As I already mentioned in my previous post, Microsoft and Google's Motorola filed various reply briefs yesterday relating to summary judgment and Daubert motions ahead of the breach-of-FRAND-contract trial scheduled to start on August 26 in Seattle. Microsoft's motion primarily seeks to have the court find, without having to put this question before a jury, Motorola to have breached its FRAND contract through an exorbitant initial royalty demand ($4 billion per year) and ultimatum. According to Microsoft, there can be no question about the excessiveness of the initial demand, which it compares to demanding $54 million for a run-of-the-mill Ford Taurus. Should Microsoft win this partial summary judgment, the jury would just have to award damages. Microsoft's motion also targets some of Motorola's defenses and counterclaims, and has already succeeded: the Google subsidiary has already dropped one counterclaim and three affirmative defenses (though some of these theories are preserved for an appeal).
Microsoft's reply brief in support of partial summary judgment contains an interesting revelation concerning the state of affairs between these parties in Germany. Footnote 1 begins with this statement:
"Motorola's disregard for the Court's [F]RAND royalty determination is on full display in Germany, where instead of simply accepting the Court's [F]RAND royalty findings and the payments Microsoft tendered as a result, Motorola has now moved for an accounting of past damages for two H.264 patents subject to the Court-determined worldwide [F]RAND royalty."
The U.S. court's FRAND rate-setting decision was meant to put the worldwide dispute over royalties to rest. Back in October 2010 Motorola had sent demand letters from its headquarters in Illinois to Microsoft's HQ in Washington State, and listed various patents including the German H.264 patents-in-suit. Then Microsoft brought the FRAND contract case in the Western District of Washington. But Google apparently doesn't believe that the Seattle court should set a worldwide rate that also applies to damages for past infringement. This is similar to Google's tactics vis-à-vis Apple: while Apple is still fighting for a worldwide FRAND determination by a U.S. court, Google's Motorola asked the Mannheim Regional Court for such a determination. At a rate-setting trial held in Mannheim on June 21, however, the world's most experienced court with respect to smartphone patents arrived independently at a methodology that appeared rather consistent with that of Judge James Robart in the Microsoft v. Motorola case, and indicated that Google's 2.25% royalty demand is hardly the right number.
The Mannheim court probably won't make a royalty rate determination in the Motorola v. Apple case (over wireless SEPs) until there's clarity concerning the European Commission's application of EU antitrust law to Motorola's conduct in that dispute. In May 2013 the European Commission issued a Statement of Objections (SO), a preliminary antitrust ruling finding the wholly-owned Google subsidiary guilty of antitrust violations by coercing Apple, at the threat of injunctive relief, into a deal on un-FRAND-ly terms including that Apple had to give up key defenses (non-infringement, invalidity, patent exhaustion). German courts including but not limited to the Mannheim court have in recent years considered it reasonable for a SEP holder to impose terms that the European Commission views skeptically at this stage.
The European Commission is also investigating Motorola's enforcement of SEPs against Microsoft in Europe. An SO hasn't issued yet, but this could happen anytime between now and a trial on Motorola's forthcoming SEP damages claim against Microsoft in Germany. Depending on the content of the SO, this could also give rise to a stay pending EU proeedings. EU antitrust law trumps national competition rules.
Even without a European Commission SO against Motorola Mobility's use of SEPs against Microsoft, a German damages case could be stayed because the Commission's official statement on the Motorola-Apple situation stresses that defendants must be allowed to challenge the validity of SEPs-in-suit, a defense that Microsoft was obligated by the court and Motorola to drop in the H.264 dispute with Motorola in Germany. But by the time a forthcoming Motorola v. Microsoft SEP damages lawsuit goes to trial in Germany, the European Commission may already have issued a final ruling (which could then be reviewed by the Court of Justice of the EU) on the Motorola-Apple case.
Here's the procedural status of the German proceedings. In May 2012 Motorola won four cases (over two H.264 patents, with different Microsoft entities being the defendants, thus two cases per patent) in Mannheim (Microsoft appealed the Mannheim rulings to the Karlsruhe Higher Regional Court, which has scheduled the related appellate hearings for September 11 and October 9, 2013). The May 2012 Mannheim decision did not award a particular damages amount. Besides ordering an injunction (which Google never got to enforce) the court also declared that Motorola is entitled to damages and, in order to calculate a damages claim, to an accounting (Microsoft would have to provide sales data concerning the products found infringing). This is the way it's done in most German patent cases: the focus is initially on an injunction and on a finding of an entitlement to damages, as opposed to an immediate demand for a particular amount of damages. A damages claim is then developed on the basis of an accounting. There's no U.S.-style discovery in German lawsuits, so you firstly need to prevail on liability in order to be able to force someone to provide you with sales data.
On July 1, 2013, nine days after the FRAND royalty trial in Mannheim that didn't go too well for Motorola, Quinn Emanuel, the firm representing Google in the dispute with Microsoft, sent a letter to Microsoft's counsel at Freshfields Bruckhaus Deringer, demanding sales data with an August 15, 2013 deadline (this post continues below the document):
13-07-01 Google Letter Re. Accounting of Damages in German Microsoft FRAND Case
Here's my translation of the body of the letter:
"In the above-referenced matter we transmit in the attachment a bond issued by Citigroup Global Markets Deutschland AG as security for the enforcement we are seeking now of [the sales data-related remedy] ordered by the Mannheim Regional Court on May 2, 2012.
Furthermore we transmit, for purposes of enforcement, certified copies of the enforceable copy of the aforementioned ruling as well as [certified copies] of the documents underlying the enforcement clause.
For providing the complete accounting we give your client until August 15, 2013."
While this looks like the normal course of business in a German patent infringement case, it's not under the circumstances of this dispute, in light of the worldwide FRAND royalty determination made by Judge Robart in Seattle.
Also, in most cases of this kind a patent holder would await the appellate decisions or at least the appellate hearings, which will take place rather soon. But Google is clearly in a hurry and it wants to prepare its damages lawsuit anyway, just so it can file the damages action at the earliest opportunity. It doesn't have to wait for the appeals court. It can ask for an accounting anytime based on the lower court's decision, and it can also bring a new damages lawsuit anytime. But some or all of this effort -- most of which is actually a burden on Microsoft -- could turn out in a few months' time to have been a total waste.
I agree with Microsoft that this behavior disregards the U.S. proceedings, which started about eight months before Motorola ever brought an infringement case against Microsoft in Germany. In addition, I wonder how the European Commission is going to view this. It now knows that Google is pressing on with a damages claim that raises serious antitrust issues because Microsoft was anticompetitively deprived of its invalidity defense. And Google saw only nine days before this letter that German courts, including Google's preferred German court (the Mannheim Regional Court), are sophisticated enough to reject out-of-this-world demands.
Google can try to run from Judge Robart's court, but his FRAND valuation approach makes sense in other jurisdictions, too. Other courts aren't formally bound by his rate-setting decision, but it has persuasive power. He recently spoke at a patent law conference in Munich on "calculating damages in patent infringement cases" (alongside several well-known patent judges from Europe and Asia), and Managing Intellectual Property (ManagingIP) magazine named him (like European Commission Vice President Joaquín Almunia, and also yours truly, just by the way) to its latest list of the "50 people shaping the future of IP".
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