Yesterday, Administrative Law Judge David P. Shaw issued a Notice of Initial Determination in In the Matter of Certain Audiovisual Components and Products Containing Same (No. 337-TA-837), an ITC Section 337 investigation based on an infringement complaint brought by LSI and Agere against Funai, Realtek, and Mediatek (who had previously settled out of the case).  

It’s July (and brutally hot on the East Coast), so you’ll have to excuse us if we’re moving a little slower than normal catching up on all the SEP litigation going around.  Earlier this month we posted about submissions by Microsoft and Motorola concerning the meaning of the “duty of good faith and fair dealing,” specifically as it applies in RAND-encumbered standard-essential patent licensing.  Not surprisingly, the parties followed up these briefs with dueling summary judgment motions, seeking to narrow issues or even potentially completely eliminate the need for the breach of contract jury trial set to take place next month in Seattle.  Last week, the parties also filed their respective oppositions to these motions.  You can take a look at the parties’ motions and oppositions below — and after the jump, we’ll give a brief synopsis of the arguments that each is making.

13.07.03 (D.E. 727) Microsoft Motion for Partial SJ and 13.07.15 (D.E. 758) Motorola Response to MS Partial SJ Motion

13.07.03 (D.E. 720) Motorola Motion for SJ and 13.07.12 (D.E. 740) MS Response to Motorola SJ Motion


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Later this summer, the second phase of the Microsoft v. Motorola RAND breach of contract trial will take place in Judge James L. Robart’s courtroom in Seattle, WA.  A jury will decide whether Motorola breached its SSO-related RAND licensing obligations by offering what Microsoft deems “blatantly unreasonable” licensing terms for its 802.11- and H.264-essential patents, and then following up with patent infringement suits.

In a prior summary judgment order, Judge Robart already concluded that in order to be permissible under its RAND obligations, Motorola’s license offers “must comport with the implied duty of good faith and fair dealing inherent in every contract.”  He noted that this inquiry is heavily fact-intensive, and best left to the jury to decide.  To this end, Judge Robart recently requested that both Microsoft and Motorola present background briefing on the parameters of what is required by the duty of good faith and fair dealing in contractual disputes.  This week, the parties complied with this request:

Both parties acknowledge that the issue of good faith and fair dealing is complicated — but understandably, the parties also differ quite a bit in their views on what should be considered.  After the jump, we’ll take a brief look at the filings.


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By now many of you have at least skimmed through Judge James L. Robart’s 207-page order setting RAND royalty terms for an 802.11- and H.264-essential patent license agreement between Motorola and Microsoft.  You may have noticed that there’s no table of contents (despite the opinion’s considerable length) — and who has the time to sift

As we noted yesterday, Judge James L. Robart’s groundbreaking opinion in the Microsoft v. Motorola breach of contract case was the first to set RAND licensing terms for a standard-essential patent portfolio.  While much of the focus in the media has been on the amount of RAND royalties determined by the court, it’s the methodology for determining these royalties has the potential to be truly important for future cases

To determine RAND terms in this case, Judge Robart analyzed what would occur in a hypothetical negotiation between Motorola and Microsoft for the 802.11- and H.264-essential portfolios at issue.  As in many patent-related cases, the court here used the factors outlined in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970) formed the basis for this hypothetical negotiation.  But to account for the unique considerations present in the standard-essential patent RAND licensing context, Judge Robart modified the G-P factors somewhat — noting that “the parties in a hypothetical negotiation would set RAND royalty rates by looking at the importance of the SEPs to the standard and the importance of the standard and the SEPs to the products at issue.”  After the jump, we will take a closer look at Judge Robart’s modified Georgia-Pacific approach to determining RAND royalties.
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Today, Judge James L. Robart issued the non-confidential version of his Findings of Fact and Conclusions of Law in Microsoft Corp. v. Motorola, Inc., No. 10-cv-1823 (W.D. Wash.).  This marks the first time that a U.S. court has made a determination of RAND licensing terms for a standard-essential patent portfolio license between two parties.  The order itself is 207 (!) pages long, so it will take some time to review, and multiple posts to fully digest.  But we wanted to do a short post this evening, and will follow up with a more in-depth review tomorrow.

To recap, the SEP portfolios at issue here are (1) Motorola’s patents that are claimed to be essential to the IEEE 802.11 wireless networking standard, and (2) Motorola’s patents that are claimed to be essential to the ITU-T H.264 video coding standard.  Judge Robart, in fact, determined both a specific RAND royalty rate and a RAND royalty range for these portfolios, noting that “more than one rate could conceivably be RAND.”  Here are his findings:

  • The RAND royalty rate for Motorola’s H.264 SEP portfolio is 0.555 cents per unit; the upper bound of a RAND royalty range for Motorola’s H.264 SEP portfolio is 16.389 cents per unit; and the lower bound is 0.555 cents per unit. This rate and this range are applicable to both Microsoft Windows and Xbox products. For all other Microsoft products using the H.264 Standard, the royalty rate will be the lower bound of 0.555 cents.
  • The RAND royalty rate for Motorola’s 802.11 SEP portfolio is 3.471 cents per unit; the upper bound of a RAND royalty range for Motorola’s 802.11 SEP portfolio is 19.5 cents per unit; and the lower bound is 0.8 cents per unit. This rate and range is applicable to Microsoft Xbox products. For all other Microsoft products using the 802.11 Standard, the royalty rate will be the low bound of 0.8 cents per unit.

That’s about 4 cents/unit total — and even at the upper bounds, it’s about 36 cents/unit.  From a review of the parties’ post-trial briefs (Motorola, Microsoft), these RAND royalty rates are much closer to the ones urged by Microsoft than Motorola.  And obviously, they are much lower than the 2.25% rates offered by Motorola in its initial licensing letters (which work out to about $4.50 on a $199 Xbox).  Judge Robart apparently did not find Motorola’s prior licenses (many of which involved Motorola’s cellular SEP portfolios) to be good comparables for a license between Motorola and Microsoft involving 802.11 and H.264 patents.  Instead, he appears to have based much of his determinations on rates offered by patent pools (the MPEG LA AVC/H.264 pool and the Via Licensing 802.11 pool), as well as license rates charged by chip designer ARM Holdings.

“Economic Guideposts” for assessing RAND terms

Beyond the actual RAND royalty rate determinations, this order is also important for the precedent it sets in how to determine RAND terms for a patent portfolio.  On pp.25-26, Judge Robart lays out what he terms several “economic guideposts”:

  • The level of a RAND royalty should promote adoption of the standard;
  • The methodology for determining RAND terms should recognize and mitigate both the risk of “patent hold-up” and royalty stacking (the total royalties payable if other SEP holders made the same demands);
  •  RAND royalties should guarantee the patent holder a reasonable return on its IP-related investment; and
  • RAND royalties should be interpreted to limit the patent holder to a reasonable royalty on the economic value of the patented technology itself, apart from the value associated with the patent’s incorporation into an industry standard (similar to Judge Posner’s idea of the value of the “patent qua patent”)

One interesting thing about the findings is that while the ultimate RAND royalty appears to favor Microsoft, Judge Robart seems to have sided with Motorola as to the right approach to determine RAND royalties — simulating a hypothetical, bilateral negotiation between the parties (whereas Microsoft had suggested determining RAND on the basis of an ex ante, multilateral negotiation at the time of the standard’s adoption).

We will get into the meat of Judge Robart’s analysis tomorrow — given the importance (and length) of Judge Robart’s order, it’s certainly worth multiple posts.  Stay tuned for an update tomorrow, but in the meantime, happy reading.

And if you’d like to catch up on the history of the Microsoft-Motorola case,
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Big news today in the Microsoft-Motorola RAND breach of contract dispute taking place before the U.S. District Court for the Western District of Washington.  After the November 2012 bench trial and significant post-trial briefing between the parties on a variety of issues, we finally have an order from the court.  However, we will need to

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).
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gavelIn an order issued yesterday by the U.S. District Court for the Western District of Washington (that just hit the docket this afternoon), Judge James L. Robart granted Microsoft’s long-pending motion for partial summary judgment and invalidated thirteen claims of three patents Motorola alleged as essential to the AVC/H.264 video coding standard.  Although this ruling stems from the infringement portion of the case, and the major issues between the parties involve the RAND breach of contract claims brought by Microsoft over Motorola’s entire 802.11 and H.264-essential patent portfolios, it’s possible that Judge Robart’s ruling could have some future effect on these RAND claims as well.
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