On Monday Judge James L. Robart will hold a Microsoft v. Motorola hearing to discuss with parties' counsel the bearing of a grant-back clause in Google's (i.e., Motorola's parent company's) patent license agreement with pool firm MPEG LA. If the entire Google group is found to have a grant-back obligation at the equivalent of the pool rate, a royalty demand that originally amounted to billions of dollars per year would be contracted to a few hundred thousand dollars. On Wednesday Microsoft submitted a declaration of MPEG LA chief executive Larry Horn that supports its related theory; Google submitted a declaration by one of its lawyers but apparently couldn't find anyone involved with MPEG LA and the contributors to its AVC/H.264 pool to support the claim that the grant-back clause is meaningless.
On Friday Microsoft submitted an additional declaration that shows how the grant-back clause in the MPEG LA AVC/H.264 license agreement evolved during the first quarter of 2004. The related emails already formed part of the evidentiary record but Microsoft's declaration now draws the court's attention to those documents and, as a side effect, enables the rest of us to see how the key passage "and its Affiliates, if any," was added -- and such additions always have a purpose. The license agreement explicitly defines "Affiliates" as including companies acquired after the date of the agreement.
What lends even more significance to the evolution of the clause is the fact that the recipients of those draft contracts included an executive of General Instrument Corporation, then a wholly-owned Motorola subsidiary and now a wholly-owned Google subsidiary. Motorola/GI walked out on the deal, but at any rate, today's Google-Motorola group as a whole knew exactly what reciprocal-licensing obligations it entered into because of Google's conclusion of a license agreement with MPEG LA and its subsequent acquisition of General Instrument as part of Motorola. If Google doesn't like the effects of the grant-back clause now, it should probably blame those who conducted due diligence on the Motorola acquisition: they should have checked on whether any of Google's existing agreements were going to be affected by the merger.
Knowing that the upcoming FRAND rate-setting decision in Seattle is going to be one of the key events in this year's patent-related disputes (this will be the first time, at least in a high-profile case, for a federal court to set a FRAND rate), I try to ensure that those researching the matter have access to the most important facts, including the key parts of what Microsoft filed yesterday.
Here's the header of a January 22, 2004 email by MPEG LA's Larry Horn to the AVCGroup mailing list (click on the image to enlarge):
And here's the grant-back clause in the draft license that was attached to that email (click on the image to enlarge or read the text below the image):
8.3 Licensee Grant. Upon full execution of this Agreement, Licensee agrees to grant a worldwide, nonexclusive license and/or sublicense (commensurate to the scope of the licenses which Licensee has selected hereunder) under any and all AVC Essential Patent(s) that Licensee has the right to license and/or sublicense, to any Licensor or any sublicensee of the Licensing Administrator desiring such a license and/or sublicense on fair and reasonable terms and conditions. For purposes of this Section 8.3 only, the Licensors' per patent share of royalties which are payable pursuant to Article 3 of this Agreement shall be presumed to be a fair and reasonable royalty rate for the aforementioned license and/or sublicense to be granted by the Licensee.
At that stage, there was no reference to Affiliates, as you can see above. But this changed over the next couple of months. Here's the header of an email from MPEG LA's Larry Horn to the AVCGroup mailing list, dated March 26, 2004 (click on the image to enlarge):
The purpose of that email was to send out a redlined (i.e., edits were marked up) version the "final draft" he sent out to the prospective contributors. And this is where, finally, "and its Affiliates, if any," was added to the grant-back clause (there had been a version in between the January 22 and March 26 drafts that said "or" instead of "and"). Here's the grant-back clause (click on the image to enlarge or read the text below the image):
8.3 Licensee Grant. Upon full execution of this Agreement, Licensee agrees to grant a worldwide, nonexclusive license and/or sublicense (commensurate to the scope of the licenses which Licensee has selected hereunder) under any and all AVC Essential Patent(s) that Licensee <
or>and its Affiliates, if any, ha<s>ve the right to license and/or sublicense, to any Licensor or any sublicensee of the Licensing Administrator desiring such a license and/or sublicense on fair and reasonable terms and conditions. For purposes of this Section 8.3 only, the Licensor's per patent share of royalties which are payable pursuant to Article 3 of this Agreement shall be presumed to be a fair and [...]
I hope some Seattle-based reporters will find the time to attend the Monday hearing and report.
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