A couple of weeks ago, we noted a peculiar minute order emanating from Judge James L. Robart’s courtroom in the Microsoft-Motorola RAND case. Based on his review of Google’s AVC/H.264 standard-essential patent pool license agreement with MPEG LA, Judge Robart asked the parties to submit short letter briefs addressing two questions regarding the relevance of the Enterprise License provision (Section 3.1.7) to any grantback license that Motorola (as a subsidiary of Google) might owe to Microsoft.
Late Friday, the parties submitted their respective answers to the court’s questions (Microsoft’s / Motorola’s). The parties’ answers and arguments show just how millions of dollars in royalties could turn on the interpretation of just a couple of short phrases in the MPEG LA agreement. After the jump, we’ll provide a short summary of both Microsoft’s and Motorola’s positions. Essentially, though, the parties’ arguments boil down to this — Was the MPEG LA agreement’s grantback provision designed to extend to all affiliates of a given licensee, whether those affiliates receive any benefits under the agreement or not?
To recap, the Enterprise License provision at issue reads:
Enterprise Licensees. Pursuant to Article 2.7 and notwithstanding anything to the contrary in Article 2.9 hereof, and in lieu of the royalties specified in Articles 3.1.2, 3.1.3, 3.1.4 and 3.1.5, a Licensee and its Affiliates which are licensees under the AVC Patent Portfolio License and are identified in writing to the Licensing Administrator by Licensee shall pay no more than the following total amounts in each Calendar Year for all such licenses for the combined Sales of Licensee and its Affiliates during such year: [the provision then recites particular royalty amounts and annual caps]
Also at issue is the Section 8.3 “grantback provision,” which provides (in relevant part) that:
Licensee agrees to grant a worldwide, nonexclusive license and/or sublicense (commensurate to the scope of the licenses 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 Licensor or any sublicensee of the Licensing Administrator desiring such a license and/or sublicense on fair and reasonable terms and conditions.
The disputes in the parties’ latest round of briefing concern the phrases “Affiliates which are licensees under the AVC Patent Portfolio License and are identified in writing to the Licensing Administrator by Licensee” (in Section 3.1.7) and the parenthetical “commensurate to the scope of the licenses which Licensee has selected hereunder” (in Section 8.3).
Microsoft argues in its latest letter brief that the grantback provision binds not just Google, but also all of its affiliates — and that this means that Motorola owes Microsoft a license to its H.264-essential patents at a capped, per patent rate prescribed by the agreement (which works approximately $2700 per patent per year).
Microsoft claims that the Enterprise License provision and its royalty terms are “irrelevant to the issues before the Court,” because it — unlike Google — is not a video content provider and does not need to invoke this license. According to Microsoft, the Enterprise License provision also does not affect the grantback provision, characterizing it simply as a standalone royalty cap provision that is designed for the convenience of any particular MPEG LA patent pool licensee. Noting that Motorola has previously argued that it is not bound under the grantback provision because it is not covered by the MPEG LA license agreement (because Motorola was not identified to MPEG LA by Google), Microsoft deems this argument as “flatly inconsistent with the purpose of the provision” — which Microsoft asserts is to prevent an MPEG LA licensee from avoiding a grantback obligation by hiding its patents in subsidiary or related affiliate.
In its letter brief, Motorola argues that the Enterprise License provision is not a standalone royalty cap. Motorola asserts that this provision (and the particular licenses selected by Google) “directly affect not only the scope of the grant back obligation under Section 8.3, but also affects the scope of any grant back license required under the grant back obligation because the grant back obligation must be commensurate in scope with the selected license.” The “commensurate to the scope” language is key here — essentially, Motorola argues that because the Google-MPEG LA agreement extends no rights to Motorola or Motorola’s products (because it was never identified by Google as a licensed affiliate under Section 3.1.7), the grantback provision does not confer any obligations on Motorola. Motorola asserts that its interpretation is further bolstered because such limited reciprocal cross-licensing is a common industry practice.
Motorola also acknowledges Microsoft’s arguments about the purported purpose of the grantback provision, but dismisses this view as contrary to the “plain meaning” of the words of the agreement. Motorola argues that in any event, Motorola is not a holding company or non-practicing entity, but is in fact an operating company — and that the court should not decide issues based on hypothetical concerns. According to Motorola, it is simply not bound by the grantback provision (and the corresponding presumed RAND rate) — an argument which, if accepted by the court, could mean a much larger RAND royalty than what might be available under the terms of the MPEG LA agreement.