer,” Microsoft asserted. “Motorola’s obvious strategy was … to make an offer that Microsoft was sure to refuse so that Motorola then would be free (in its view) to sue on its standard-essential patents to gain leverage in other disputes with Microsoft.” Microsoft asked for a ruling that Motorola had breached its agreement to license standard-setting patents on fair and reasonable terms.

Motorola is represented in the Seattle case by Ropes & Gray. Ropes partners Jesse Jenner and Steven Pepe didn’t return my calls. I also left messages with Microsoft inside counsel Andrew Culbert and outside counsel David Pritikin of Sidley but didn’t hear back.

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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.

As a matter of law, that ruling spelled doom for Barnes & Noble’s antitrust case at the ITC. The bookseller’s argument, remember, is that Microsoft is using whatever ammunition it can pull from its entire patent portfolio — and not just the four patents at issue in the ITC case — to squelch competition from Android. Barnes & Noble’s theory is that Microsoft bullies Android users into unfavorable licensing deals by asserting infringement of an array of trivial patents.

Last March the bookseller asked the Justice Department’s Antitrust Division to petition the ITC to dismiss Microsoft’s case based on its antitrust allegations. The Justice Department didn’t. And the licensing and confidentiality agreements Microsoft has reached with other Android users, which were part of Barnes & Noble’s presentation to Justice, are not relevant under the Federal Circuit’s interpretation of patent misuse at the ITC.

But they could be important in federal court. At the same time Microsoft sued Barnes & Noble at the ITC, it filed a parallel infringement suit in Seattle federal court. Barnes & Noble filed a patent-misuse counterclaim in the Seattle case before it was stayed last June. When the ITC case concludes, the federal court litigation could become active again, whichever way the ITC comes out. If Barnes & Noble is serious about its antitrust counterclaims against Microsoft, it can push forward in the Seattle case even if it prevails at the ITC. If, on the other hand, Microsoft wins at the ITC, that’s all the more reason for the bookseller to assert its patent-misuse defense in federal court.

Microsoft deputy general counsel David Howard said in a statement: “[Tuesday's] action by the ITC makes clear that Barnes & Noble’s patent misuse defense was meritless. This case is only about one thing — patent infringement by Barnes & Noble’s Android-based devices. We remain as open as ever to extending a license to Barnes & Noble, and invite them to join the many other major device makers in paying for the Microsoft-developed intellectual property they use in their devices.” (Microsoft is represented at the ITC by Sidley Austin; Orrick, Herrington & Sutcliffe; Woodcock Washburn; and Adduci, Mastriani and Schaumberg.) I reached out to Microsoft’s press office to ask about patent misuse in the Seattle case but didn’t get an immediate response.

Barnes & Noble counsel at Cravath didn’t return my calls. David Boies of Boies Schiller was unavailable for comment. The bookseller is also represented in the ITC case by Quinn Emanuel Urquhart & Sullivan and Kenyon & Kenyon.

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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.

Microsoft, meanwhile, has been gleefully roasted this week by tech bloggers citing disclosures from the Barnes & Noble case. (See, for instance, here, here, and here.) The Microsoft-is-a-troll taunting began way back in April, when the brainy folks at Groklaw first covered Barnes & Noble’s answer and affirmative defenses to Microsoft’s ITC complaint. The book-selling giant, Groklaw pointed out, was asserting a patent misuse defense, claiming that Microsoft is on a mission to destroy Android by demanding exorbitant licensing fees for trivial patents.

Then last week, Bloomberg noticed that Barnes & Noble had filed some pretty juicy documents to support its assertions, including a March 2011 letter Barnes & Noble’s Cravath lawyers sent to the Justice Department’s antitrust division, urging DOJ to investigate Microsoft for antitrust violations in its anti-Android campaign. In an accompanying slideshow presentation to the DOJ, Barnes & Noble detailed Microsoft’s Android-related license deals and the nondisclosure agreements Microsoft supposedly forced licensees to sign. Groklaw uploaded all the documents — including Cravath’s letter to the DOJ and the slideshow — and the blogosphere took over. (Kinda funny that the March 2011 letter from Cravath is addressed to then-Antitrust Division chief Christine Varney, who is now, of course, a Cravath partner.)

You can find the Barnes & Noble filings with a few clicks, but you can’t find them in the record of the ITC case anymore. That’s because Microsoft complained to ITC Secretary James Holbein that the B&N document dump contained confidential information. (I can’t even link to Microsoft’s Nov. 2 and Nov. 4 letters; they were filed under seal.)

Barnes & Noble, which has made Microsoft’s secrecy a theme of its defense, responded with a fiery six-page letter on Nov. 4. “Prior to the institution of this investigation and ever since, Microsoft has claimed confidentiality where none existed,” B&N’s lawyers at Kenyon & Kenyon wrote. “Over the course of license negotiations with Microsoft, Barnes & Noble repeatedly told Microsoft that it did not consider its negotiations to be confidential; Microsoft’s unilateral insistence on the confidentiality of documents given to Barnes & Noble over the course of negotiations does not create a confidentiality agreement.” (I highly recommend reading the letter, which details exactly how Microsoft attempted to extract a nondisclosure agreement from Barnes & Noble in a series of licensing meetings.)

Barnes & Noble said in the Nov. 4 letter that it would move to have the documents reclassified as not confidential, but the ITC docket doesn’t indicate it’s made a motion yet.

I left a message for Barnes & Noble counsel Peter Barbur of Cravath (who signed the DOJ letter) but didn’t hear back. Paul Brinkman of Quinn declined comment. Microsoft counsel Robert Rosenfeld of Orrick referred my call to a Microsoft spokesperson, who declined comment.

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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.

Traditionally, antitrust regulators look at deals as either horizontal or vertical acquisitions. The classic horizontal deal is a merger of two rivals in the same market. A vertical acquisition is one that helps a company with its own upstream or downstream products. Vertical deals are considered less of a threat to competition within a market, so they get less antitrust scrutiny. In one regard, Google’s Motorola acquisition is a simple vertical merger, since it puts Google into two businesses it wasn’t in before: manufacturing smartphone handsets (and set-top devices) and licensing patents.

But IP complicates the traditional horizontal-or-vertical analysis, because patents, by their very nature, are intended to squelch competition: patent holders have a short-term monopoly on their invention. If you’ve paid even the slightest attention to the patent-bound technology industries, you know how viciously patents can be wielded for anticompetitive purposes, particularly when end products like computers and smart phones are covered by hundreds of patents. The FTC conducted hearings in June (here’s the transcript) on what it calls “patent hold-up” — the ability of a patent owner to extract big licensing fees for IP that’s just part of a sophisticated tech product.

So when antitrust regulators look at patent-heavy deals, they have to analyze the patent licenses that will transfer in the merger from both horizontal and vertical perspectives. The relevant market in patent deals, to use another bit of antitrust lingo, is the technology market, not necessarily the market for a particular downstream product or service. When the DOJ looks at the Motorola deal, its antitrust lawyers will want to know which companies license Motorola technology, how those licenses affect the relevant markets, and how much leverage the licensing agreements and Motorola patents give Google in those markets.

That’s where the Nortel IP consortium comes in. DOJ has to ask the same questions about how Microsoft, Apple, Research in Motion, Ericcson, Sony, and EMC can leverage the 6,000 or so Nortel patents they acquired for $4.5 billion in June. The last (and only) time the Justice Department previously reviewed a similar IP transfer was in 2010, when DOJ examined the $442 million purchase of Novell software patents by a different Microsoft and Apple consortium. In that review, regulators barred Microsoft from acquiring any patents outright and said EMC couldn’t acquire 33 of the patents it wanted.

This time around, though, Microsoft and Apple can point to Google’s purchase of the Motorola patents to argue that the Android smartphone platform is now as heavily armed as the iPhone and Microsoft’s Windows Mobile smart phone. Google, in turn, can credibly claim that it needs the Motorola smartphone patents to protect Android from the power its rivals acquired via the Nortel patents.

It would be easy for regulators to look at the two potent patent portfolios (say that three times fast!) — wielded by warring competitors in one of the most cutthroat industries in the world — and see a balance of power. If Google monkeys with Motorola patent licenses, Microsoft and Apple will retaliate with Nortel IP licenses. You can call it mutually assured destruction, but it could turn out to be a constructive end to the expensive smartphone patent wars.

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Monday was mostly a good day for Google and Motorola. Unless you’re on vacation where there’s no Internet access, in which case you’re not reading this, you’re surely aware that Google announced its $12.5 billion acquisition of Motorola, which means that Google is picking up one of the best patent portfolios in wireless history — and supposedly had the pleasure of besting Microsoft in doing so. But the news wasn’t all good for Google and its new best friend, Motorola. Deep down in the patent litigation trenches at the U.S. International Trade Commission, Administrative Law Judge Theodore Essex denied Google’s high-profile, third-party motion for sanctions against Microsoft in Microsoft’s infringement suit against Motorola.

Okay, so it’s not exactly on a par with the $12.5 billion deal. It’s a little humbling, though, for Google and its lawyers at Quinn Emanuel Urquhart & Sullivan. As I mentioned yesterday, Google filed an Aug. 10 motion for sanctions in the Microsoft ITC case, claiming that Microsoft violated a confidentiality order when it disclosed Google code to one of its experts without informing Google. (The ITC proceeding, in case you hadn’t figured it out, involves Motorola products that employ Google’s Android operating system.) Google asserted that when it found out what Microsoft planned to disclose, in-house lawyer Matthew Warren emailed a Microsoft lawyer to request a conference. Microsoft, according to Google, didn’t respond. Google then filed the sanctions motion.

But Judge Essex said Google rushed to judgment. The ground rules in the case, in which just about everything is (frustratingly) shielded by the confidentiality order, say that any party that objects to another’s use of confidential materials has to make a good-faith effort to resolve the dispute, and then must wait two days before filing a motion for sanctions. “The ALJ finds no basis to discern from Google’s statement whether Google made a reasonable, good-faith effort to resolve the matter with Microsoft,” Judge Essex wrote. “The ALJ notes to Google failed to attach the Warren email to its motion and it is unclear whether Google even notified Microsoft of its intention to file the instant motion.”

There you have it: evidence that Google may know how to snatch a $12.5 billion company away from Microsoft, but not how to make nice with its rival in a discovery fight. I left word with Microsoft counsel Brian Nester of Sidley Austin; Motorola counsel Charles Schill of Steptoe & Johnson; and Google counsel Amy Candido of Quinn. None got back to me.

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