The parties, obviously, don't agree on everything, which is why there will be a trial, but they filed together and then list what they agree on and what they don't. What they don't is what the trial will be about. We also see a list of expected witnesses and a list of exhibits [PDF].

This is a case about how much Microsoft should have to pay Motorola for its standard essential patents, and it is certain to be appealed no matter what. Motorola doesn't believe the judge in Seattle, Microsoft's home turf, has the authority to decide that matter for the entire world. The judge disagrees, and together with Microsoft they are attempting to create new law, essentially redrawing the rules for standard essential patents as far as Microsoft is concerned.

This is the judge, the Honorable James L. Robart, who ruled that Motorola couldn't enforce a ruling by a German court that Microsoft infringes Motorola's patents until this trial goes first. The Seattle judge plans to set a price and/or a price range on those patents for the world, while meanwhile Microsoft gets to continue to infringe.

The judge earlier, on October 10th, filed an order [PDF], providing his viewpoint on the FRAND and why he believes he can do what he's doing, so we get a pretty clear picture now of where everyone has planted the flag. I'll show you both documents. Judge Robart has not yet signed the joint proposed trial order.

Here's what a pretrial order is, by the way:

pretrial order: a court order setting out the rulings, stipulations, and other actions taken at a pretrial conference

The trial begins on November 13, so if you are in the area and can attend and let us know what you see and hear, that would be great. If you email me, I can give you some pointers, but it's not hard and no special skills are required.

This will be a two-part trial, an arrangement the judge came up with. The part that will be tried on November 13 will deal with a RAND royalty and/or RAND royalty range that Microsoft should pay for Motorola's standard essential patents. Microsoft suggests that it should pay a fraction of a penny per unit, not more than cents per device. It wants it figured out using patterns of patent pools, as if standard essential patents are the same thing. That has never been the law, but here we go, and the trial will, unbelieveably enough, decide if that's the right way to figure out a price.

Mototorola thinks 2.25% of the net selling price of licensed products, with an "appropriate cap", and offset by a RAND royalty for a license to Microsoft’s H.264 and 802.11 standard essential patents, is a valid price. How to figure a price is the big issue between the parties. A later trial will address Microsoft's allegations of breach of contract and promissory estoppel. Two other Microsoft claims, for waiver and declaratory judgment, were already dismissed.

In short, we are in Alice in Wonderland territory. Traditionally, standard essential patents were negotiated between the parties, and it was case by case, depending on several factors. In Germany, for example, there is one process called the Orange Book process, and Motorola would like the judge to use that, because otherwise the judge will be figuring a price based on US elements that don't at all apply in Germany. The judge, for his part, thinks he can ignore that process, basing his opinion of what the German process is on what he's read in the parties' filings. He is not an expert in German law, obviously, but in "The Ugly AMerican" style, he just does what he's doing:

Third, and finally, the court does not find that the German Orange Book remedy is akin to the situation presented here. Here, the court has determined that Motorola is contractually obligated to license its essential patents at a RAND rate. From the briefing of the parties, it is the court’s understanding that the German Orange Book process allows a court to review a patentee’s or alleged infringer’s offer regarding royalty rate to determine whether the offer is reasonably within the RAND range. (Motorola Opp. to Microsoft Mot. for Temp. Restraining Ord. at 10-11.) In other words, so long as Motorola’s offer is reasonably within a RAND range, that offer will constitute the RAND royalty rate. The court finds that such ex post oversight of Motorola’s offer fails to comport with what this court has found to be Motorola’s obligations under its commitments to the ITU and IEEE. It appears to the court that under Motorola’s suggested procedure for determining a RAND rate, a skilled patentee could make offers at the high end of the RAND range, which the court would then be obligated to bless. Such a procedure does not comport with the stated purpose (widespread accessibility to essential patents) behind the policies of the IEEE and ITU in requiring RAND licenses. Simply put, based on Motorola’s contractual obligations, if the parties cannot agree on a RAND rate, the court may be called upon to determine that rate.¹²

_______________
¹¹ Based on the parties’ briefings to this point, the German Orange Book is a procedure employed by German patent courts to oversee the propriety of patent license agreements in RAND circumstances. (See generally Motorola Opp. to Microsoft Mot. for Temp. Restraining Ord. (Dkt. # 248) at 10-11 (describing German Orange Book procedure).)

¹² Moreover, Motorola’s own suggested procedure—where the court examines ex post whether Motorola’s last offer was in fact within the RAND range—inherently requires determination of at least a RAND royalty range.

This is a Microsoft production. It filed first. And in the witness list, I can't help but notice that both sides will be calling Horacio Gutierrez, the in-house Micrsoft lawyer who seems to run the anti-Linux patent licensing hustle, as I view it. He'll be asked about those letters from Motorola, and Microsoft's response and its licensing practicdes, I see on the list, so I think it's likely that he is the creator of this new legal innovation -- trying to get standard essential patents valued at an extremely low rate in comparison to normal utility patents. Why? Because they don't have many of them and Motorola has plenty. This is about trying to disadvantage Android so vendors either won't use it, out of concern for the royalty costs, or will be forced to sign up for Microsoft's patents in order to sell Android on the claim that Linux/Android owe Microsoft due to alleged infringement.

When Microsoft attacked Barnes & Noble with those same patents, we got a picture at how ridiculous those patents are, but just a glimpse because Microsoft went into a deal with Barnes & Noble, and they tooke the money and shut up about it.

Now it's Motorola. Microsoft never changes. Never. They innovate, all right, but only in legal and business strategies, all of which leave a bad taste in my mouth. It can't fight fair and square on an even playing field, or so I have come to conclude by watching its behavior. Android, obviously, is better, or they wouldn't feel the need to kill it.

So to me, that is what this case is really all about. The judge and Microsoft talk like it's about owners of standard related patents holding up others with too-high prices. But there is a process for dealing with something like that, and nobody now is following that process.

Anyway, in this new process invented by the judge, first they will figure out a range, and then the jury will be asked to decide if Motorola's offer was in good faith.

See that in any of the standards bodies' rules? Me either. This is designing a new process, one that suits Microsoft better. And while the RAND requirements include the step where the parties negotiate -- RAND standards bodies recognizing that conditions can result in different rates in different situations -- here Microsoft sued instead of negotiating, and the judge doesn't agree with Motorola that Microsoft should be compelled to negotiate, and so onward it goes to trial instead.

Motorola, for its part, already tried to bring this to an end with a motion for summary judgment, its position being that the judge is creating a contract where none currently exists and also on the basis that Microsoft never asked for the remedy the judge is determined to supply. Here's how the judge describes Motorola's argument:

In its present motion titled “motion for partial summary judgment dismissing Microsoft’s claim for a RAND patent license agreement to be determined ab initio by the court,” Motorola seeks summary judgment on “Microsoft’s request that the court make” a license agreement for Motorola’s standard essential patents (Mot. at 6.) In support of the relief it seeks, Motorola makes two central arguments: (1) no licensing agreement between Microsoft and Motorola currently exists and it would be improper for the court to create a contract for the parties (id. at 17, 22.); and (2) Microsoft “never pleaded or requested that the [c]ourt create ab initio a Motorola/Microsoft patent license, or material terms for such a license” (id. at 16-17).

⁹ In making this determination, the court is well aware of Motorola’s concern that because RAND terms are complex and specific to the parties involved, at the time a standard essential patent holder makes an initial offer, he or she may not have sufficient information to offer on RAND terms. The court agrees with Motorola insofar as patentee may have a legitimate concern that mistakenly offering its essential patents at a non-RAND rate could lead to an imminent lawsuit; and, such a concern on the part of the patentee would similarly defeat the purpose behind the ITU and IEEE agreements of widespread availability. But, this is precisely the reason the court previously held that initial offers for standard essential patents need not be on RAND terms, but only must be made in accordance with good faith. (6/6/12 Order at 24-25.) Moreover, the simple fact that offers for essential patents need not comport with RAND does not excuse Motorola from eventually honoring its commitments to grant licenses on RAND terms.

But Motorola has to deal with it, no matter how weird it is. If a royalty is going to be arrived at willy nilly, Motorola at least asks that it be more realistically figured out:

Motorola respectfully submits further that a RAND royalty can only be determined with an understanding of other material terms of a RAND license. In particular, as set forth in the October 2010 letters and as required by the reciprocity provision of certain Motorola LOAs, any license under Motorola’s 802.11 and H.264 portfolios must include a grant-back license to Microsoft’s respective H.264 and 802.11 portfolios. Accordingly, Motorola respectfully submits that the RAND royalty rates determined by the Court should reflect the grant back license.

³ The declaration to the ITU also states that “negotiations of licenses are left to the parties concerned and are performed outside the ITU-T | ISO/IEC.” (ITU Declarations at 2.)

Here's why it varies. Some may have a lot of patents to negotiate with. Others don't. So Motorola calls on the court to notice that aspect of the standards rules of the road.

So far, the judge seems to mostly listen to Microsoft, which is hardly amazing, albeit disappointing, as the trial is happening in Seattle, Washington. He seems to believe he's being fair. In another footnote, he points out that he's allowed Motorola to file three motions on the same issue. Judges are human beings, just like you and me, and they have world views, just like you and me. And sometimes it shows. I think you could see that in watching the Apple battle against Samsung, where every other country seems to find Samsung did not infringe Apple's design patent, while in the US they look at the same or similar things and find for Apple. It's not so lovely to watch, but reality is what it is. And that's what appeals are for.

Say, if any of you are in the Seattle area, or have friends or relatives there who can attend the trial and tell us what happens, can you email me please? We should try to attend, don't you think? The fact that it's Microsoft's home court means we need to really watch all the details, I think, because I doubt anyone else will. Well. They will. FOSSPatents' Florian Mueller was hired by Microsoft, after all, so I've no doubt we'll be favored with endless purple prose about how Google doesn't respect IP blah blah and Microsoft is so, so right and this judge is doing everything wonderfully and there will be a settlement, etc. and so forth. So we should be there to catch the truth.

It's not hard. Just watch and listen and take a few notes, and I'll guide you along, as well with everything you'd need to know. And thanks to the generosity of your donations, we can cover your expenses.

Here, first, is the October 10th order by the judge, which will give you a very clear idea of the RAND issues in this litigation, albeit through the eyes of the judge, a judge Motorola believes has exceeded his authority, and then after that, I'll show you their parties' filing:

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

MICROSOFT CORPORATION,

Plaintiff,

v.

MOTOROLA, INC., et al.,

Defendants.

____________

MOTOROLA MOBILITY, INC., et al.,

Plaintiffs,

v.

MICROSOFT CORPORATION,

Defendant.

____________

CASE NO. C10-1823JLR

ORDER

___________

1

I. INTRODUCTION

This matter is before the court on Defendants Motorola, Inc., Motorola Mobility, Inc., and General Instrument Corporation’s (collectively, “Motorola”) motion for partial summary judgment dismissing Microsoft’s claim for a reasonable and non-discriminatory (“RAND”) license agreement to be determined by the court (Mot. (Dkt. # 362)).¹ Having considered Motorola’s motion, Microsoft’s response (Resp. (Dkt. # 374)), and Motorola’s reply (Reply (Dkt. # 377)), and considering itself fully advised, the court GRANTS in part and DENIES in part Motorola’s motion (Dkt. # 362).

II. BACKGROUND

A. The IEEE and the ITU as Standard Setting Organizations

Microsoft and Motorola are both members of the Institute of Electrical and Electronics Engineers (“IEEE”) and the International Telecommunication Union (“ITU”). The IEEE and the ITU, neither of which are parties to the instant dispute, are international standards setting organizations. Standards setting organizations play a significant role in the technology market by allowing companies to agree on common technological standards so that all compliant products will work together. Standards lower costs by increasing product manufacturing volume, and they increase price competition by eliminating “switching costs” for consumers who desire to switch from products manufactured by one firm to those manufactured by another.

2

One complication with standards is that it may be necessary to use patented technology in order to practice them. If a patent claims technology selected by a standards setting organization, the patent is called an “essential patent.” Here, Motorola is the owner of numerous patents “essential” to certain standards established by the IEEE and the ITU. (See 10/21/10 Motorola Offer Ltr. (Dkt. # 79-5); 10/29/10 Motorola Offer Ltr. (Dkt. # 79-6) (see list of attachments).) In order to reduce the likelihood that owners of essential patents will abuse their market power, many standards setting organizations, including the IEEE and the ITU, have adopted rules related to the disclosure and licensing of essential patents. The policies often require or encourage members of the standards setting organization to identify patents that are essential to a proposed standard and to agree to license their essential patents on RAND terms to anyone who requests a license. Such rules help to insure that standards do not allow essential patent owners to extort their competitors or prevent them from entering the marketplace.

B. Motorola’s Statements to the IEEE and the ITU

This lawsuit involves two standards—the IEEE 802.11 wireless local area network (“WLAN”) Standard (“802.11 Standard) and the ITU H.264 advanced video coding technology standard (“H.264 Standard”).² (See generally Compl. (Dkt. # 1); Am. Compl. (Dkt. # 53).) The IEEE’s standard setting process is governed by its Intellectual Property Rights Policy (the “IEEE Policy”). (See generally IEEE Policy (Dkt. #79-1).) The IEEE

3

Policy provides that “IEEE standards may be drafted in terms that include the use of Essential Patent Claims.” (Id. at 18 (Section 6.2).) The IEEE Policy defines the term “Essential Patent Claim” as one or more claims in an issued patent (or pending patent application) that are “necessary to create a compliant implementation of either mandatory or optional portions of the normative clauses of the [Proposed] IEEE Standard . . . .” (Id.)

If the IEEE learns that an IEEE standard or a proposed IEEE standard may require the use of an essential patent claim, the IEEE requires the patent holder to either state that it is not aware of any patents relevant to the IEEE standard or to provide the IEEE with a Letter of Assurance. (Id.) Any such Letter of Assurance must include either (1) a disclaimer to the effect that the patent holder will not enforce the “Essential Patent Claims,” or (2):

[a] statement that a license for a compliant implementation of the standard will be made available to an unrestricted number of applicants on a worldwide basis without compensation or under reasonable rates, with reasonable terms and conditions that are demonstrably free of any unfair discrimination. . . .

(Id.) If the IEEE cannot obtain a Letter of Assurance, it refers the essential patent to the IEEE Patent Committee. (Id.)

Motorola has submitted numerous Letters of Assurance to the IEEE in connection with the 802.11 Standard stating that it “will grant” or “is prepared to grant” a license under RAND terms for its patents essential to the 802.11 Standard. (See generally IEEE LOAs (Dkt. # 79-2).) A typical Motorola Letter of Assurance to the IEEE provides, in relevant part:

4

The Patent Holder will grant [or is prepared to grant] a license under reasonable rates to an unrestricted number of applicants on a worldwide, non-discriminatory basis with reasonable terms and conditions to comply with the [Proposed] IEEE Standard.

(See generally id.) Such Letters of Assurance are irrevocable once submitted and accepted by the IEEE and apply from the date the standard is approved until the date the standard is withdrawn. (IEEE Policy at 19.)

Like the IEEE, the ITU has established a policy (the “ITU Policy”) with respect to holders of patents “essential” to implementing a standard. (See ITU Policy (Dkt. # 79-3).) Such patent holders must file with the ITU a “Patent Statement and Licensing Declaration” declaring whether they (1) will grant licenses free of charge on a RAND basis; (2) will grant licenses on RAND terms; or (3) are not willing to comply with either of the first two options. (See id. at 9-12.) If a patent holder is not willing to comply with either of the first two options, the ITU standard will not include provisions depending on the patent. (Id. at 9.)

Motorola has sent numerous declarations to the ITU stating that they will grant licenses on RAND terms for its patents essential the H.264 Standard. (See generally ITU Declarations (Dkt. # 79-4).) A typical declaration by Motorola to the ITU provides, in relevant part:

The Patent Holder will grant a license to an unrestricted number of applicants on a worldwide, non-discriminatory basis and on reasonable terms and conditions to use the patented material necessary in order to

5

manufacture, use, and/or sell implementations of the above ITU-T Recommendation | ISOC/IEC International Standard.³

(E.g., id. at 2.)

C. Motorola’s Offer Letters to Microsoft

On October 21, 2010, Motorola sent Microsoft a letter (the “October 21 Letter”) that read in pertinent part:

This letter is to confirm Motorola’s offer to grant Microsoft a worldwide non-exclusive license under Motorola’s portfolio of patents and pending applications having claims that may be or become Essential Patent Claims (as defined in section 6.1 of the IEEE bylaws) for a compliant implementation of the IEEE 802.11 Standards. . . . Motorola offers to license the patents under reasonable and non-discriminatory terms and conditions (“RAND”), including a reasonable royalty of 2.25% per unit for each 802.11 compliant product, subject to a grant back license under the 802.11 essential patents of Microsoft. As per Motorola’s standard terms, the royalty is calculated based on the price of the end product (e.g, each Xbox 360 product) and not on component software (e.g., Windows Mobile Software).

(10/21/10 Offer Ltr. at 2.) Then, on October 29, 2010, Motorola sent a similar letter (the “October 29 Letter”) regarding the H.264-related patents, stating:

Motorola offers to license the patents on a non-discriminatory basis on reasonable terms and conditions (“RAND”), including a reasonable royalty, of 2.25% per unit for each H.264 compliant product, subject to a grant back license under the H.264 patents of Microsoft, and subject to any Motorola commitments made to JVT in connection with an approved H.264 recommendation. As per Motorola’s standard terms, the royalty is calculated based on the price of the end product (e.g., each Xbox 360 product, each PC/laptop, each smartphone, etc.) and not on component software (e.g., Xbox 360 system software, Windows 7 software, Windows Phone 7 software, etc.)

6

(10/29/10 Offer Ltr. at 2.) Motorola attached to its October 29 Letter a non-exhaustive list of patents it offered to license to Microsoft. (See id.)

On November 9, 2010, Microsoft filed its complaint initiating this action, and on February 23, 2011, Microsoft filed an amended complaint. (Compl.; Am. Compl.) Microsoft contends that the October 21 and October 29 Letters seek unreasonable royalty rates and therefore breach Motorola’s obligations to the IEEE and the ITU to grant licenses on RAND terms. (Am. Compl. at 21, 22.) Microsoft alleges claims against Motorola for breach of contract and promissory estoppel.⁴ (Id.) In its prayer for relief, Microsoft seeks, inter alia, (1) a declaration that it is entitled to a license on RAND terms from Motorola for all patents subject to Motorola’s commitments to the IEEE (through Letters of Assurance) and to the ITU (through declarations), and (2) a judicial accounting of a RAND royalty rate for Motorola’s patents subject to these commitments. (Id. at 25 (Prayer for Relief).)

In response, Motorola asserted affirmative defenses and counterclaims. (See Motorola Answer (Dkt. # 68).) Motorola’s counterclaims, which are relevant to the instant motion for preliminary injunction, seek a declaratory judgment that (1) it has not breached any RAND obligations, and (2) Microsoft repudiated and/or rejected the benefits of Motorola’s RAND obligations, and therefore Microsoft is not entitled to a

7

license to Motorola’s patents related to the H.264 and 802.11 Standards. (Id. ¶¶ 61-75 (Counterclaims).)

D. The Court’s Prior Rulings

In a February 27, 2012 order, the court ruled that Motorola’s Letters of Assurance to the IEEE and Motorola’s declarations to the ITU create enforceable contracts between Motorola and the respective standard setting organization to license its essential patents on RAND terms. (2/27/12 Order (Dkt. # 188) at 10.) Additionally, the court found that as a member of the IEEE and the ITU and a prospective user of both the H.264 Standard and the 802.11 Standard, Microsoft is a third-party beneficiary of the contract. (Id.)

Following the court’s February 27, 2012 order, the parties moved for summary judgment. Microsoft moved for summary judgment that Motorola breached its agreements to license its standard essential patents on RAND terms by offering to license its standard essential patents at 2.25% of Microsoft’s end product price (a blatantly unreasonable offer according to Microsoft) in the October 21 and October 29 Letters. (Microsoft Mot. for SJ (Dkt. # 236).) Motorola moved for summary judgment that Microsoft had repudiated its rights as a third-party beneficiary to a RAND license by initiating this lawsuit without first applying for and negotiating towards a patent license for Motorola’s standard essential patents. (Motorola Mot. for SJ (Dkt. # 231).)

In its June 6, 2012 order on the parties’ respective motions, the court again examined the obligations of both Motorola and Microsoft originating from Motorola’s statements to both the ITU and the IEEE regarding its standard essential patents. In this order, the court reaffirmed its conclusion that Motorola’s statements to the ITU and IEEE

8

did indeed constitute binding agreements to license its essential patents on RAND terms. (6/6/12 Order (Dkt. # 335) at 13.) The court also reaffirmed its decision that Microsoft was a third-party beneficiary to those agreements and has a right to a RAND license for Motorola’s standard essential patents.⁵ (Id. at 14.) With respect to Microsoft’s motion for summary judgment, the court determined that although Motorola’s agreements with the ITU and IEEE required initial offers for its standard essential patents to be made in good faith, issues of fact existed as to whether Motorola’s October 21 and 29 Letters complied with its good faith obligations. (Id. at 21-28.) The court further explained that before a jury could decide whether Motorola’s offers for its standard essential patents breached its duty of good faith, the court would need to determine a true RAND royalty rate for purposes of comparison. (Id. at 25.) Accordingly, the court denied Microsoft’s motion. (Id. at 28.) The court also denied Motorola’s motion for summary judgment and held that applying for a patent license and negotiating towards a patent license were not conditions precedent to Motorola’s obligations to grant licenses on RAND terms. (Id. at 16-21.)

After its June 6 order, the court held conferences with the parties with the goal of moving the case towards trial. On June 7, 2012, the court indicated to the parties its

9

intention to conduct a trial on Microsoft’s breach of contract claims, commencing November 13, 2012. (6/7/12 Tr. (Dkt. # 348) at 67-71.) The court further indicated that a trial on Microsoft’s breach of contract claim would include adjudication of a RAND royalty rate for Motorola’s standard essential patents so that a finder of fact could consider this adjudicated rate in deciding whether Motorola’s offers breached its duty to offer in good faith. (Id.) The court sought input from the parties as to the structure of the trial. On June 14, 2012, both Microsoft and Motorola agreed to determine the RAND royalty rate by bench trial. (6/14/12 Tr. (C11-1408JLR (Dkt. # 365)) at 42-43.) On that same day, Microsoft submitted that a bench trial was likewise appropriate for its breach of contract claim, but Motorola sought additional time to determine whether it desired a jury or bench trial for the breach of contract claim. Accordingly, on June 14, 2012, the court issued a scheduling order setting trial for determination of a RAND royalty rate to commence on November 13, 2012 with the possibility of including the breach of contract claim in the event the parties agreed to submit that claim to a bench trial. (Scheduling Order (Dkt. # 346).)

Over three weeks later, during a July 9, 2012 status conference, Motorola informed the court that it sought a jury trial with respect to Microsoft’s breach of contract claim.⁶ (7/9/12 Tr. (Dkt. # 359) at 5.) Thereafter, the court adopted a two-part approach.

10

The court would first determine a RAND royalty rate (or RAND royalty range) at the November 13, 2012 trial, and second, with this determination as guidance, a jury would hear Microsoft’s breach of contract claim.

III. DISCUSSION

In its present motion titled “motion for partial summary judgment dismissing Microsoft’s claim for a RAND patent license agreement to be determined ab initio by the court,” Motorola seeks summary judgment on “Microsoft’s request that the court make” a license agreement for Motorola’s standard essential patents (Mot. at 6.) In support of the relief it seeks, Motorola makes two central arguments: (1) no licensing agreement between Microsoft and Motorola currently exists and it would be improper for the court to create a contract for the parties (id. at 17, 22.); and (2) Microsoft “never pleaded or requested that the [c]ourt create ab initio a Motorola/Microsoft patent license, or material terms for such a license” (id. at 16-17). In addition to its requested relief, Motorola asks the court to modify the issue for the November 13 trial to determine—instead of the RAND royalty rate—the breach of contract claim. (Id. at 26-27.) Motorola’s requests are examined in turn below.

A. Summary Judgment Standard

Summary judgment is appropriate if the evidence, when viewed in the light most favorable to the non-moving party, demonstrates “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ.

11

P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Galen v. Cnty. of L.A., 477 F.3d 652, 658 (9th Cir. 2007). The moving party bears the initial burden of showing there is no genuine issue of material fact and that he or she is entitled to prevail as a matter of law. Celotex, 477 U.S. at 323. If the moving party meets his or her burden, then the non-moving party “must make a showing sufficient to establish a genuine dispute of material fact regarding the existence of the essential elements of his case that he must prove at trial” in order to withstand summary judgment. Galen, 477 F.3d at 658. Here, cross-motions for summary judgment are at issue. The court “evaluate[s] each motion separately, giving the nonmoving party in each instance the benefit of all reasonable inferences.” ACLU of Nev. v. City of Las Vegas, 466 F.3d 784, 790-91 (9th Cir. 2006) (citations omitted); see also Friends of Columbia Gorge, Inc. v. Schafer, 624 F. Supp. 2d 1253, 1263 (D. Or. 2008).

B. A License Agreement Between Microsoft and Motorola

As stated, Motorola asserts that it would be improper for the court to fashion a license agreement between Microsoft and Motorola for Motorola’s standard essential patents because no license agreement currently exists and Microsoft never requested such relief. (See generally Mot.) The court disagrees with Motorola, but nevertheless stresses that the November 13 trial will not create a licensing agreement, but will determine a RAND range, as well as a specific RAND rate, for Motorola’s standard essential patents.

1. Motorola’s RAND Agreements and Obligations Thereunder

As the court previously held, Motorola’s declarations to the ITU and IEEE constitute binding agreements to license its essential patents on RAND terms, and

12

Microsoft is a third-party beneficiary to those agreements and therefore entitled to a license of Motorola’s essential patents on RAND terms. (6/6/12 Order at 13-14.) Indeed, Motorola has agreed that Microsoft is a third-party beneficiary to Motorola’s assurances to license its essential patents on RAND terms.7 Nevertheless, Motorola argues, in part, that no license agreement exists between Microsoft and Motorola because Motorola’s commitments to the ITU and IEEE only “bind Motorola to engage in bilateral, good-faith negotiations leading to RAND terms,” but do not require Motorola to grant licenses on

13

RAND terms. (Mot. at 18-20.) This is not what the court held in its June 6, 2012 order, and the court declines to reach that conclusion in this order.⁸ Instead, after examining the language of Motorola’s agreements with the ITU and IEEE, the court held that Microsoft is entitled to a RAND license. (6/6/12 Order at 13-14.) To be clear, having previously determined that Microsoft has not repudiated or revoked this right, the court’s prior holding means that Motorola must grant Microsoft a RAND license to its standard essential patents.

In fact, the court has already twice rejected Motorola’s contention that Motorola’s agreements with the ITU and IEEE only require it to negotiate towards a RAND license. (See 6/1/11 Order (Dkt. # 66) at 5 (“There is no legal basis for Motorola’s contention that Microsoft was required to negotiate the precise license terms prior to filing a breach of contract claim.”); 6/6/12 Order at 21 (“Motorola has committed to license its standard essential patents on RAND terms, and, if a third-party beneficiary to that commitment does not believe Motorola is meeting its obligations thereto, the courthouse may be the only place to resolve the differences.”).) Certainly, Motorola’s commitments to the IEEE and ITU require that it negotiate in good faith towards RAND terms, but those commitments go one step further and require Motorola to eventually grant a license on RAND terms. Thus, the RAND license must eventually execute between the parties, and interminable good faith negotiation by Motorola will not uphold its end of the bargain. As the court previously explained, any other conclusion would be contrary to the purpose

14

of Motorola’s commitments to the IEEE and ITU, which is to ensure widespread availability to standard essential patents to all implementers on RAND terms.⁹ (6/6/12 Order at 17-18; see also, e.g., ITU Policy at 9 (stating that the objective of recommendations “is to ensure compatibility of technologies and systems on a worldwide basis. To meet this objective, which is in the common interest of all those participating, it must be insured that [recommendations] . . . are accessible to everybody”).)

Having made the determination that Motorola must grant a RAND license for its essential patents, the court is left with the inescapable conclusion that a forum must exist to resolve honest disputes between the patent holder and implementer as to what in fact constitutes a RAND license agreement. Here, the courthouse may be the only such forum. Indeed, the ITU and IEEE policies both explicitly disavow that either organization will assist the parties in determining a RAND agreement or resolving disputes of the parties. (IEEE Policy at 19 (The IEEE is not responsible “for determining whether any licensing terms or conditions provided in connection with submission of a Letter of Assurance, if any, or in any licensing agreements are reasonable and non-discriminatory.”).) Thus, unless the parties on their own can come to an agreed RAND

15

licensing agreement, the courthouse acts as an appropriate forum to resolve disputes over legal rights.

Nevertheless, although Motorola agrees that Microsoft has a legal right to a RAND license agreement for Motorola’s essential patents, Motorola argues that the court cannot enforce this right by creating that very license agreement. (See generally Mot.) In particular, Motorola argues that the court cannot create a license agreement between the parties because no license agreement currently exists and this court cannot “make a contract for the parties—that is, a contract different from that actually entered into by [the parties].” (Mot. at 22 (citing among other cases Chaffee v. Chaffee, 145 P.2d 244, 252 (Wash. 1943).) The court is not persuaded by this argument because it is not relevant to the circumstances before us. In this matter, the court is not examining an existing agreement to modify its terms or impose missing terms, but instead, the court is enforcing Microsoft’s legal right to a RAND license agreement for Motorola’s standard essential patents. Moreover, Motorola’s view of its obligations leads to an illogical result. Here, Motorola agrees that Microsoft, as a third-party beneficiary, has a legal right to a RAND license agreement for Motorola’s essential patents, but nevertheless asserts that the court cannot enforce this right by creating that very license agreement. Without the ability to create (or at the very least enforce creation of) the very license Motorola has promised to grant, Motorola’s obligations would be illusory. The court finds such a result illogical and declines to adopt Motorola’s position. See Eurick v. Pemco Ins. Co., 738 p.2d 251, 252 (Wash. 1987) (contract interpretation should not produce an absurd result).

16

Indeed, in its recent opinion affirming this court’s grant of an anti-suit injunction related to a German action between Motorola and Microsoft, the Ninth Circuit briefly examined obligations and remedies of Motorola’s commitments to the ITU:

In sum, whether or not the district court ultimately determines that Motorola breached its contract with the ITU (it may or may not have), it is clear that there is a contract, that it is enforceable by Microsoft, and that it encompasses not just U.S. patents but also the patents at issue in the German suit. Moreover, even if Motorola did not breach its contract, then, however the RAND rate is to be determined under the ITU standards, injunctive relief against infringement is arguably a remedy inconsistent with the licensing commitment. That the licensing agreement is not itself a license according to the ITU Policy does not detract from this conclusion. The question is how the commitment to license is to be enforced, not whether the commitment itself is a license.

Microsoft Corp. v. Motorola, Inc., 2012 WL 4477215, at *10 (emphasis added). Thus, the Ninth Circuit made clear that Microsoft has an enforceable legal right to a RAND license from Motorola. Because Microsoft’s right to a RAND license results from its third-party beneficiary status, the right exists irrespective of whether a licensing agreement exists between Motorola and Microsoft. Here, this court has been asked to resolve a dispute concerning whether Motorola has honored its obligations to license its essential patents on RAND terms. Although no specific remedy has been determined, and certainly no remedy has been proven, the court declines to dismiss from Microsoft’s possible remedies the very license agreement to which the court has already determined it is entitled.

2. Microsoft’s Pleadings Regarding A RAND License Agreement

Motorola asserts that because Microsoft never pleaded that the court create a standard essential patent license agreement between Microsoft and Motorola, such relief

17

should not now be available. (Mot. at 16-17.) Again, the court reiterates that the November 13 trial will not result in the creation of a RAND license agreement, but instead will determine a RAND royalty range and a RAND royalty rate. With that said, the court disagrees with Motorola’s assertion that it cannot create (or enforce the creation of) a RAND license agreement because Microsoft did not explicitly request such relief in its pleadings.

In this complaint, Microsoft sought, inter alia, (1) a judicial accounting of a RAND royalty rate for Motorola’s standard essential patents; (2) a decree that Microsoft was entitled to license Motorola’s essential patents on RAND terms, and (3) a decree barring Motorola from demanding excessive royalty rates for its standard essential patents. (Compl. ¶ 9, Prayer for Relief.) Additionally, Microsoft has repeatedly represented to the court that it believes it needs a license and that it is ready and willing to accept a license to Motorola’s essential patents on RAND terms.¹⁰ (See, e.g., Microsoft Reply to Mot. Dismissing Inj. Relief (Dkt. # 152) at 9 (“The indisputable evidence is that Microsoft is seeking a license on RAND terms—in this very action.”).)

Although Motorola is correct that Microsoft does not explicitly seek a RAND licensing agreement in its prior complaints, Motorola’s position in this litigation that (to meet its obligations under its agreements with the ITU and IEEE) it need only negotiate towards a RAND license requires that court creation of a RAND license agreement remain an available form of relief. Were this not the case, the court could grant, and in

18

fact has granted, Microsoft relief that it is entitled to a RAND license, but then have no ability to ensure that Microsoft does in fact receive the RAND license. In other words, at the end of the case, the parties could return to the bargaining table precisely where they started—negotiating and disagreeing over what in fact constitutes a RAND license agreement. Therefore, while Microsoft did not explicitly request a RAND license agreement, Motorola’s position in this litigation inherently requires the availability of such relief. Accordingly, the court disagrees with Motorola that Microsoft’s claim for a RAND license agreement be dismissed for failure to plead such relief.

C. The November 13 Trial

Motorola asserts that instead of determining a RAND royalty range and rate at the November 13 trial, the court should try the breach of contract claim, apparently with a jury. (Mot. at 26.) According to Motorola’s proposal, if the jury finds no breach of contract, the court should leave the parties to continue negotiations “until they reach an agreement or impasse.” (Id.) On the other hand, if a jury finds Motorola’s October 21 and 29 Letters breached its agreements, the jury can assess damages and the court can then review the last offer made by Motorola to Microsoft before trial to determine if Motorola’s proposed licensing terms are consistent with RAND. (Id.) Additionally, Motorola asserts that such review of Motorola’s proposed licensing terms is consistent

19

with the German Orange Book procedures, which Motorola argues should be employed in this case.¹¹ (Id.)

For the reasons below, the court declines to adopt Motorola’s proposal for the November 13 trial. First, as the court has already stated, for a jury to resolve the question of whether Motorola’s October 21 and 29 Letters breached its duty to make good faith offers, the court must first determine a RAND royalty range to assist a jury in comparing Motorola’s offers to a true RAND range. Certainly, a jury could make a determination of the RAND royalty rate (or range) on its own, but here the parties have both explicitly asked the court, and not the jury, to adjudicate that issue. Second, Motorola’s suggested alternative will not move this litigation forward. Motorola suggests that the court first try the breach of contract issue, and in the event that no breach is found, the court order the parties to return to the negotiation table until they reach agreement or impasse. Importantly, regardless of whether Motorola has breached its contractual agreement to make good faith offers, Motorola is obligated to grant Microsoft a RAND license. Presumably the parties are before the court because they currently cannot agree to RAND licensing terms. In fact, Motorola represents in its brief that the parties continue to negotiate with respect to a RAND license. The court finds that a return to the negotiation table, without any adjudication as to what in fact constitutes a RAND royalty rate, will accomplish nothing more than delay.

20

Third, and finally, the court does not find that the German Orange Book remedy is akin to the situation presented here. Here, the court has determined that Motorola is contractually obligated to license its essential patents at a RAND rate. From the briefing of the parties, it is the court’s understanding that the German Orange Book process allows a court to review a patentee’s or alleged infringer’s offer regarding royalty rate to determine whether the offer is reasonably within the RAND range. (Motorola Opp. to Microsoft Mot. for Temp. Restraining Ord. at 10-11.) In other words, so long as Motorola’s offer is reasonably within a RAND range, that offer will constitute the RAND royalty rate. The court finds that such ex post oversight of Motorola’s offer fails to comport with what this court has found to be Motorola’s obligations under its commitments to the ITU and IEEE. It appears to the court that under Motorola’s suggested procedure for determining a RAND rate, a skilled patentee could make offers at the high end of the RAND range, which the court would then be obligated to bless. Such a procedure does not comport with the stated purpose (widespread accessibility to essential patents) behind the policies of the IEEE and ITU in requiring RAND licenses. Simply put, based on Motorola’s contractual obligations, if the parties cannot agree on a RAND rate, the court may be called upon to determine that rate.¹²

Accordingly, the court declines to adopt Motorola’s proposal that the November 13 trial consist of Microsoft’s breach of contract claim. Instead, the November 13 trial

21

will resolve two discrete issues: (1) a RAND royalty range for Motorola’s standard essential patents; and (2) a RAND royalty point for Motorola’s standard essential patents. Adjudication of both of these issues is necessary to resolve disputes in this litigation, and Motorola agrees that these issues are within the authority of this court to decide.¹³ Determination of a RAND royalty range will provide the jury guidance in deciding whether Motorola’s October 21 and 29 Letters breached Motorola’s duty to make offers for its standard essential patents in good faith.¹⁴ Additionally, determination of a RAND royalty range will provide the court guidance in determining a precise RAND royalty (a

22

specific request contained in Microsoft’s complaint), which necessarily must fall within that range.

IV. CONCLUSION

Based on the foregoing, the court DENIES Motorola’s motion for partial summary judgment dismissing Microsoft’s claim that the court create a license agreement for Motorola’s standard essential patents (Dkt. # 362). This matter will proceed to the November 13, 2012 trial under the schedule currently in place and to adjudicate issues in accord with this order.

Dated this 10th day of October, 2012.

[signature]
JAMES L. ROBART
United States District Judge

______________
¹ While the parties in this action have both filed affirmative claims in this matter, because Microsoft filed the complaint initiating the instant action, for purposes of this order, the court names Microsoft as the “plaintiff.”

² The ITU developed the H.264 Standard jointly with two other standard setting organizations—the International Organization for Standardization and the International Electrotechnical Commission. (Partial S.J. Order (Dkt. #188) at 3.)

³ The declaration to the ITU also states that “negotiations of licenses are left to the parties concerned and are performed outside the ITU-T | ISO/IEC.” (ITU Declarations at 2.)

⁴ Microsoft’s action against Motorola also included claims for waiver and declaratory judgment, but the court’s June 1, 2011 order dismissed both of those claims, leaving only the breach of contract and promissory estoppel claims. (Dkt. # 66 at 12.)

⁵ Subsequent to this court’s June 6, 2012 order, the Ninth Circuit issued an opinion on Motorola’s interlocutory appeal of this court’s grant of an anti-suit injunction of Motorola’s enforcement of a German injunction against Microsoft for patent infringement regarding two of Motorola’s standard essential patents. Microsoft Corp. v. Motorola, Inc., --- F.3d ----, 2012 WL 4477215 (9th Cir. Aug. 28, 2012). In its opinion, the Ninth Circuit held that the “district court’s conclusions that Motorola’s RAND declarations to the ITU created a contract enforceable by Microsoft as a third-party beneficiary (which Motorola concedes), and that this contract governs in some way what actions Motorola may take to enforce its ITU standard-essential patents (including the patents at issue in the German suit), were not legally erroneous.” Id. at *9.

⁶ Also during the July 9, 2012 status conference, Motorola indicated its intention to file the present motion on the basis that the court was employing an improper construction of Motorola’s agreements with the ITU and IEEE. (7/9/12 Tr. at 4-5.) Despite having already ruled on two summary judgment motions substantially involving construction of Motorola’s agreements with the ITU and IEEE, the court permitted Motorola to file the present motion. (Id. at 9.)

⁷ For instance, the following discussion transpired during a February 13, 2012 status conference with the court:

THE COURT: Is the first part of that sentence also accurate, that you entered into binding contractual commitments with IEEE and ITU, committing those to that RAND process?

MR. JENNER (counsel for Motorola): Well, yeah, that is really what the issue is, your Honor, in terms of what the assurance is. The assurance is that we would—that Motorola agreed to license those standard essential patents on RAND terms.

THE COURT: All I am asking is—I think you just agreed with me. I am not asking you if you did it or not, I am just asking you if that’s what you are supposed to do. I think the answer to that is yes.

MR. JENNER: Yes. Enter into a license on RAND terms, that’s right.

THE COURT: The second point that Microsoft asked the court to declare is, and I will quote, “Microsoft is a third-party beneficiary of Motorola’s commitment to the SSOs.” Once again, let’s stay away from the precise terms that were offered and asked as a conceptual matter. I think there is also no disagreement on that. Mr. Jenner, am I correct on that?

MR. JENNER: Your Honor, that is correct, we would agree that Microsoft can fairly claim to be the third-party beneficiary of the assurance.

(2/13/2012 Tr. (Dkt. # 242) at 4-5.)

⁸ Motorola has provided the court with no basis for revisiting the court’s prior interpretation of Motorola’s agreements with the ITU and IEEE. (See generally Mot.)

⁹ In making this determination, the court is well aware of Motorola’s concern that because RAND terms are complex and specific to the parties involved, at the time a standard essential patent holder makes an initial offer, he or she may not have sufficient information to offer on RAND terms. The court agrees with Motorola insofar as patentee may have a legitimate concern that mistakenly offering its essential patents at a non-RAND rate could lead to an imminent lawsuit; and, such a concern on the part of the patentee would similarly defeat the purpose behind the ITU and IEEE agreements of widespread availability. But, this is precisely the reason the court previously held that initial offers for standard essential patents need not be on RAND terms, but only must be made in accordance with good faith. (6/6/12 Order at 24-25.) Moreover, the simple fact that offers for essential patents need not comport with RAND does not excuse Motorola from eventually honoring its commitments to grant licenses on RAND terms.

¹⁰ As this court stated in its June 6, 2012 order, this court will hold Microsoft to its statement through the course of this litigation. (6/6/12 Order at 20, FN. 7.)

¹¹ Based on the parties’ briefings to this point, the German Orange Book is a procedure employed by German patent courts to oversee the propriety of patent license agreements in RAND circumstances. (See generally Motorola Opp. to Microsoft Mot. for Temp. Restraining Ord. (Dkt. # 248) at 10-11 (describing German Orange Book procedure).)

¹² Moreover, Motorola’s own suggested procedure—where the court examines ex post whether Motorola’s last offer was in fact within the RAND range—inherently requires determination of at least a RAND royalty range.

¹³ For example, at the April 11, 2012 hearing for Microsoft’s motion for an anti-suit injunction, counsel for Motorola stated that this court has the ability to determine a RAND rate on a worldwide basis:

You may agree eventually with the German court. You may not. If it isn’t RAND you may look at that and dismiss it and say, I don’t think it’s RAND in Germany, I’m going to set a different rate. And to the extent that my rate is lower than the German rate, I’m going to order Motorola to pay back to Microsoft the differential that it, quote/unquote, overpaid in Germany.

*****

And to the extent Your Honor finds something different from Germany that you don’t agree with, Your Honor will have the opportunity, should you deem it appropriate, simply to tell Motorola to pay back the difference in Germany. That’s not an encroachment on your jurisdiction. I guess that goes to the comity part as well. That’s not an encroachment on your jurisdiction. You will simply find that the court didn’t determine a RAND rate in Germany. You did determine a RAND rate in Germany, to the extent that Motorola ought to pay some German money back to Microsoft.

(4/11/12 Tr. (Dkt. # 276) at 26, 28 (emphases added).)

¹⁴ Both parties appear to agree that RAND is not a set point but a range that may vary based on the circumstances of the individual parties to a RAND agreement. (Motorola Resp. to Microsoft Mot. for SJ (Dkt. # 274) at 9-11 (discussing agreement of parties regarding complexity of RAND terms and that RAND terms afford parties flexibility to come to individualized agreements).)

23

***************

HONORABLE JAMES L. ROBART

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

MICROSOFT CORPORATION,

Plaintiff,

v.

MOTOROLA, INC., et al., Defendants.

_____________

MOTOROLA MOBILITY LLC, et al.,

Plaintiffs,

v.

MICROSOFT CORPORATION,

Defendant.

______________

No. C10-1823-JLR

PRETRIAL ORDER

______________________

Plaintiff Microsoft Corporation (“Microsoft”) and Defendants Motorola, Inc. (n/k/a Motorola Solutions, Inc.), Motorola Mobility LLC, and General Instrument Corporation (“Motorola” or “Defendants”), through counsel undersigned, jointly file this Pretrial Order.

I. JURISDICTION

Motorola disputes whether the Court has jurisdiction to conduct a trial to determine a RAND rate or RAND range for a license to its standard-essential 802.11 and H.264 standard-

Microsoft contends that the Court has jurisdiction to determine each of the issues to be adjudicated at the November 13, 2012 trial, as further described below.

II. ISSUES TO BE ADJUDICATED AT THE NOVEMBER 13, 2012 TRIAL

Motorola respectfully submits further that a RAND royalty can only be determined with an understanding of other material terms of a RAND license. In particular, as set forth in the October 2010 letters and as required by the reciprocity provision of certain Motorola LOAs, any license under Motorola’s 802.11 and H.264 portfolios must include a grant-back license to Microsoft’s respective H.264 and 802.11 portfolios. Accordingly, Motorola respectfully submits that the RAND royalty rates determined by the Court should reflect the grant back license.

III. ADMITTED FACTS

1. Microsoft is a Washington corporation having its principal place of business in Redmond, Washington.

2

3. Motorola Mobility LLC is a Delaware limited liability company, having its principal place of business in Libertyville, Illinois. Motorola Mobility LLC’s predecessor-in- interest was Motorola Mobility Inc. (“MMI”), which was a Delaware corporation having its principal place of business of business in Libertyville, Illinois.

4. MMI was a wholly-owned subsidiary of Motorola Mobility Holdings, Inc., which was a wholly owned subsidiary of Motorola, Inc. MMI was spun-off from Motorola, Inc. on January 4, 2011. MMI was acquired by Google, Inc. on May 22, 2012. Motorola Mobility LLC is MMI’s successor-in-interest and a wholly-owned subsidiary of Google, Inc.

5. General Instrument Corporation is a Delaware corporation, having its principal place of business in Horsham, Pennsylvania. General Instrument Corporation was a wholly- owned subsidiary of MMI and now is a wholly-owned subsidiary of Motorola Mobility LLC.

6. The parties are members of the Institute of Electrical and Electronics Engineers (“IEEE”).

7. The IEEE-SA is the division of the IEEE devoted to the development of industry standards.

8. The IEEE-SA developed the 802.11 wireless communication standard. The 802.11 standard was initially released in 1997. It has been amended and revised numerous times since 1997 (e.g., 802.11a, 802.11b, 802.11g, and 802.11n).

9. The parties are members of the International Telecommunication Union (“ITU”). The ITU Telecommunications Standardization Sector (“ITU-T”) is one of the three sectors (divisions or units) of the International Telecommunication Union; it coordinates standards for telecommunications.

3

11. The ITU-T, in conjunction with two other standards bodies, the International Organization for standardization (ISO) and the International Electrotechnical Commission (IEC), developed the H.264 video compression standard.

12. Defendants submitted numerous Letters of Assurance to the IEEE-SA in connection with its development of the 802.11 standard.

13. Defendants submitted numerous Patent Statement and Licensing Declarations to the ITU-T in connection with the development of the H.264 standard.

14. In submitting Letters of Assurance to the IEEE-SA covering their 802.11 standard-essential patents, Defendants stated that they “will grant” or “[are] prepared to grant” worldwide, irrevocable, non-exclusive licenses to their 802.11 standard-essential patents covered by each Letter of Assurance on RAND terms and conditions.

15. In submitting Patent Statement and Licensing Declarations to the ITU-T covering their H.264 standard-essential patents, Defendants stated that they will grant worldwide, irrevocable non-exclusive licenses to their H.264 standard-essential patents covered by each Patent Statement and Licensing Declaration on RAND terms and conditions.

16. Defendants sent Microsoft a letter on October 21, 2010, that contained certain proposed royalty terms for a license to Defendants’ patents that “may be or become” essential to the 802.11 standard, and stated that “Motorola will leave this offer open for 20 days. Please confirm whether Microsoft accepts the offer.”

17. Defendants sent Microsoft a letter on October 29, 2010, that contained certain proposed royalty terms for a license to Defendants’ patents essential to the H.264 standard, and stated that “Motorola will leave this offer open for 20 days. Please confirm whether Microsoft accepts the offer.”

4

19. Microsoft is a licensor to, and a licensee under, MPEG LA’s H.264 patent pool.

20. Google, Inc. is a licensee under MPEG LA’s H.264 patent pool.

21. Via Licensing Corporation administers a patent pool covering certain patents declared essential to the 802.11 standard.

22. Neither Microsoft nor Motorola is a licensor to, or licensee under, Via Licensing’s patent pool.

B. Microsoft’s Factual Contentions.

2. The RAND royalty for a license to Defendants’ H.264 standard-essential portfolio is not more than a fraction of a cent per unit sold by Microsoft, based on the relevant evidence and the most closely analogous licenses (e.g., the MPEG LA H.264 pool license terms and Google’s H.264 pool license). If the Court chooses to determine the RAND royalty for Microsoft’s H.264 standard-essential patents as Defendants have requested, Microsoft believes that the same basic evidence shows that the RAND royalty for a license to Microsoft’s H.264 standard-essential patent portfolio is not more than one cent per unit sold by Defendants.

3. The RAND royalty for a license to Defendants’ 802.11 standard-essential patent portfolio is not more than cents per device, based on the relevant and most probative evidence (e.g., Motorola, Inc.’s own InteCap study, the Via pool license terms, the inherent limitations in the $3-$4 price of the Marvell chipset that provides 802.11 functionality in the Xbox, and

5

4. The royalties proposed by Defendants are not RAND because, among other reasons: (a) they capture the holdup value of the standard rather than the value of Defendants’ inventions before the standard was adopted and widely implemented; and (b) if used to set royalties for others whose contributions to the standard are equivalent to Defendants’, they would produce a stacking effect that would be so costly as to defeat adoption of the standard.

5. The royalties Defendants charge in connection with other non-comparable licensing arrangements are not indicative of the RAND royalties to which they are entitled for their 802.11 and H.264 portfolios at least because those other licensing arrangements (a) involve technologies significantly more closely tied to the basic functionality of the licensed products – such as cellular standards used in cellular telephones (in contrast to the relationship of the H.264 or 802.11 standard to Microsoft’s products) and/or (b) otherwise involve technologies other than, or in addition to, H.264 and/or 802.11.

6. Defendants failed to apportion the value added by their patented inventions from the value of: (a) other aspects of the standards; (b) the standards themselves; or (c) other aspects of Microsoft’s products. Proper apportionment prevents the patent holder from being compensated: (a) beyond the value of its contribution; (b) for aspects of the to-be licensed products that are not the subject of the patent claims (except where those claims are the basis of customer demand for the entire product); or (c) based on value attributable to third-party contributions – a particularly important issue when dealing with standards involving large numbers of complementary patents necessary for a standard-compliant implementation.

6

C. Defendants’ Factual Contentions:

1. The RAND royalty for a license to Motorola’s H.264 SEPs is 2.25% of the net selling price (“NSP”) of licensed products (e.g., Microsoft’s Xbox 360 or Windows OS software), based on a hypothetical negotiation between the parties considering the relevant evidence (e.g., Motorola’s past licenses, the strength and value of Motorola’s patents, and the use of Motorola’s patents by Microsoft). Based on that same evidence, an appropriate cap should apply to any net royalties payable to Motorola. The royalty due to Motorola would be offset by a RAND royalty for a license to Microsoft’s H.264 SEPs which also is 2.25% of the NSP of licensed products (e.g., Motorola’s smartphones and set-top boxes), based on a hypothetical negotiation between the parties considering the relevant evidence (e.g., the relative strength and value of Microsoft’s patents and the use of Microsoft’s patents by Microsoft).

2. The RAND royalty for a license to Motorola’s 802.11 SEPs is 2.25% of the NSP of licensed products (e.g., Microsoft’s Xbox 360) based on a hypothetical negotiation between the parties considering the relevant evidence (e.g., Motorola’s past licenses, the strength and value of Motorola’s patents, and the use of Motorola’s patents by Microsoft). The royalty due to Motorola would be offset by a RAND royalty for a license to Microsoft’s 802.11 SEPs which is 0.25% to 0.5% of the NSP of licensed products (e.g., Motorola smartphones and tablets), based on a

7

3. Based on the royalty rates discussed above for the parties’ 802.11 portfolios and each party’s relative exposure, Microsoft would owe royalties as set forth in Motorola Proposed Finding of Fact 471(g). Depending on the way in which a royalty payment to Motorola would be structured, a running royalty for Xbox would be as set forth in Motorola Proposed Finding of Fact 471(h).

4. Based on the royalty rates discussed above for the parties’ H.264 portfolios and each party’s relative exposure, Microsoft would owe royalties as set forth in Motorola Proposed Finding of Fact 472(h). However, the parties would have agreed to a reasonable cap as set forth in Motorola Proposed Finding of Fact 472(i). Depending on the structure for payment, a running royalty for Windows would be as set forth in Motorola Proposed Finding of Fact 472(j).

5. The MPEG LA and Via Licensing patent pools are not appropriate benchmarks for determining RAND terms. Patent pool licenses are fundamentally different than bilaterally negotiated licenses and the terms of a pool license result from a different set of motivations and incentives. Moreover, patent pools are voluntary organizations and because pools typically have low rates that do not reflect the commercially reasonable value of SEPs, many SEP holders do not join pools. Here, Motorola has decided not to join the MPEG LA and Via Licensing patent pools. In addition, the MPEG LA AVC/H.264 patent pool is not an appropriate benchmark for the value of Motorola’s H.264 SEPs because (1) Motorola is not a licensor or licensee of the pool and it does not include Motorola’s patents; (2) it was formed by only 15 of the over 1,100 current licensors and licensees currently participating in the pool and, therefore, is not a multiparty arrangement as contemplated by Microsoft; and (3) it was formed after the standard was adopted. Similarly, the Via Licensing 802.11 patent pool is not an appropriate benchmark for the value of Motorola’s 802.11 SEPs because, in addition to the reasons stated above, (1) Motorola and Microsoft are both

8

IV. ISSUES OF LAW¹

A. Issues of Law Proposed by Microsoft:

1. What legal criteria are applicable to determining a RAND royalty?

B. Issues of Law Proposed by Defendants:

1. What legal criteria are applicable to determining RAND terms?

2. Is the proper framework for determining the RAND terms and the appropriate range of RAND rates for the parties’ respective 802.11 and H.264 standard essential patents to consider a hypothetical negotiation taking place between the parties, similar to the hypothetical negotiation of the Georgia-Pacific decision, constrained by a RAND commitment that relies on, among other factors such as (but not limited to) those in Georgia-Pacific (1) Motorola’s historical licensing practices; (2) real-world licenses entered into by Motorola and Microsoft for the particular patents at issue; and (3) the value, use and demand of the parties’ patented technology in the licensed products?

V. EXPERT WITNESSES

1. Jerry Gibson (will testify)
Department of Electrical & Computer Engineering
[address]

Mr. Gibson will be called to testify regarding the issues contained in his opening and rebuttal expert reports.

2. Matt Lynde (will testify)

9

Mr. Lynde will be called to testify regarding the issues contained in his opening and rebuttal expert reports.

3. Kevin Murphy (will testify)
University of Chicago Booth School of Business
[address]

Mr. Murphy will be called to testify regarding the issues contained in his opening and rebuttal expert reports.

4. Michael Orchard (will testify)
Rice University
[address]

Mr. Orchard will be called to testify regarding the issues contained in his opening and rebuttal expert reports.

5. Timothy Simcoe (will testify)
Strategy & Innovation Department
School of Management Boston University
[address]

Mr. Simcoe will be called to testify regarding the issues contained in his opening and rebuttal expert reports.

6. Peter Rossi (possible witness only)
UCLA
Anderson School of Management
[address]

Mr. Rossi may be called to testify regarding the issues contained in his rebuttal expert report.

B. On behalf of Motorola:

1. Mike Dansky (will testify)

10

Mr. Dansky will be called to testify regarding the issues contained in his opening and rebuttal expert reports

2. Charles Donohoe (will testify)
[address]

Mr. Donohoe will be called to testify regarding the issues contained in his opening and rebuttal expert reports

3. Timothy Drabik (will testify)
Page Mill Technology Corporation
[address]

Dr. Drabik will be called to testify regarding the issues contained in his opening and rebuttal expert reports

4. Richard Holleman (will testify)
[address]

Mr. Holleman will be called to testify regarding the issues contained in his opening and rebuttal expert reports

5. Richard Schmalensee (will testify)
MIT Sloan School of Management
[address]

Dr. Schmalensee will be called to testify regarding the issues contained in his opening and rebuttal expert reports

6. Roger Smith(will testify)
[address]

Mr. Smith will be called to testify regarding the issues contained in his opening and rebuttal expert reports

11

Dr. Sukumar will be called to testify regarding the issues contained in his opening and rebuttal expert reports

8. Tim Williams (will testify)
Beach Technologies, LLC
[address]

Dr. Williams will be called to testify regarding the issues contained in his opening and rebuttal expert reports

VI. OTHER WITNESSES

Individual	Subject(s)
Howard P. Benn May be contacted through Counsel (possible witness only) (by deposition)	Mr. Benn may be called to testify regarding, among other things, issues relating to Motorola’s participation in and contributions to the IEEE 802.11 working group, alternative technologies to Motorola’s patented technologies, and any other issues raised at his deposition in this matter.
Aaron Bernstein May be contacted by Counsel (possible witness only) (by deposition)	Mr. Bernstein may be called to testify regarding, among other things, Symbol Technologies’ and Motorola’s licensing activities, 802.11 patent-related litigation, Motorola’s acquisition of Symbol, and any other issues raised at his deposition in this matter.
Scott Brewer May be contacted through Counsel (possible witness only) (by deposition)	Mr. Brewer may be called to testify regarding, among other things, Motorola’s licensing activities, internal licensing studies commissioned by Motorola, and any other issues raised at his deposition in this matter.

12

13

14

15

B. On behalf of Motorola:³

16

17

18

VII. EXHIBITS⁴

Attached hereto as Appendix A is Microsoft and Motorola’s Joint Exhibit List with Stipulations. Microsoft’s exhibits, along with any joint exhibits, begin at Exhibit 1. Motorola’s exhibits begin at Exhibit 2000.

19

CALFO HARRIGAN LEYH & EAKES LLP

By /s/ Arthur W. Harrigan, Jr.
Arthur W. Harrigan, Jr., WSBA #1751
Christopher Wion, WSBA #33207
Shane P. Cramer, WSBA #35099

By /s/ T. Andrew Culbert
T. Andrew Culbert, WSBA #35925
David E. Killough, WSBA #21119
MICROSOFT CORPORATION
[address, phone, fax]

David T. Pritikin, (pro hac vice)
Richard A. Cederoth, (pro hac vice)
Ellen Robbins, (pro hac vice)
Douglas I. Lewis, (pro hac vice)
John W. McBride, (pro hac vice)
SIDLEY AUSTIN LLP
[address, phone, fax]

Brian R. Nester, (pro hac vice)
Kevin C. Wheeler, (pro hac vice)
SIDLEY AUSTIN LLP
[address, phone, fax]

Counsel for Microsoft Corp.

SUMMIT LAW GROUP PLLC

By /s/ Ralph H. Palumbo
Ralph H. Palumbo, WSBA #4751
Philip S. McCune, WSBA #21081
Lynn M. Engel, WSBA #21934
[email]

By /s/ Thomas V. Miller
Thomas V. Miller
MOTOROLA MOBILITY LLC
[address, phone]

Steven Pepe (pro hac vice)
Jesse J. Jenner (pro hac vice)
Stuart W. Yothers (pro hac vice)
Kevin J. Post (pro hac vice)
Ropes & Gray LLP
[address, phone, email]

Norman H. Beamer (pro hac vice)
Gabrielle E. Higgins (pro hac vice)
Ropes & Gray LLP
[address, phone, email]

20

Counsel for Motorola Solutions, Inc.,
Motorola Mobility LLC, and General
Instrument, Corp.

IT IS SO ORDERED

DONE IN OPEN COURT this __ day of ______________, 2012.

__________________________________
HONORABLE JAMES L. ROBART

__________________
¹ Neither party has included issues of law that will be heard at the subsequent trial on Microsoft’s claims for breach of contract and promissory estoppel.

² In addition to the witnesses listed here, Microsoft reserves the right to call as a rebuttal witness any witness that Motorola calls to provide live testimony.

³ In addition to the witnesses listed here, Motorola reserves the right to call as a rebuttal witness any witness that Microsoft calls to provide live testimony.

⁴ The fact that an exhibit appears on either party’s exhibit list does not mean that either party concedes the exhibit is necessarily admissible. Moreover, certain of the exhibits identified by a party may only be offered if the party’s motions in limine and other evidentiary positions are not accepted by the Court.

21

CERTIFICATE OF SERVICE [see PDF, pp. 22, 23]

22, 23