A week before the Federal Circuit's appellate hearing on Judge Posner's Apple v. Motorola ruling, which is the first high-profile FRAND appeal, the Western District of Washington once again makes a major contribution to the development of case law concerning standard-essential patents (SEPs). A federal jury in Seattle has already rendered a verdict on the Microsoft v. Motorola breach-of-FRAND pledge questions, and Microsoft has won again. The verdict form hasn't been published yet, but the minute entry on the docket states the basic outcome and shows that this was a clear case the jury was able to agree on after only three and a half hours of deliberations:
"1:20 p.m. -- The jury begins deliberations. 4:48 p.m. -- The jury reaches a verdict. The jury finds in favor of Microsoft. The jury polled, thanked and excused."
Freelance journalist Curtis Cartier, covering the trial for MLex, reported on Twitter that the damages award is $14.5 million. That's roughly half of Microsoft's damages claim, which consisted of $23 million in damages for the cost of relocating its European logistics facility last year in order to mitigate the impact of an improperly-pursued German injunction and $6 million in attorneys' fees specifically attributable to the need to defend against injunction requests. But the key thing here is not the exact amount of damages -- I already wrote last week that "[e]ven if Microsoft prevailed 100%, the amount wouldn't be a threat to cash-rich Google". It's that the wholly-owned, micromanaged Google subsidiary, whose misconduct continued even after the acquisition by Google was formally completed in May 2012 (i.e., more than 15 months ago), has been held liable for reneging on its FRAND licensing pledge relating to IEEE 802.11 (WiFi) and H.264 (video codec) SEPs. It's now an established fact that Google acquired a company that broke a promise before and after the closing of the acquisition.
This was Microsoft's third key victory in this case and concluded the second trial in this landmark FRAND contract case. A first trial -- a bench trial, i.e., without a jury -- was held in November 2012 in order to determine a FRAND rate (a point as well as a range of FRAND rates). In April, Judge James Robart issued a 207-page rate-setting opinion, which due to the very limited value Motorola's SEPs add to the relevant standards in general and Microsoft's products in particular came down to less than one-twentieth of a percent of Motorola's original demand, which was tantamount to (in a conservative estimate) $4 billion a year. I said it was Microsoft's third key victory in this case alone (on a worldwide basis it's also scored multiple wins over Google/Motorola) because prior to the rate-setting opinion in April and the breach verdict today, the court had barred Motorola from enforcing a German injunction over H.264 SEPs, a decision that the United States Court of Appeals for the Ninth Circuit upheld.
Today's jury verdict is the only logical outcome considering the facts. Even though Judge Robart gave Google the chance to defend Motorola's conduct in a variety of ways, including an "empty head, pure heart" defense that the jury rejected, it would have been very hard to imagine that a jury would find a crippling $4 billion demand to have been made in good faith when a reasonable royalty was but a tiny, almost negligible fraction of that amount. The jury was informed of the royalty rates the court deemed FRAND, which according to a Microsoft pre-trial motion meant that Motorola had demanded the equivalent of $54 million for a standard Ford Taurus.
Before the trial even began, I questioned the need to hold one at all because it's hard to think of a clearer case and Google had enough guidance already to understand that it was on the losing track. In that post I described the schizophrenic nature of Google's approach to patents: on the one hand, it lobbies against software patents and opposes meaningful remedies for infringement of non-SEPS, while on the other hand it continued Motorola's abuse of SEPs. Just this week it also became known that Google behaves like a total patent troll in connection with a Motorola zombie patent on push notifications it enforced against Apple in Germany for more than 18 months. Google's position appears to be that its own patents have unlimited value and power, while everyone else's patents impede innovation.
After the jury verdict, there will now be some post-trial motions, but the most likely outcome in district court is that Judge Robart won't overrule the jury. (Microsoft would have been comfortable with the more efficient solution of another bench trial, but the judge granted Google's wish to put this case before a jury.) Then there will be a final judgment, from which Google will appeal. And last time it appealed a ruling out of Judge Robart's court, it failed completely, as I mentioned above.
Holders of FRAND-pledged SEPs now see that broken promises can backfire. Even though Google can easily afford this in financial terms, the legal impact of this outcome is very significant. Having been found to have breached its FRAND licensing commitment, Google's Motorola faces an uphill battle in the further dispute. Microsoft was entitled to a license on truly FRAND terms anyway, but the breach finding makes Google's Motorola look a lot worse.
Microsoft and Google/Motorola will square off in court again next week. In fact, there are two different appellate hearings, in two different cities, scheduled in Germany. Next Wednesday (September 11), the Karlsruhe Higher Regional Court will hold a hearing on Microsoft's appeal of two of the four German SEP injunctions (Motorola asserted two patents against two sets of Microsoft legal entities, resulting in technically four cases) Motorola won last year, which I called "FRAND abuse" in the headline of my post, an assessment that has been validated by judges, juries and regulators. I'm sure that the breach finding will come up in that hearing. The following day there will be a hearing on a case in which Microsoft is asserting a non-SEP against Motorola in Munich.
It would be appropriate for Google to finally withdraw those German cases because everything can and will be resolved in the United States, the jurisdiction in which the dispute was well underway by the time the German actions were filed and within which (in a letter from the Chicago area to the Seattle area) Motorola communicated a royalty demand to Microsoft covering its worldwide H.264 and IEEE 802.11 SEP portfolios including the H.264 SEPs at issue in Germany. But just this summer Google filed another German lawsuit against Microsoft, seeking to collect royalties for past infringement of those H.264 SEPs, and it's preparing a damages lawsuit as well. Those additional German lawsuits are even less necessary than the jury trial in Seattle was. But Google appears to prefer litigation over licensing, a difference in IP philosophies I also noted earlier this week when I compared the litigation-avoiding, cost-reducing structure of the Microsoft-Nokia transaction to the intentions behind the Google-Motorola deal. I think the parties could settle now, but I don't see any indication that that's what Google wants to do.
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