In the build-up to next month's FRAND contract trial in Seattle, Microsoft and wholly-owned Google subsidiary Motorola Mobility have brought motions in limine (motions to exclude testimony), which have significant overlaps with the parties' pending Daubert motions (on which I commented last month), as well as their proposed findings of fact and conclusions of law. The parties filed more than 300 pages late on Thursday. For everyone following this FRAND dispute in detail, those pleadings are the richest sources of information available to date about the issues in this case.
The objective of the upcoming trial is to determine a FRAND royalty rate for a Microsoft license to Motorola's patents essential to the H.264 (video codec) and IEEE 802.11 (WiFi, or WLAN) standards. Ten days ago the United States Court of Appeals for the Ninth Circuit ruled against a Motorola appeal against a U.S. injunction that protects Microsoft from abusive enforcement in Germany, and issued a ringing endorsement of Judge James L. Robart's course of action.
Motorola continues to defend its original royalty demands (2.25% of price of relevant end product). Microsoft argues that pool rates covering many other patents relevant to these standards (in the case of H.264, MPEG LA actually serves as a one-stop shop for most of the essential rights) are a far better indication of what a FRAND rate should be. Since the parties haven't been able to agree yet, the court will have to look at objective indications of the fair market value of Motorola's patents. Microsoft's reasoning is absolutely consistent with Judge Posner's take: a FRAND rate must reflect the pre-standardization intrinsic value of the patented inventions, not the post-standardization hold-up value. While Motorola would like to blur this distinction, it knows that it cannot avoid the debate over the intrinsic commercial value of the innovations claimed by its H.264 and IEEE 802.11 declared-essential patents.
In connection with Motorola's H.264 patents there's one huge problem that's quite easy to understand: all or almost all of Motorola's H.264 patents relate to interlaced video, while the videos that are commercially relevant to Microsoft's various H.264-compatible products are typically transmitted progressively. "Interlaced video" (see Wikipedia) means that a picture is divided into "even" and "odd" lines. It's a very old technique harking back to the early stages of analog television. "Progressive" means that data is transmitted line by line, which is how digital video content is usually delivered today. The minimal relevance of interlaced video to Microsoft's products obviously has a bearing on what a reasonable royalty rate should be. Basically, Microsoft just has to implement the related techniques for no other purpose than to conform to the standard, but if it weren't for the specifications of the standard, there would be little or no reason for Microsoft to license Motorola's interlaced-video techniques.
Motorola tries to argue that interlaced video is still commercially very relevant in the Internet age. According to Microsoft's proposed findings of fact, one of the examples of interlaced video content that Google's Motorola Mobility presented to the United States District Court for the Western District of Washington is a pirated Katy Perry video (click on the image to enlarge or read the text below the image):
"507. Motorola identified five examples of alleged interlaced video content sourced from the Internet. Two of those examples do not utilize interlaced video at all. And the other three sources are not commercially significant to Microsoft. Motorola's first example ('the Katy Perry video') was a video that was not originally sourced from the Internet but pirated from British television and placed onto an illegal file sharing website."
This is interesting in two ways. First, it shows that Motorola is really hard-pressed to find video content of commercial relevance that is distributed in an interlaced format over the Internet. Second, it's funny that a Google subsidiary would show a pirated video to a court. Some of the positions it voices on intellectual property policy undoubtedly make Google the Pirate Party among large IT companies. And it operates YouTube, which I'm sure was not the source of the video since YouTube is not an "illegal file sharing website", but which is undoubtedly the most popular repository of unlicensed video content. Google generally likes to push the envelope with respect to third-party rights. On the copyright front, that has worked very well for Google. Katy Perry probably won't sue it for the use of that pirated video in a FRAND lawsuit. If she sued, Google would certainly argue that this is "fair use", and it might get away with it. But in the patent arena, Google has too many problems on its plate. "Fair use" doesn't apply to patents, but at least there is a concept called FRAND in connection with standard-essential patents. Next month's FRAND trials (the Microsoft case in the Western District of Washington and the Apple case in the Western District of Washington) may help to ensure that Google honors the promises and obligations it acquired along with Motorola Mobility.
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