Yesterday, Judge Robart issued an Order that denied Motorola’s motion to overturn the jury’s verdict that Motorola breached its RAND obligations in dealing with Microsoft on standard essential patents (SEPs) for IEEE 802.11 WiFi standards and ITU H.264 video compression standards. Judge Robart’s ruling here indicates that assessing compliance with a RAND obligation is a case-sensitive, fact-specific inquiry, stating that “there was enough evidence on each side for the jury to decide for either party.”
Microsoft had argued to the jury that Motorola breached its RAND obligations on several grounds:
- Offering a royalty rate that was not RAND (offered 2.25% of end product price)
- Seeking injunctive relief against Microsoft on the SEPs
- Not licensing Microsoft’s 802.11 chip supplier, Marvell
The jury unanimously found that Motorola breached its contractual commitment to IEEE and ITU and awarded over $14.5 million in damages. Motorola moved for judgment as a matter of law to set-aside the jury’s verdict.
In considering the JMOL motions, Judge Robart found the essence of the various RAND-breach theories to be “whether Motorola’s conduct violated the duty of good faith and fair dealing.” His jury instructions on that duty under Washington law was “the operative standard” for weighing the evidence in this case, the text of which is provided on pages 9-11 of the Order and is reproduced below (without internal citations) given its importance to Judge Robart’s decision:
A duty of good faith and fair dealing is implied in every contract. This duty requires the parties to a contract to cooperate with each other so that each may obtain the full benefit of performance, even if the parties have different requirements under the contract. However, this duty does not require a party to accept a material change in the terms of its contract. The implied duty of good faith and fair dealings arises out of the obligations created by a contract and only exists in relation to the performance of specific contract terms. Thus, a party’s obligation is only to perform the obligations imposed by the contract in good faith. There is no “free-floating” duty of good faith and fair dealing that injects substantive terms into the parties’ contract.
There is no one-size-fits-all definition of good faith and fair dealing. Rather, the duty varies somewhat with the context in which it arises. It may violate the duty of good faith and fair dealing to, for example, (1) evade the spirit of a bargain; (2) willfully render imperfect performance; (3) interfere with or fail to cooperate in the other party’s performance; (4) abuse discretion granted under the contract; or (5) perform the contract without diligence. This list is in no way exhaustive, and indeed it would be nearly impossible to create a complete catalogue of conduct that violates the duty of good faith and fair dealing.
It is the fact finder’s job–in this case the jury–to determine whether a party breached its duty of good faith and fair dealing. Good faith performance of a contract requires being faithful to the agreed common purpose of the contract and performing consistently with the justified expectations of the other parties. On the other hand, bad faith performance involves conduct that violates community standards of decency, fairness, or reasonableness.
Washington law establishes that numerous considerations may inform a fact-finder’s determination of whether the defendant’s conduct violated the covenant of good faith and fair dealing. In particular, a review of state and federal case law reveals that a fact finder may consider: (1) whether the defendant’s actions were contrary to the reasonable and justified expectations of other parties to the contract; (2) whether the defendant’s conduct would frustrate the purpose of the contract; (3) whether the defendant’s conduct was commercially reasonable; (4) whether and to what extent the defendant’s conduct conformed with ordinary customer or practice in the industry; (5) to the extent the contract vested the defendant with discretion in deciding how to act, whether that discretion was exercised reasonably; and (6) subjective factors such as the defendant’s intent and motive.
The last consideration, subjective intent, is a subject of frequent dispute between the parties and so requires some elaboration. Several Washington cases have considered subjective factors in determining whether a party violated its duty of good faith and fair dealing. Thus, the court concludes that, under Washington law, these factors are relevant to the good faith inquiry. However, other cases have made it clear that bad motive does not equate to bad faith and good motive does not equate to good faith. To be more specific, bad motive or intent does not necessarily imply bad faith, and good motive or intent does not necessarily imply good faith. Likewise, bad motive or intent is not a prerequisite to bad faith, nor is good motive or intent a prerequisite to good faith.
Offer Letters. Motorola argued there was insufficient evidence of breach based on its initial offer letters (2.25% of end product price) because (1) Motorola followed industry custom of making an opening offer to be further negotiated; (2) the contractual purpose of the RAND obligation was not frustrated because there is no evidence that “hold up” is a problem in the “real world”; and (3) Motorola acted in accordance with the parties’ reasonable expectations. But Judge Robart found that, under the applicable JMOL standard, Microsoft presented sufficient evidence to the contrary, such as “evidence presented by Microsoft that hold up took place in this case.” Further, because “the good faith standard articulated above is multi-faceted and no single factor is dispositive,” the jury could have found breach based on other factors.
Injunctive Relief. Motorola argued that its RAND obligation did not waive Motorola’s right to injunctive relief. Judge Robart “recognized” the “jurisprudential debate” on whether injunctions are available for SEPs. So he had not instructed the jury that there was such a waiver of injunctive relief, but left it to the jury to decide the ultimate issue whether Motorola breached its duty of good faith and fair dealing. He found that Microsoft presented sufficient evidence to support the verdict, and the court could not reweigh the evidence in a JMOL motion.
Marvell. Motorola argued that Microsoft had no standing to seek relief based on Motorola not licensing WiFi chip maker Marvell (and instead going after Microsoft for using Marvell’s chip). Judge Robart, however, stated that “Microsoft is not asserting Marvell’s rights and interests, it is merely presenting evidence that tends to show Motorola’s bad faith.” He allowed the Marvell argument in order to “reflect the fact that Motorola’s course of conduct in marching toward a RAND license (i.e., the course of conduct subject to the good faith duty) may be complicated and multi-faceted and may involve third parties like Marvell.” Thus the jury was not asked to find a breach “based on the Marvell evidence alone” and “Microsoft presented so much evidence with respect to opening offers, injunctive relief, and Motorola’s overall course of conduct” that the jury could find a breach “without considering any Marvell evidence at all.”
Judge Robart also rejected Motorola’s challenges as to the damages award.