[UPDATE] Since this post was originally published on January 22, the deadline passed for the parties to submit extrinsic evidence and additional arguments supporting their respective interpretations of the Google-MPEG LA AVC/H.264 license agreement. Microsoft submitted both a brief and a supporting Declaration of Lawrence A. Horn, who is the President and CEO of MPEG LA, LLC. Mr. Horn’s declaration supports Microsoft’s argument (as detailed in our original post below) that the scope of the grant-back under the MPEG LA license agreement extends to all Affiliates of Google, not just to those specifically identified. For its part, Motorola argues that the “scope” language of the MPEG LA agreement remains ambiguous, and that Mr. Horn’s declaration represents inadmissible hearsay because Motorola was unable to cross-examine him.
The parties’s respective briefs and Mr. Horn’s declaration may be accessed from the links below:
Judge Robart’s forthcoming opinion in the Microsoft v. Motorola RAND breach of contract case in the Western District of Washington is highly anticipated by those who pay attention to standard-essential patent disputes, as it will likely provide a judicially-sanctioned roadmap for how to determine RAND terms and conditions in a given licensing situation. But before he issues a written decision, a hearing is scheduled for January 28, during which Judge Robart will hear oral argument from Microsoft and Motorola regarding the implications that Google’s AVC/H.264 patent pool license agreement with MPEG-LA may have on the appropriate RAND terms for Motorola Mobility’s H.264-essential patent portfolio. (Google, of course, being the parent company of Motorola Mobility since it acquired Motorola in May 2012).
First, a bit of background: MPEG-LA is an administrator of various standard-essential patent pools, many of them involving video coding standards. One of the patent pools administered by MPEG-LA is the AVC/H.264 pool, which includes patents essential to the ITU H.264 video coding standard. Microsoft is one of the licensors of the AVC/H.264 pool, having contributed its H.264-essential patents to the pool to be sublicensed to licensees of the pool in exchange for a share of the total licensing revenues collected by MPEG LA. Neither Google nor Motorola is a licensor to the pool (although Motorola apparently participated in some discussions regarding the formation of the pool around a decade ago). Google, however, is a licensee of the pool — in 2005, Google entered into a license agreement with MPEG LA, taking a license to all of the patents included in the AVC/H.264 pool (including Microsoft’s H.264-essential patents).
At issue in the January 28 hearing in Judge Robart’s court is the “Licensee Grant” provision included in Section 8.3 of Google’s AVC/H.264 license, which states in pertinent part:
Licensee agrees to grant a worldwide, nonexclusive license and/or sublicense (commensurate to the scope of the license which Licensee has selected hereunder) under any and all AVC Essential Patent(s) that Licensee and its Affiliates, if any, have the right to license and/or sublicense, to any License or any sublicensee of the Licensing Administrator desiring such a license and/or sublicense on fair and reasonable terms and conditions. For purposes of this Section 8.3 only, the Licensors’ per patent share of royalties which are payable pursuant to Section 3 of this Agreement shall be presumed to be a fair and reasonable royalty rate for the aforementioned license and/or sublicense to be granted by the Licensee.
According to Microsoft, this means that not only is it entitled to a license to all of Motorola’s (as a subsidiary of Google) H.264-essential patents, but the royalties paid by Microsoft for this license should be capped at the per patent share of royalties payable to the AVC/H.264 Licensors. Motorola, for its part, claims that Google’s AVC/H.264 license agreement has no relevance to Motorola’s licensing obligations (including a RAND royalty rate) for its H.264-essential patents. A summary of the parties’ positions is below.
Microsoft’s Position (Microsoft Post-Trial Brief re: MPEG LA Agreement)
Microsoft takes the position that upon being acquired by Google, Motorola Mobility became an “Affiliate” of Google, and is therefore bound to grant an H.264-essential patent license to Microsoft (as well as to any MPEG LA Licensor desiring one). While Motorola offered various contractual arguments (the details of which we won’t delve into here) concerning the scope of the license granted to Google by MPEG LA and whether this limits the scope of any license that ought to be granted back to Microsoft as a licensor, Microsoft claims that these arguments contradict the plain language of the Google-MPEG LA license agreement.
Furthermore, Microsoft claims that the rate prescribed in the Google-MPEG LA agreement should apply to any H.264-essential license between Motorola and Microsoft, as this is the royalty accepted by not just Google, but “over 1100 other licensees” and “more than 25 Licensors” of the MPEG LA AVC/H.264 patent pool. And according to the calculations set forth by Microsoft’s expert in its main post-trial brief, the royalty due to Motorola for its H.264-essential patents in a RAND license agreement would amount to 0.065 cents per unit, or approximately $167,000 for the most recent year.
Motorola’s Position (Motorola Post-Trial Brief re: MPEG LA Agreement)
Motorola disagrees with Microsoft’s views on the effect of the Google-MPEG LA agreement, as well as the appropriate rate for Motorola’s H.264-essential patents in RAND license agreement (which, according to Motorola’s post-trial brief, amounts to 50-63 cents per unit, or annual payments of about $100-125 million — several hundred times the royalties suggested by Microsoft).
Motorola first asserts that any grant-back license to Microsoft under the MPEG LA agreement must be “commensurate to the scope” of Google’s agreement with MPEG LA, and that the MPEG LA agreement does not extend to Google’s “Affiliates” — particularly after-acquired companies such as Motorola Mobility. Motorola contends that it would be inequitable to force an after-acquired Affiliate to license its patents to a Licensor or Licensee of the MPEG LA AVC/H.264 agreement when the Affiliate itself (here, Motorola) is unlicensed to the patents in the pool. (There is a second section of Motorola’s brief concerning the Section 8.3 grant-back provision, but this section was redacted).
Motorola also claims that the Google-MPEG LA AVC/H.264 agreement is not a comparable benchmark for RAND terms for Motorola’s H.264-essential patents, for multiple reasons. First, Motorola states that because the agreement does not relate to Motorola’s particular patented technology, and instead relates to a patent pool containing other companies’ patents, it should not be used to determine a RAND royalty rate for a bilaterally-negotiated license between Microsoft and Motorola. Motorola also explains that under its view of the proper date of the hypothetical negotiation between Motorola and Microsoft — October 2010, which predates Google’s acquisition of Motorola Mobility — the MPEG LA agreement would not be relevant. Furthermore, Motorola asserts that the rate prescribed in the MPEG LA agreement is merely a “presumed” RAND rate, one that may be negotiated by the parties. Motorola contends that in a hypothetical negotiation, the parties would not have used this rate as a final number, but instead as a starting point (with other material terms affecting the final royalty rate).
Given the vast difference between the parties’ proffered RAND rates for Motorola’s H.264 patents, the effect of the Google-MPEG LA license agreement could have huge consequences for what Judge Robart decides as the resulting royalty rate. It is not surprising that Judge Robart decided to hear oral arguments on this issue before issuing his RAND royalty-setting opinion.