U.S. District Court for the Western District of Washington makes determinations of RAND licensing terms

On 25 April 2013 Judge Robart issued the non-confidential version of his Findings of Fact and Conclusions of Law in the Microsoft Corp. v. Motorola Inc. case. This is the first time that a U.S. court has made determinations of the RAND licensing terms for a standard essential patent (“SEP”) portfolio license between two parties.

This case regards Motorola patents covering the IEEE’s 802.11 (WiFi) standards and the ISO/IECS’s and ITU’s H.264 video codec standards. Motorola offered Microsoft in 2010 to license these patens at a royalty rate of 2.25% of the end product, i.e. each smart phone, PC/laptop or Xbox 360 implementing them. Microsoft then sought declaratory judgment that Motorola breached its FRAND obligations to the Standards Development Organizations (“SDOs”). Motorola in turn sued Microsoft for patent infringement. Microsoft argues that the absolute value of the royalty demand is unreasonable and far exceeds what it pays to other standard-essential patent holders. Importantly, the royalty offer is also unreasonable because it is not tied to the value of Motorola’s technical contribution and assesses the royalties in relation to the kind of product and not to Microsoft’s contribution to the product. Motorola argues that the royalty rate is within the industry norms, is offered for many years now and that Microsoft did not negotiate in good faith and therefore repudiated its right to receive a FRAND license.

Judge Robart determined a specific RAND royalty and a RAND royalty range. He noted that “more than one rate could conceivably be RAND”. However, more important than the amount of rates determined in this case is the methodology Judge Robart used as his order may serve as a precedent for the determination of RAND terms for a patent portfolio. Interestingly Judge Robart seems to have sided with Motorola regarding the methodology even though the rates he determined were much closer to those urged by Microsoft than Motorola.

Judge Robart analyzed what would happen in a hypothetical negotiation between the parties to the case using the factors outlined in Georgia-Pacific Corp. v. U.S. Plywood Corp. in a modified way. He modified those factors due to the unique aspects of this case, i.e. the standard-essential patent RAND licensing situation. In such a hypothetical negotiation the parties would look at the importance of SEPs to the standard as well as the importance of SEPs and standards to the product. Furthermore Judge Robart laid out the “economic guideposts” constraining the negotiations in the context of RAND cases.

On 1 May 2013 Motorola filed a letter motion asking the court to limit theories on which Microsoft may base its claims for damages. According to Motorola Microsoft has significantly expanded its claims by violating the Federal Rules of Civil Procedure and prejudicing Motorola in its preparation of their own case. [Nicole Daniel]