Just when many people thought the "smartphone patent wars" between major players were slowly but surely winding down (part of which was just a misconception because appellate proceedings are lower-key than proceedings in the first instance), a filing with a U.S. court reveals that Google has filed a new lawsuit in Mannheim, Germany, against Microsoft. The complaint was apparently served on Microsoft on July 31, 2013, which has until August 21 to declare its intent to defend itself. The revelation on Thursday contrasts oddly with the announcement Google made on the same day concerning a patent pledge.
The new German filing is not an infringement action over new patents but represents a major escalation of four previous Motorola v. Microsoft lawsuits over patents declared essential to the H.264 video codec standard. In May 2012, the Mannheim Regional Court had held Microsoft to infringe two Motorola H.264 declared-essential patents (one of which has expired since). After showing you Microsoft's letter to Judge Robart concerning the new developments I'll go into more detail on the procedural background of the latest Google-Microsoft litigation. Prior to that I'd like to note two things:
The timing of the new lawsuit -- a few weeks before a breach-of-FRAND-contract jury trial (scheduled to begin on August 26) -- is a clear message that Google remains opposed to the idea of having its worldwide SEP issues with Microsoft resolved in the United States. And, what's relevant to other (current and future) disputes as well, this new tactic of focusing on out-of-this-world monetary compensation (instead of sales and import bans) shows to me that antitrust regulators around the globe won't be able to defend FRAND unless they investigate (and, wherever necessary, penalize) other forms of abuse than the anticompetitive pursuit of injunctive relief. The abusers are unrepentant and resilient, which requires enforcers to adapt. Microsoft's letter describes Motorola's latest German lawsuit and its ongoing preparation of a damages claim as "ongoing efforts in Germany to undercut the jurisdiction of [Judge Robart's court]". I believe it's also an attempted end run around the European Commission's competition enforcement.
Here's Microsoft's letter (further below I'll quote and comment on certain passages):
13-08-08 Microsoft Letter Re. New Google Lawsuit in Germany
The very first sentence of the letter is a good starting point:
"We write to seek the Court's permission to file a motion asking the Court to renew and expand its anti-suit injunction to curtail Motorola's ongoing efforts in Germany to undercut the jurisdiction of this Court and to attempt to procure inconsistent rulings."
This is a motion for leave to bring a motion. The anti-suit injunction Microsoft would like renewed and expanded was ordered last year to prevent enforcement of German H.264 SEP injunctions, affirmed by the Ninth Circuit, and replaced in November 2012 with a summary judgment ruling. The anti-suit injunction and the summary judgment ruling focused on injunctive relief, but arguably it's also inconsistent with their spirit to press on with foreign litigation over monetary relief instead of having the dispute resolved in the United States. The U.S. dispute started long before any German filings and had worldwide scope from the beginning because Motorola had sent demand letters to Microsoft (from one U.S. company to another) referring to worldwide SEP licenses and even specifically listing the patents at issue in Germany.
It's obvious that Google fundamentally disagrees with Judge Robart's FRAND rate-setting opinion. It was awarded less than one-twentieth of a percent of Motorola's original demand. As Microsoft's latest letter says, Motorola continues to refuse payments from Microsoft on the basis of that determination (related posts: release of $100 million bond, refusal to accept $7 million payment). Even before the rate-setting decision was handed down, Motorola was trying to obstruct the process in Seattle. Judge Robart once said that "Motorola's approach to this litigation [...] is to delay at all possible costs and to back-track if they can get away with it". None of this is necessarily illegitimate per se. Parties can dislike certain lawsuits; they can disagree with certain courts. But there's a right way and a wrong way to deal with this. The right way is to exhaust all appeals. That's part of what Google is going to do unless the parties settle. But in parallel it's trying to "procure inconsistent rulings", hoping that the Mannheim Regional Court will order Microsoft to pay a FRAND royalty more favorable to its interests than what Judge Robart has determined. And that's the wrong way because it was Motorola's own course of action (demand letters sent within the U.S., covering a worldwide portfolio) that has given the U.S. court jurisdiction over remedies relating to ex-U.S. patents.
It's not a given that a German ruling would be materially better for Google than the U.S. decision. At a rate-setting trial in the dispute with Apple held in June, the Mannheim court made clear that it, too, thinks SEP holders are entitled to fair compensation for what they contributed to innovation as opposed to the value of standardization itself. But when you get only one-twentieth of a percent of your original demand, you basically have nothing to lose even in a worst-case scenario. That's why Google apparently couldn't resist the urge to carry on with litigation in Germany.
I doubt very strongly that the final decision in Germany (also including any appeals in this jurisdiction) is going to be anywhere near what Google would like to be paid. Microsoft's letter says "Motorola is seeking to collect royalties for Microsoft's German H.264 SEPs at amounts much higher than the world-wide royalty this Court has now set", which indicates that the new German lawsuit is an enforcement of the rate in Microsoft's Orange-Book-Standard offer (at the threat of injunctive relief) or some kind of rate-setting lawsuit to validate that one. Microsoft's Orange-Book-Standard offer in Germany was about ten times the pool rate, and it appears that Motorola wants to collect that one now, or have it validated as a FRAND rate, or both.
Regardless of what I think the ultimate outcome would likely be, there's value in uncertainty. Parties to major disputes are constantly in contact about the possibility of a settlement, and settlements terms are based on a probabilistic assessment of where things are heading. Motorola's patents have so far proven useless for the purpose of doing any serious damage to Microsoft's business through the pursuit of injunctive relief. So it's executing Plan B: seeking excessive compensation. With a limited body of patent damages case law in Germany (where disputes are typically resolved based on injunctions, hardly ever requiring the courts to award monetary relief), and a traditionally more patentee-friendly culture, the outcome is even less predictable. Value in uncertainty.
Should Motorola be awarded a substantially greater royalty rate in Germany than the one Judge Robart determined, it might get a Mannheim ruling just in time to show to the U.S. appeals court as persuasive authority. But this would require the Mannheim court to actually support a particular royalty rate without previously staying the case pending the resolution of an EU antitrust investigation. The Motorola-Apple rate-setting case appears rather likely to be stayed in light of the European Commission's Statement of Objections (SO), a preliminary antitrust ruling. An SO has not yet issued in the Motorola-Microsoft context, but investigations are ongoing, and if an SO issued anytime before a German contract and/or rate-setting trial, and if it also involved abusive claims for monetary relief (as opposed to being limited to injunctions), then a stay would most likely be the result.
Antitrust regulators don't like to get into rate-setting issues. They prefer for the parties to sort them out in court with expert reports and trial testimony and all that goes with it. But excessive royalty demands over SEPs are also abusive and anticompetitive. They can have just the same competition-distorting consequences (settlements on supra-FRAND terms) as the pursuit of injunctions. In most cases, the threat of an injunction will be fundamentally worse. But in some cases, the threat of a damages or royalty award in the billions of dollars can be just as terriying as the threat of products being excluded from a given market. I believe regulators have to chase down FRAND abusers all the way, at least in cases in which it's very clear that monetary claims are a huge multiple of what even a very aggressive demand by a reasonable and cooperative patent holder would be. At some point someone probably needs to be fined to set the record straight.
The German rate-setting action brought by Google against Microsoft is a contract lawsuit like Microsoft's case in Seattle, but it's not about the same contract. The Seattle case is about Microsoft's rights as a third-party beneficiary to Motorola's FRAND contract with standard-setting organizations. Microsoft is seeking to enforce that contract. Judge Robart's rate-setting opinion was a key part of that process. The German case has nothing to do with that contract. Instead, Google bases its claims on an alleged (but disputed) contract subject to the German Orange-Book-Standard procedure. For details on the parties' dispute over whether there even is such a contract in place, let me refer you to the post I just linked to.
Google's Motorola will most likely want to prevent Microsoft from even bringing a motion to renew and expand the anti-suit injunction in the U.S. so as to relate to German proceedings covering monetary relief. It disagreed and still disagrees with the U.S. court on injunctive relief, and it will say that even if one agreed with the court on injunctive relief, Motorola remains free to enforce a license agreement (even if the offer was made at the threat of injunctive relief) and/or pursue a FRAND determination, and to collect supra-FRAND damages in Germany, and that there's no irreparable harm because it's only about money.
All of this just makes the upcoming Seattle trial even more interesting.
The parties will also square off in a German appeals court soon. The Karlsruhe Higher Regional Court will hold the related appellate hearings on September 11 and October 9, 2013. Even if Microsoft prevailed on appeal, Motorola would claim that the Orange-Book-Standard contract (the existence of which is disputed by Microsoft) entitles it to royalties and damages regardless of whether there actually is liability. This, however, would be clearly irreconcilable with what the European Commission said in the context of the Apple-related SO against Motorola's conduct.
There are various interdependencies here between infringement litigation, contract litigation, and antitrust investigations. I follow all of these issues cross-jurisdictionally. I'll keep reading all of the U.S. filings and I will attend the related German trials.
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