Alison Frankel

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.

For more of my posts, please go to Thomson Reuters News & Insight

Follow me on Twitter

With very little fanfare, Motorola Mobility announced Monday that it has reached a memorandum of understanding to resolve shareholder litigation that might have stood in the way of a vote on Google’s proposed $12.5 billion all-cash acquisition of the company. The memo is, alas, not public, so we don’t know just what the settlement entails, or how much the plaintiffs’ lawyers who challenged the deal will get in fees. Motorola Mobility did file an 8-K amending its proxy materials, giving shareholders marginally more information about (among other things) how the Google deal came together and what kind of equity awards Motorola officers will receive. These relatively insignificant disclosure amendments are a typical ending for the rash of M&A shareholder suits that have broken out in the last few years; it’s a pretty good bet that, in this case, the additional disclosures aren’t going to sway very many Motorola Mobility shareholders when they vote on the Google deal on November 17.

So why am I highlighting an unremarkable settlement that basically amounts to a litigation footnote in a blockbuster $12.5 billion tech deal? Because the Motorola Mobility shareholder M&A litigation is a case study in the weird, private regulatory system that’s evolved as a check on deal activity. In rare instances, when plaintiffs’ lawyers uncover shady behavior by deal participants, shareholders wind up with sweetened offers. But much more often — as in the Motorola Mobility case — the primary beneficiaries of this M&A scrutiny are lawyers: both the plaintiffs’ lawyers who say they have a right to make sure insiders were looking out for shareholders and the defense lawyers representing those insiders.

Shareholder M&A litigation amounts to a “deal tax” companies pay in order to assure their equity holders that the board and its advisers fulfilled their duties. And that leads to a question that’s previously arisen in litigation over cigarettes and guns: do we want private lawyers to do what public regulators seemingly can’t or won’t?

Here’s the background: On August 15, Google announced an all-cash deal to acquire Motorola Mobility for $12.5 billion, or $40 a share. That price represented a whopping 63 percent premium for Motorola Mobility’s shareholders, but Google was considered to be under such intense pressure to acquire the company’s patent portfolio that it was willing to tack on a near-record sweetener to assure the support of Motorola Mobility’s shareholders.

Seems like a pretty generous deal, right? Wrong, according to the 16 — 16! — shareholder class actions filed in the wake of Motorola Mobility’s announcement. These are the times we live in, when a deal that offers shareholders a guaranteed 63 percent windfall on their investment is regarded as suspect.

Of course, the purported class actions were filed in a variety of jurisdictions. The first suit, as Reuters’ Tom Hals reported, was a derivative case in Cook County, Ill., the headquarters of Motorola Mobility’s former parent, Motorola. Three additional class actions followed in Cook County Circuit Court. Another eight were filed in Circuit Court in Lake County, Ill., where Motorola Mobility is based. The Delaware Chancery Court ended up with three parallel class actions, and the 16th suit was filed in Chicago federal court. As Motorola Mobility explained in an Oct. 14 proxy statement, all of the class actions played a variation on the same theme: the company, its board, and (according to almost all of the suits) Google had breached (or abetted a breach) their duty to shareholders. The suits all sought to enjoin a vote on the deal by Motorola Mobility shareholders.

Wachtell, Lipton, Rosen & Katz, which represented Motorola Mobility in negotiations with Google and in the ensuing shareholder litigation, moved to consolidate the injunction class actions in one venue. The various plaintiffs’ firms that filed cases eventually agreed that the litigation would proceed in Cook County, with Robbins Geller Rudman & Dowd leading the way. (Interestingly, such other big securities class action players as Grant & Eisenhofer, Bernstein Litowitz Berger & Grossmann, and Labaton Sucharow sat this one out.)

Randall Baron of Robbins Geller, who won Delaware Chancery kudos for his work in exposing Barclays’ conflict of interest in the Del Monte case, has told me that these M&A injunction suits are a bit of a question mark when they’re filed. Plaintiffs’ firms often don’t know, until they’ve obtained discovery, whether the board and its advisers acted properly in agreeing to a deal. In the Del Monte and J. Crew class actions, for instance, shareholder counsel turned up evidence that led to enhanced offers.

It’s not clear from the Cook County docket how much discovery Robbins Geller and the other plaintiffs firms that sued Motorola Mobility conducted, and Baron and two other Robbins partners didn’t respond to my requests to discuss the litigation. It appears from the docket that most of the litigation was procedural, although a hearing was scheduled before the Cook County judge on Nov. 8, the day Motorola announced the memorandum of understanding.

The 8-K disclosing changes in Motorola Mobility’s proxy statement on the Google deal includes a paragraph explaining that Motorola Mobility shareholder Carl Icahn tried to negotiate for a portion of the reverse-breakup fee the company will receive if the deal doesn’t go through, but the board turned him down, saying it wasn’t willing to treat Icahn differently than other shareholders. The filing also discloses details of the back-and-forth between Motorola’s Wachtell lawyers and Google’s counsel at Cleary Gottlieb Steen & Hamilton over the termination and reverse-termination fees and equity grants to Motorola execs. There’s also an additional disclosure of the $21 million in fees Motorola Mobility and its former parent have paid its financial adviser, Centerview, in the last two years.

As I mentioned, we don’t know yet how much Robbins and its co-counsel will receive as compensation for obtaining these additional disclosures, which seem, if anything, to reinforce the good faith of Motorola Mobility’s board in reaching a deal that’s apparently a boon to shareholders. (Robbins Geller’s Baron did tell me, in an email, that the firm intends to pursue damages against the Motorola Mobility defendants though he didn’t respond to my follow-up request for details.) We’ll never know how much the company paid Wachtell to defend the shareholder litigation, but you can be sure Wachtell’s work doesn’t come cheap.

You could limit the question of whether the disclosures the Motorola Mobility shareholders obtained were worth the cost, but I think there’s a more fundamental question this case raises. Why do we have so little faith in the integrity of corporate boards — and of our regulators’ ability to oversee their conduct — that shareholder lawyers are willing to challenge even a deal that offers a rich premium to equity owners?

There’s got to be a better way.

For more of my posts, please go to Thomson Reuters News & Insight

Follow me on Twitter

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.

For more of Alison’s posts, please go to Thomson Reuters News & Insight

Follow Alison on Twitter

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.

For more of Alison’s posts, please go to Thomson Reuters News & Insight

Follow Alison on Twitter

There are all sorts of questions out there about Google’s $12.5 billion acquisition of Motorola Mobility. What will the deal mean for HTC and Samsung, the other cellphone makers using the Android platform? Will the merger force Microsoft to make a bid for Nokia? And is Carl Icahn, Motorola’s biggest shareholder, finally satisfied? I’ll leave it to others to ruminate on all that. I’m interested, as always, in what this deal means for lawyers.

The one clear answer is that a union between Google and Motorola is a good thing for Quinn Emanuel Urquhart & Sullivan.

Quinn’s Charlie Verhoeven and his patent litigation team are favorites of both Google and Motorola in the smartphone wars. With Google’s endorsement, Quinn has been representing both Samsung and HTC in high-stakes litigation against Apple; Quinn got those assignments after amassing an impressive collection of patent trial wins for Google in the Eastern District of Texas. (Even Verhoeven and Google can’t win ‘em all; I reported in May on a $5 million verdict against Google in the Bedrock patent trial.)

There’s been speculation that Google brought Quinn into the HTC and Samsung cases under an Android indemnification agreement. Google and its partners have never confirmed that any such deal exists. If there is an indemnity arrangement, that might explain why Quinn Emanuel is representing Motorola in smartphone litigation with Apple and Microsoft. (When Google recently filed a non-party motion for sanctions against Microsoft in Microsoft’s U.S. International Trade Commission case against Motorola, Quinn Emanuel signed the Google pleading — even though Quinn also represents Motorola in the case, along with Steptoe & Johnson.)

But Quinn Emanuel’s relationship with Motorola extends beyond Motorola’s smartphone litigation. The firm stepped into a vicious trade secrets fight between Motorola and a Florida company after Motorola was twice sanctioned for discovery violations. The $10 billion case ended up settling for less than $50 million.

Also worth pointing out whenever we’re talking about Google: one of the two most recent appointees to the Federal Trade Commission, Edith Ramirez, was previously an IP partner at Quinn Emanuel. Last October, in a speech before the Golden State Antitrust and Unfair Competition Law Institute, Ramirez spoke of her first FTC review: Google’s proposed merger with AdMob, the rival smartphone advertising network. Even though the deal meant the combination of two of the biggest players in a rapidly expanding market, Ramirez voted with her fellow commissioners to permit the merger, partly because Apple was developing its own mobile ad network.

I reached out to John Quinn and Charles Verhoeven, but neither responded to my e-mail.

For more of Alison’s posts, please go to Thomson Reuters News & Insight

Follow Alison on Twitter