The Effect of Microsoft v. Motorola

Reproduced with permission from BNA’s Patent, Trademark & Copyright Journal, 90 PTCJ 3215, 09/18/2015.
Copyright ஽ 2015 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com
PAT E N T S
The author contends that Judge James L. Robart’s framework for determining a royalty
rate for infringement of a standard essential patent ‘‘is now on the cusp of changing the
patent litigation landscape.’’
The Effect of Microsoft v. Motorola
BY MAURICIO URIBE
T
hroughout U.S. patent law jurisprudence, a select
number of cases have made significant changes to
fundamental aspects of the process of patent litiga-
tion. Such milestone cases often eclipse the more spe-
cific details of the parties involved in the litigation, the
technology and technical industries encompassed by
the litigated patents, and even the era of the litigation.
For example, a little less than 20 years after the publi-
cation of the opinion, there is simply no patent litigation
in today’s era in which a Markman hearing1
does not
play a significant role in the strategy and execution of
patent litigation.
With the Ninth Circuit’s panel affirmance of the dis-
trict court’s judgment on July 30, 2015, Judge James L.
Robart’s opinion in Microsoft v. Motorola has the po-
tential to make a similar effect on patent litigation for
complex technology.
The First RAND Framework—Microsoft v.
Motorola
In Microsoft Corp. v. Motorola, Inc., Microsoft sued
Motorola on the basis of breach of a reasonable and
non-discriminatory (RAND) licensing commitment re-
lated to patents declared as essential to two technical
standards.2
Based solely on two licensing letters sent by
Motorola to Microsoft which included Motorola’s pro-
posed royalty rates for Microsoft to take an essential
patent license, Microsoft sued Motorola in the U.S. Dis-
trict Court for the Western District of Washington for
breach of contract. In filing the lawsuit, Microsoft al-
leged that it was entitled to enforce Motorola’s RAND
commitment to the relative standard setting organiza-
tions and that Motorola had breached its RAND com-
1
Originating from the holding in Markman v. Westview In-
struments Inc., 517 U.S. 370, 38 U.S.P.Q.2d 1461 (1996).
2
Microsoft Corp. v. Motorola, Inc., 854 F. Supp. 2d 993,
2012 BL 62310, 103 U.S.P.Q.2d 1235 (W.D. Wash. 2012) (83
PTCJ 622, 3/2/12). Motorola asserted a 2.25 percent net royalty
rate for any device implementing either the 802.11 wireless air
interface specification adopted by the Institute of Electrical
and Electronic Engineers or the H.264 video encoding stan-
dard adopted by the International Telecommunications Union
(ITU).
Mauricio Uribe is a partner in the Seattle
ofﬁce of Knobbe, Martens, Olson & Bear, LLP
who has been very active in complex, global
patent and technology licensing, including
standards-essential patents. Mr. Uribe is also
active in the prosecution of patent applica-
tions in both the electrical, telecommunication
and computer software ﬁelds and has wide-
ranging experience in developing patent port-
folios and intellectual property assets.
COPYRIGHT ஽ 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 0148-7965
BNA’s
Patent, Trademark
& Copyright Journal®

mitments based on the requested royalty rate for the
standards essential license.
At the time of the initiation of the litigation, there was
no legal precedent or established legal framework to
help the district court in defining the meaning of Mo-
torola’s RAND licensing commitment and more impor-
tantly, to determining whether Motorola had breached
its RAND licensing commitment simply with an offer
letter. After a series of orders that confirmed Mi-
crosoft’s standing as a third party beneficiary entitled to
enforce Motorola’s RAND licensing commitment under
the policies of both relevant standard setting organiza-
tions, with the consent of the parties, the district court
held a bench trial to establish a RAND rate and range
for the patents Motorola had declared as being essential
to the respective technical standards.3
Regarding the
need for such a bench trial, the district court judge,
Judge Robart, reasoned ‘‘[w]ithout a clear understand-
ing of what RAND means, it would be difficult or impos-
sible to figure out if Motorola breached its obligation to
license its patents on RAND terms.’’
In the simplest approach, Judge Robart could have
considered evidence from the parties and determined a
RAND royalty rate for Motorola’s asserted essential
patents. Instead, Judge Robart issued a 207-page opin-
ion setting forth arguably the first framework, bounded
by core economic principles, for determining RAND
royalty rates or RAND royalty rate ranges. In creating
the framework, however, Judge Robart rejected the call
for a creation of new legal doctrine to determine the
meaning of a RAND licensing commitment. Rather, in
his finding of facts, Judge Robart defined a RAND
framework commensurate with a hypothetical bilateral
negotiation between the parties in accordance with an
analysis of the 15 factors set forth in Georgia-Pacific
Corp. v. U.S. Plywood Corp. as applied to essential pat-
ents (RAND framework).4
Most notably, Judge Robart
modified the Georgia-Pacific factors on the basis of the
more unique aspects of patents considered essential to
technical standards and subject to a RAND commit-
ment.5
Applying the specifics of Motorola’s declared es-
sential patents to the newly minted RAND framework,
Judge Robart determined a RAND royalty rate range for
each patent portfolio and further set a RAND royalty
rate for Motorola’s essential patents.6
Thereafter, the
jury was presented with the issue of breach in view of
the Findings of Fact and Conclusions of Law and, not
surprisingly, determined that Motorola had in fact
breached its RAND commitments.
Motorola appealed the district court’s Findings of
Fact and Conclusions of Law and the jury verdict in-
cluding at least whether Motorola had consented to
bench trial on the determination of RAND royalty rates
and royalty rates ranges for Motorola’s declared stan-
dard essential patents. Eight amicus briefs were filed
focusing more particularly on the appropriateness of
Judge Robart’s framework.7
Additionally, in the interim, the Federal Circuit in its
holding in Ericsson v. D-Link Sys, Inc., also examined
the question of a RAND royalty framework. Stopping
short of adopting Judge Robart’s framework as the only
RAND royalty rate framework, the Federal Circuit
nonetheless endorsed his approach by reasoning ‘‘[i]n a
case involving RAND-encumbered patents, many of the
Georgia-Pacific factors simply are not relevant; many
are even contrary to RAND principles.’’8
In view of the
briefing on appeal, including the parties’ briefs and am-
icus filings, Motorola’s appeal to the Ninth Circuit could
have been interpreted as a clear challenge to Judge Ro-
bart’s framework. However, the focus of the appeals
court’s July 30, 2015, opinion was more to the facts of
the case related to consent to the bench trial and to the
specifics of the application of the framework to the spe-
cifics of Motorola’s patents (e.g., the lack of weight
given to Motorola’s other standard essential license
agreements).9
In very limited discussion regarding the
appropriateness of the framework, the Ninth Circuit
simply summarized:
In sum, in determining the RAND rate and range for each
SEP portfolio, the district court engaged in a thoughtful and
detailed analysis, giving careful consideration to the par-
ties’ briefing and evidentiary submissions, and to the testi-
mony. Although Motorola criticizes the district court’s ap-
proach, it provides no alternative other than strict adher-
ence to the Georgia-Pacific factors, without accounting for
the particulars of RAND agreements—a rigid approach dis-
approved of by the Federal Circuit in Ericsson. See 771 F.3d
at 1230–31. We conclude that the court’s RAND determina-
tion was not based on a legal error or on a clearly errone-
ous view of the facts . . . .
Adoption and Application—In re Innovatio
Shortly after the issuance of Judge Robart’s RAND
royalty rate framework, Northern District of Illinois
Judge James F. Holderman adopted Judge Robart’s
RAND royalty rate framework in In re Innovatio IP Ven-
3
One of the main issues on appeal to the Ninth Circuit was
the effect of the consent provided by Motorola’s litigation
counsel during a hearing.
4
See 318 F. Supp. 116 (S.D.N.Y 1970).
5
‘‘Factor 4 considers the licensor’s established policy and
marketing program to maintain his patent monopoly by not li-
censing others to use the invention or by granting licenses un-
der special conditions designed to preserve that monopoly.
This factor is inapplicable in the RAND context because the li-
censor has made a commitment to license on RAND terms and
may no longer maintain a patent monopoly by not licensing to
others. In fact, as the court has found in this case, the RAND
commitment requires the [standard essential patent] owner to
grant licenses on RAND terms to all implementers of the stan-
dard . . . . Factor 5 examines the commercial relationship be-
tween the licensor and licensee, such as whether they are com-
petitors in the same territory in the same line of business; or
whether they are inventor and promoter. Similar to factor 4,
this factor does not apply in the RAND context. This is because
having committed to license on RAND terms, the patentee no
longer may discriminate against its competitors in terms of li-
censing agreements. Instead, as explained, the patent owner is
obligated to license all implementers on reasonable terms.’’
6
The royalty rate set by Judge Robart corresponded to an
approximate 95 percent reduction from the 2.25 percent roy-
alty rate quoted by Motorola in its opening correspondence to
Microsoft as applied to Microsoft Xbox 360 video gaming con-
sole.
7
Amicus briefs in support of the Judge Robart’s framework
were filed by Public Knowledge, Sierra Wireless Inc., Intel
Corp. and T-Mobile USA, Inc. Amicus briefs in opposition of
Judge Robart’s framework were filed by the American Intellec-
tual Property Association, Qualcomm Inc., Nokia Corp. and
Apple Inc.
8
Ericsson v. D-Link Systems, Inc., 773 F.3d 1201, 1229, 113
U.S.P.Q.2d 1001 (Fed. Cir. 2014) (89 PTCJ 295, 12/5/14).
9
Microsoft Corp. v. Motorola, Inc., No. 14-35393, 2015 BL
243900 (9th Cir. July 30, 2015) (90 PTCJ 2834, 8/7/15).
2
9-18-15 COPYRIGHT ஽ 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC. PTCJ ISSN 0148-7965

tures, LLC Patent Litig.10
This case was notable not
only for being the first district court to embrace and
adopt the framework, but also for providing guidance
regarding how Judge Robart’s RAND royalty rate
framework might be applied to different factual sce-
narios. For example, at the time Judge Holderman ad-
opted Judge Robart’s RAND royalty rate framework,
Judge Holderman had already determined that the pat-
ents asserted by Innovatio IP Ventures were essential to
technical standards.11
Additionally, because Judge Holderman was apply-
ing Judge Robart’s RAND royalty rate framework for
purposes of setting damages expectations, he deter-
mined that a RAND royalty rate range was not appro-
priate.12
Accordingly, in line with the Federal Circuit’s
subsequent guidance in Ericsson v. D-link, Judge Hold-
erman made adjustments to the framework based on
the facts of the case and the timing of when Judge Ro-
bart’s RAND royalty rate framework was being applied:
‘‘The court notes, however, some of the distinct circum-
stances of this patent infringement case that will re-
quire some modifications to Judge Robart’s ap-
proach.’’13
Because at least a portion of the patents as-
serted by Innovatio also related to the same 802.11
wireless air interface standards and arguably were con-
sidered more significant, Judge Holderman’s applica-
tion of Judge Robart’s RAND royalty rate framework
and his determination of a royalty rate greater than the
royalty rate attributed to Motorola’s patents in the Mi-
crosoft v. Motorola litigation validated the potential that
Judge Robart’s RAND royalty rate framework may
work well for complex technologies likely involving
hundreds, if not thousands, of patents.
In re Innovatio is widely known for its adoption and
validation of Judge Robart’s RAND royalty rate frame-
work, which was facilitated by the agreement by the
parties to use the framework to set the royalty rate for
the asserted patents.14
More importantly than the adop-
tion of a framework by another district court, however,
was the fact that Judge Holderman and the parties
viewed Judge Robart’s RAND royalty rate framework
as a mechanism for possible settlement or guidance in
the litigation: ‘‘The court and all parties agreed to ad-
dress damages at this stage of the litigation, before a de-
termination on the questions of validity and infringe-
ment. The court hopes that by doing so, the possibility
of settlement will be enhanced because the parties will
be better able to evaluate the potential risks and ben-
efits of expending additional resources in the litiga-
tion.’’15
With that justification, Judge Holderman likely set
forth the true potential and power of Judge Robart’s
RAND royalty rate framework, as a tool to provide guid-
ance for litigation and licensing by setting potential roy-
alty rate ranges or setting royalty rates for patent port-
folios.
The Emergence of Robart Hearings—A Pathway
to More Efﬁcient Litigation
With its holding in Markman v. Westview Instru-
ments, Inc., the Supreme Court modified substantive
patent law with the interpretation that claim construc-
tion was ‘‘exclusively with the providence of the
court.’’16
It seems very likely that very few practitioners
are aware that that asserted patents related to tracking
clothing through the dry cleaning process using bar-
codes or the particular terms in the asserted claims that
were relevant for a determination of infringement or va-
lidity issues. Rather, the subsequent application of the
Supreme Court’s holdings by the district courts to con-
strue patent claims by holding Markman hearings and
the eventual adoption of early Markman hearings in the
trial process have forever modified the process of pat-
ent litigation and patent litigation settlement. It can be
argued that a significant number of patent infringement
lawsuits enter settlement negotiations in view of the re-
sults of claim construction via a Markman hearing.
Without question, Judge Robart’s RAND royalty rate
framework may impact substantive patent law by facili-
tating the determination of RAND royalty rates or
RAND royalty rate ranges. Much of the commentary
and analysis of Judge Robart’s Findings of Fact and
Conclusions of Law focus on the minutia of the assump-
tions made with regard to specific patent pool licensing
rates, comparative licenses, determination of essential-
ity and the like. While certainly relevant for the parties
involved in the litigation, the potential range of royalties
for patents essential to the 802.11 air interface stan-
dards or the H.264 video encoding standards will likely
have minimal impact on the larger patent community.
For example, Motorola’s appeal brief to the Ninth
Circuit focused, among other issues, on whether Judge
Robart gave proper consideration to the comparative li-
censes offered by Motorola and whether Judge Robart
gave too much consideration to licensing rates/
approaches from relevant patent pools. None of the am-
icus briefs focused on these factual issues, but rather
provided opposing viewpoints regarding the need or ef-
fectiveness of Judge Robart’s RAND royalty rate frame-
work in addressing issues such as patent holdup and
royalty stacking for complex technologies.
It seems that very few patent practitioners would dis-
agree with a proposal, such as an early Robart hearing,
that would have the potential effect of promoting settle-
ment or creating more efficient litigation. Nonetheless,
skepticism of this approach seems to be focused on the
more practical aspects of how exactly a Robart hearing
might be applied to patent cases, namely, whether there
is a prejudicial effect of considering potential damages/
royalties in advance of a determination of infringement
or validity and whether the parties could practically
present the relevant legal and factual issues. Such con-
cerns can be properly addressed and the likely benefit
of Robart hearings in all patent litigations would out-
weigh potential drawbacks.
With regard to potential prejudicial effects of an early
determination of royalty rates or royalty rate ranges,
10
No. 11 C 9308, 2013 BL 277902 (N.D. Ill. Oct 3, 2013).
11
‘‘By contrast, this court has already held a separate pro-
ceeding to determine the essentiality of Innovatio’s patents,
and has determined that they are all standard essential. The
question therefore arises of whether the court should adjust
the license rate for patents whose essentiality was question-
able prior to the court’s adjudication.’’ 2013 BL 277902, at *7.
12
‘‘By contrast, the purpose of the RAND determination
here is to set damages for infringement of the standard essen-
tial patents. The court must therefore determine a single
RAND rate for the purpose of calculating damages, rather than
a range.’’ Id.
13
Id.
14
Id. at *1.
15
Id. 16
Supra note 1.
3
PATENT, TRADEMARK & COPYRIGHT JOURNAL ISSN 0148-7965 BNA 9-18-15

that determination could also have a number of poten-
tial benefits. First, a determination of lower royalty
rates or royalty rate ranges, especially for complex
technologies in which royalties would be divided across
a larger number of patents, may likely cause plaintiffs
to offer more reasonable settlement terms. Second, a
determination of higher royalty rates or royalty rate
ranges may cause defendants to seek earlier settlement
or provide a more appropriate basis for making in-
formed business decisions regarding potential risks. At
a minimum, an earlier determination of potential roy-
alty rate ranges or royalty rates should provide guid-
ance in terms of how the parties will litigate and which
issues may be most important, especially in view of a
glimpse of the potential outcome.
District courts are already well suited to consider is-
sues in a manner to avoid potentially prejudicial effects
on juries through the utilization of magistrate judges,
arbitrators, mediators and the like, and the application
of appropriate safeguards to avoid undue influence of
any royalty rate determinations for juries. Moreover,
looking to application of Judge Robart’s RAND royalty
rate framework in Microsoft v. Motorola and In re Inno-
vatio, different assumptions regarding infringement
and validity can easily be incorporated into the frame-
work. If the parties dispute the potential infringement
of the patents or the validity of the patents, such dis-
putes are easily factored into the hypothetical negotia-
tion forming the basis of Judge Robart’s RAND royalty
rate framework.
If the parties do not dispute infringement (or in-
fringement has already been determined), the hypo-
thetical negotiation would simply not consider such dis-
putes, as was the case in In re Innovatio. Thus, parties
to the litigation could approach a Robart hearing with-
out necessarily conceding any potential issues regard-
ing infringement or validity.
With regard to the practical limitations of incorporat-
ing a Robart hearing in litigation, it is likely that most
parties that are involved in patent litigation do not have
the same financial and legal resources as Microsoft and
Motorola. However, Judge Robart’s RAND royalty rate
framework can be implemented in a manner to leverage
the benefit of other existing procedures, such as in-
fringement and invalidity contentions. More specifi-
cally, most district courts already require plaintiffs to
provide detailed infringement contentions and defen-
dants to provide detailed invalidity contentions prior to
discovery. These contentions could easily be considered
in Judge Robart’s RAND royalty rate framework for
purposes of establishing the hypothetical negotiation
between the parties. Additionally, district courts could
allow for limited early discovery for purposes of better
evaluating facts relevant to the framework such as com-
parative licenses, patent pools, adoption of the accused
infringing technology in products, etc.17
By leveraging
existing litigation procedures and with the adoption of
streamlined discovery, Robart hearings can be practi-
cally implemented across all patent litigations.
Conclusion
Since the publication of Findings of Fact and Conclu-
sions of Law in April 2013, Judge Robart’s RAND roy-
alty rate framework has been held out as having the po-
tential to influence future licensing and litigation mat-
ters. With the affirmation of the district court in July
2015 and the voluntary adoption of the framework in
other district courts, Judge Robart’s RAND royalty rate
framework has been validated as an effective tool to re-
solve not only RAND patent issues, but any complex
patent issue involving complex technologies.
Similar to the application of the holding in Markman
v. Westview, if adopted early in the patent litigation pro-
cess, Judge Robart’s RAND royalty rate framework is
now on the cusp of changing the patent litigation land-
scape.
17
One example of a procedure for streamlining consider-
ation of RAND disputes was set forth by the World Intellectual
Property Organization for arbitrating RAND disputes. See
http://www.wipo.int/amc/en/center/specific-sectors/ict/frand/
annex3/.
4
9-18-15 COPYRIGHT ஽ 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC. PTCJ ISSN 0148-7965

The Effect of Microsoft v. Motorola

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