In the aftermath of Apple's resounding U.S. court victory over Samsung, analysts again ask the question whether its acquisition of Motorola Mobility has enabled Google to protect Android against patent assertions -- and the consensus answer to this question is "no". I expressed serious doubts (to say the least) about that deal from the day of its announcement. Many people were impressed by the sheer size of Motorola Mobility's portfolio, but leverage, as opposed to size, is the right measure.
Motorola placed particular hopes on one jurisdiction: Germany, a country in which a finding of infringement automatically results in an injunction, the only exception being standard-essential patents, to which certain German courts apply the Orange-Book-Standard framework. The Orange-Book-Standard line is that an implementer of an industry standard seeking to avoid an injunction over a patent essential to the relevant standard must make an offer to take a license on terms that the patent holder cannot refuse without flagrantly violating antitrust law.
In a filing made late on Monday (August 27, 2012) with the United States District Court for the Southern District of California, the Google subsidiary has now confirmed the recent conclusion of a standard-essential patent license agreement with Apple. Under the agreement, Apple is now licensed to use some if not all of Motorola's standard-essential patents in Germany, though the parties have not yet agreed on a FRAND royalty rate, which will ultimately have to be set by German courts unless they agree on a rate prior to its judicial determination.
This is a very significant development because it means that Motorola Mobility will have to rely on non-standard-essential patents in its efforts to gain leverage over Apple. It is enforcing one such patent (one that covers push email notifications). With standard-essential patents, it appears that the only thing Google (Motorola) can do now against Apple in Germany is to push for as high a royalty rate as possible, but even in a hypothetical worst-case scenario to Apple, the limit will be the 2.25% rate that Motorola has been demanding for a long time.
It is not known when this German license agreement came into being. German courts do not make documents available. In a few cases they publish redacted versions of rulings, but generally, the only way to find out about what's happening is to attend court hearings ( including trials) and the judges' announcements of their decisions. Oddly, while I live in Germany, it's much easier and especially much more efficient for me to follow U.S. lawsuits thanks to electronic access to documents, and sometimes I find out from U.S. documents about developments in Germany (such as in this case), or hear things at German court hearings that I wouldn't otherwise find out about U.S. cases. Transatlantic access to information gives my blog a unique advantage over other reporters and analysts.
Most likely, this Motorola-Apple license agreement at a FRAND rate left to be determined by the courts was concluded during this month of August. Here's what the parties said about Apple's offer and Motorola's acceptance. First, Apple's second amended antisuit complaint against Motorola Mobility of August 3, 2012, said the following about Apple's Orange-Book-style offer:
"48. Apple has made an offer to license Motorola's declared cellular standards-essential patents from Motorola for the purpose of selling products in Germany. In light of Motorola's obligation to license these patents on FRAND terms, the Higher Regional Court of Karlsruhe has determined that Motorola must accept Apple's licensing terms or be in violation of German antitrust law. Accordingly, given the requirements of German law and the ruling of the Higher Regional Court of Karlsruhe, the question of liability is no longer an issue in Germany, although the parties will continue to litigate the amount of damages Apple must pay Motorola for the past infringement Motorola alleges and the amount of a FRAND license."
The appeals court ruling Apple referred to came down in late February and granted Apple a suspension of Motorola's enforcement of an injunction over a standard-essential patent that had temporarily resulted in the removal of certain Apple products from its German online store. At the time, I also wrote that Motorola would have to accept Apple's FRAND licensing offer to avoid a continuing antitrust violation. But Apple's early-August filing didn't state that Motorola had actually accepted Apple's offer. Under German law, an agreement is formed by an offer and an acceptance. The offer had been reviewed and approved by a court, but not accepted by Motorola.
In yesterday's answer to Apple's second amended antisuit complaint, Motorola has now officially confirmed its acceptance of Apple's offer, and, therefore, the conclusion of a license agreement:
"48. Motorola admits that Apple has made offers to license Motorola's declared cellular standards-essential patents. Motorola is without sufficient information to form a belief as to the truth or falsity of the remaining allegations of the first sentence in Paragraph 28 and therefore denies same. The Higher Regional Court of Karlsruhe has not made a final determination regarding whether Apple's FRAND offer is valid, an allegation that has been mooted by Motorola's acceptance of the offer after Apple admitted liability for past damages for infringement [emphasis mine], and on those bases, Motorola denies the allegations of the second sentence of Paragraph 48. Motorola admits that the question of liability is no longer an issue in Germany because Apple has voluntarily acknowledged its liability for past damages even though this issue is pending before the Karlsruhe appellate court regarding [Apple Sales International]'s liability for infringement of the '336 patent. Motorola admits that the parties will continue to litigate in the future the amount of damages Apple must pay Motorola for the past infringement and the amount of a FRAND license. Motorola denies the remaining allegations of Paragraph 48."
The emphasized part above leaves no doubt: they have a deal, albeit a deal without a royalty rate for now.
It appears that Google (Motorola) cracked under pressure. The Karlsruhe Higher Regional Court had only made a summary and non-final determination that Motorola's refusal of Apple's offer was an antitrust violation, but Google (Motorola) didn't want to take its chances. The German courts would have let Google (Motorola) continue to refuse to accept the offer, but at some point, Apple could then have sought damages for an antitrust violation.
One important factor here is that Google's Motorola is being formally investigated by the European Commission over suspected abuse of standard-essential patents against Apple and Microsoft. I don't know whether the EU's top competition enforcer strongly recommended to Google (Motorola) to accept the offer, but there can be no doubt that Brussels was paying close attention to the German situation and that Google (Motorola) took this fact into account.
The scope of this license agreement may be limited to "cellular standards-essential patents" (based on Motorola's answer to Apple's complaint) and not include WiFi and/or H.264 video codec patents. But at any rate, Apple now knows what kind of offer it has to make to get a license to any other standard-essential Motorola patents without having to grant a license to Google (Motorola) to a single non-standard-essential Apple patent. Apple will be happy to pay FRAND royalties as long as it can pursue differentiation. Why did Google just pay $12.5 billion?
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