Even though the trial in the Microsoft-Motorola RAND dispute took place over three months ago, there’s been a lot going on in Washington lately. In addition to the arguments regarding the relevance of the Google-MPEG LA AVC/H.264 patent license agreement, recall that a couple weeks ago, Judge James L. Robart granted Motorola’s request to submit additional information that may be relevant to determining the RAND rate. Late Friday, both Motorola and Microsoft filed these documents with the court — documents that may actually raise more issues than they help resolve (and may ultimately have no bearing on Judge Robart’s decision).
The parties’ filings concern infringement actions Motorola filed in July 2011 against Microsoft in Germany over two H.264-essential patents. Motorola sought and won an injunction against Microsoft, but Judge Robart entered a preliminary injunction prohibiting Motorola from enforcing that injunction pending the outcome of the RAND case (a ruling he later expanded to encompass all of Motorola’s 802.11 and H.264 SEPs). But these German cases did not actually end. In August 2012, as part of the Orange Book procedure that German courts used to help resolve disputes over standard-essential patents, Microsoft apparently made a revised offer to Motorola for the two German H.264-essential patents (an earlier offer had been deemed insufficient by the German court under the Orange Book procedure).
This revised offer included a rate of 2 eurocents / 1 eurocent (depending on volume) for a license to the two German patents for the period prior to Motorola’s acquisition by Google. For the period after acquisition, the royalty was €2100 per licensed patent per year (due to Microsoft’s view of the effect of the Google-MPEG LA agreement). There were also grant-back rights to Microsoft’s H.264-essential patents (both royalty-free and royalty-bearing, depending on the time frame). It appears that after originally rejecting Microsoft’s offer, Motorola then purported to accept Microsoft’s offer in January 2013, by sending a countersigned agreement to Microsoft – just several days after agreeing to forego seeking injunctive relief as part of the FTC/Google consent agreement.
But one particular issue has now prompted Microsoft to accuse Motorola of violating the terms of the FTC consent agreement. In its letter to Microsoft, Motorola appears to assert that Microsoft has an obligation to pay past damages in Germany (to be calculated in accordance with German law), in addition to the royalties in the license agreement. Motorola’s German counsel informed Microsoft:
Even though our client accepts the license agreement to resolve the dispute going forward, the agreed license rate is without prejudice to calculating past damages prior to the date of the conclusion of the agreement (in whatever form our client might choose to calculate such damages under German law).
This statement seems to be based on an apparent prior acknowledgment of this duty made by Microsoft’s German counsel in conjunction with its original December 2011 Orange Book offer. Microsoft takes issue with this now, though, because as it describes in a letter to the FTC, damages under German law for patent infringement may be based on reasonable royalties, Motorola’s lost profits, and/or disgorgement of Microsoft’s profits. According to Microsoft, Motorola’s claim represents a breach of the Google/FTC agreement because Motorola is allegedly seeking non-FRAND royalties for these H.264 SEPs in Germany (and furthermore because Microsoft only needed to make the Orange Book offer in the first place because Motorola was seeking an injunction, which it now cannot enforce).
And in addition to claiming a breach of the FTC agreement, Microsoft also claims this is an ineffective “acceptance.” According to Microsoft, by stating that its “acceptance” was without prejudice to getting past damages under German law, Motorola actually modified Microsoft’s August 2012 proposal — thereby making a counteroffer, not an accepting Microsoft’s offer. Without delving into a discussion of Contracts 101: German Law Edition here, it seems like if this issue ever gets hashed out in court, it may come down to the issue of whether Microsoft’s counsel’s statement made in conjunction with the December 2011 Orange Book offer carried through to the subsequent August 2012 offer (or whether, under German law, Motorola might always be entitled to those damages, regardless of what the contract says).
Microsoft’s letters also bring up a couple of interesting questions, which unfortunately have not yet been answered:
- First — is a FRAND patent owner ever entitled to more than a FRAND royalty for infringement, such as in cases of willful infringement? The implication from Microsoft’s letter appears to be that at least Microsoft thinks the answer is no, but it’s not explicitly addressed. Microsoft just says that here, Motorola is not entitled to damages “in excess of FRAND” — but there’s certainly a case to be made for allowing increased damages in cases of willful infringement to deter gamesmanship by potential licensees. (It’s worth noting that there’s no concept of willful infringement in Germany — but at the time Motorola filed its German patent actions, the parties had already begun their RAND litigation in Washington, so Microsoft was certainly aware of Motorola’s H.264 standard-essential portfolio.)
- Second — in this particular case, would an additional damages award by the German court matter at all? For instance, if Judge Robart sides with Microsoft and agrees that he alone has jurisdiction to determine the amount of past damages and future royalties payable to Motorola for its SEPs, he could simply order Motorola to return to Microsoft any amount of German damages that exceed his to-be-determined RAND rate. (He clearly has no qualms about his rulings affecting the actions in Germany, having previously enjoined Motorola from enforcing its injunction over there.) In fact, as pointed out by Microsoft’s German counsel in his letter to Motorola’s counsel disputing the purported acceptance of the Orange Book offer, this course of action was actually proposed to Judge Robart by Motorola back in April 2012. Intuitively, this makes sense, because if it’s determined that Motorola did not breach its RAND obligations to Microsoft, Motorola may actually be entitled to these damages in Germany. That being said, the FTC could still consider it a breach of the consent decree — I guess we’ll have to wait to find out.
In terms of what this all means for Judge Robart’s upcoming decision on the RAND rates for Motorola’s patents, it’s hard to say. Both Motorola and Microsoft discount the relevance of the Orange Book offer/agreement as to the actual RAND terms for Motorola’s patents — with Motorola claiming that the rate is too low while Microsoft claims that the rate is far too high. Of course, Judge Robart could still use this as persuasive evidence — either of the proper RAND rate or of the structure of the agreement (i.e., cents per patent per unit, or no royalty caps for units made prior to the Google-Motorola acquisition). Given the particularly large volume of Microsoft H.264-compliant products, it’s a good bet that the royalty cap issue could have a huge effect on the final RAND royalty amount (and as we noted last week, it’s something Judge Robart might be paying attention to as well).
To wrap everything up, below is a timeline of relevant events, along with links to the parties’ filings from Friday.
- July 2011: Motorola files lawsuits in Germany, accusing Microsoft of infringing two German H.264-essential patents.
- December 2011: Trial in Germany; Microsoft makes original Orange Book offer (rejected by Motorola).
- April 2012: Motorola awarded injunction in German court against Microsoft.
- May 2012: Motorola enjoined from enforcing injunction by Washington court.
- August 2012: Microsoft makes revised Orange Book offer (apparently originally rejected by Motorola).
- November 2012: Washington court holds first phase of RAND trial to determine “RAND terms” for Motorola’s 802.11 and H.264 SEPs.
- January 3, 2013: FTC, Google enter consent agreement in which Google agrees to forego injunctive relief for SEPs except in very limited circumstances.
- January 11, 2013: Google/Motorola executes agreement in attempt to accept August 2012 offer.
- January 15, 2013: Google/Motorola informs Microsoft of purported acceptance of August 2012 offer.
- January 18, 2013: Microsoft informs FTC that it believes Google/Motorola is violating the FTC consent agreement.
- February 22, 2013: Motorola, Microsoft file documents with Washington court.