Unless Microsoft and Google can agree on a patent cross-license during the next five months, the terms of a license agreement under which Microsoft will be entitled to use, on a worldwide basis, Motorola Mobility's patents essential to the H.264 (video codec) and IEEE 802.11 (WiFi, or WLAN) industry standards will be set at a trial scheduled to commence on November 19, 2012 in the Western District of Washington.
On March 30, 2012, both parties brought motions for partial summary judgment. Microsoft asked the court to determine that Motorola breached its FRAND-related contractual obligations in 2010 when it made offers that Microsoft alleges to have been "blatantly unreasonable". Motorola moved for a determination that Microsoft "repudiated" its rights to a FRAND license by bringing this FRAND enforcement lawsuit instead of previously entering into further negotiations with Motorola.
At a motion hearing on May 7, 2012, Judge James L. Robart lashed out at both parties: "The court is well aware it is being used as a pawn in a global, industry-wide business negotiation." He also indicated a strong inclination to deny both motions for partial summary judgment. Today Judge Robart filed a 28-page decision that explains his reasoning very well.
My interpretation of the order is that Judge Robart's disagreement with Motorola is of a more substantive nature than with Microsoft. Motorola's motion failed because its FRAND agreements with the relevant standard-setting organizations (the ITU and the IEEE) couldn't possibly be interpreted as being conditioned upon Microsoft applying for, or negotiating, a license prior to filing a lawsuit over a disagreement on what the patent holder's FRAND obligations are. In particular, the relevant FRAND commitments lack words that suggest a conditional intent (such as "provided that", "on condition", "as soon as", etc.). Those circumstances won't change between now and the November trial. By contrast, Microsoft's motion was denied for the most part only because Judge Robart determined that the issues it raised weren't ripe. While Microsoft had argued that Motorola's royalty demands were blatantly unreasonable to an extent that no reasonable finder of fact could conclude otherwise, the judge believes there are genuine issues of material fact, i.e., issues that a jury needs to establish. Also, rather than declare Motorola's royalty demand "blatantly unreasonable" at this stage and have a jury set a FRAND rate at trial time, Judge Robart wants the FRAND rate to be determined first in order to then compare Motorola's demand to that rate.
Administrative Law Judge David Shaw at the ITC actually made a determination of unreasonableness, on those same Motorola demands, without firstly determining a FRAND rate. He concluded from the evidence that "Motorola was not interested in good faith negotiations and in extending a [F]RAND license" to Microsoft, and that Microsoft couldn't possibly have accepted those terms. But the ITC is not a district court. In an ITC investigation, the ALJ -- not a jury -- is the finder of fact. An ITC trial is a bench trial before an ALJ. And the initial determinations of the ALJs are recommendations rather than final decisions: the actual rulings are made by the Commission, the six-member decision-making body at the top of the ITC. That's why a post-hearing initial determination by an ITC judge is made under circumstances that are fundamentally different from the parameters under which a federal judge at a district court rules on a summary judgment motion. Therefore, there's no indication of inconsistency.
By the way, the modus operandi of antitrust regulators is much closer to that of the ITC than that of a district court. The fact that Judge Robart was hesitant to make certain determinations without a jury doesn't mean anything for the ability of regulatory agencies to take a position on the same kind of issue.
Between the motion hearing and today's decision, Judge Robart converted a temporary restraining order into a preliminary injunction (PIs can last longer than TROs), barring Motorola for the remainder of this FRAND enforcement litigation from enforcing a German H.264 patent injunction against Microsoft. Motorola has appealed this injunction, but I guess it won't get it lifted before the November trial. If Motorola's motion for partial summary judgment had succeeded, the preliminary injunction would probably have gone away, while the failure of Microsoft's motion merely means that it can't get a certain decision now but will ultimately get a license agreement as a result of the trial.
Before the November trial, Microsoft may still be able to do away with some of the evidence Motorola presented in order to claim that its 2.25% demand "was in fact reasonable [F]RAND". Judge Robart's order mentions that Motorola listed approximately 50 license agreements. I don't know that list, nor do I know what Motorola presented to the ITC, but chances are that ALJ Shaw, who concluded that none of the license agreements presented to him supported Motorola's claim, received the same evidence. Again, the difference is that ALJ Shaw is, in a way, his own jury, while Judge Robart wanted to take a conservative approach to this and not prejudge an issue that he felt has to go to trial. But his order notes that Microsoft will be free to bring motions in limine (motions to exclude misleading trial evidence) against any of those license agreements between Motorola and other parties.:
"Although Microsoft asserts that these license agreements are not relevant (and not admissible evidence) with respect to any RAND obligations Motorola has with respect to Microsoft, the court concludes that a determination of the relevance of Motorola's prior license agreements is inherently fact intensive, more appropriate as a motion in limine, and cannot be decided at this time."
Note the last three words: "at this time." This denial is not a "no". It's a "not yet".
As far as the contractual situation between Motorola and the standard-setting organizations is concerned, Judge Robart dismissed a claim made by Motorola at the May 7, 2012 hearing (in contradiction to its earlier representations) that there was no such agreement (with Microsoft as a third-party beneficiary) in place. Judge Robart restated and reinforced his earlier decisions on some of those legal issues. In other words, while Microsoft hasn't made the kind of additional progress it hoped to make, Motorola hasn't persuaded Judge Robart to reconsider any of the positions he previously took. There's only one subissue on which Judge Robart agrees with Motorola to a certain degree: "[b]ecause the IEEE and the ITU agreements anticipate that the parties will negotiate towards a [F]RAND license, it logically does not follow that initial offers must be on [F]RAND terms." Judge Robart concludes that "Motorola need not make initial offers on [F]RAND terms". But this isn't really a problem for Microsoft because a "blatantly unreasonable" offer would still be considered abusive:
"Such behavior would frustrate the purpose behind the agreements by allowing the standard essential patent owner to abuse its power as a standard essential patent holder and extract higher than reasonable royalty rates (or, at a minimum, royalty rates consistently on the high range of RAND terms). Thus, although the language of Motorola's agreements do not require it to make offers on RAND terms, any offer by Motorola (be it an initial offer or an offer during a back-and-forth negotiation) must comport with the implied duty of good faith and fair dealing inherent in every contract."
I have no doubt that Judge Robart is as committed as always to the objective of giving FRAND a meaning. And he expects both parties to do what's needed to get there. His order reiterates that Microsoft, which stated its willingness to take a license on FRAND terms at a much earlier point in this litigation than Motorola claimed in a public statement in April, will be expected to honor its commitment to take such a license (the only disagreement being on what the terms should be).
Presumably the court would prefer the parties to work things out so that the November trial doesn't have to happen. But if it has to be held, the concept of FRAND licensing will prevail.
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