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Report from the Seattle Courtroom in Microsoft v. Motorola ~pj Updated
Monday, January 28 2013 @ 09:01 PM EST

We had a volunteer in the courtroom for the hearing in Seattle between Microsoft and Motorola, and we have his first report.

The hearing was in two parts. The first part had to do with the validity of Motorola's patents, which Microsoft is challenging. The second part was on whether Google's 2005 license agreement with MPEG LA sweeps Motorola's FRAND patents at issue in this litigation into MPEG LA's clutches and control. It's all about how much Microsoft has to pay Motorola, if anything. For background, go here and here for lots more details and context on the license agreement issue.

To understand the report from the courtroom on the summary judgment issue, which we haven't been following until now, you'll need some documents:

Here's Microsoft's motion [PDF], Motion for Summary Judgment of Invalidity, and the supporting Declaration [PDF] in support with attached exhibits 1, 2 and 4, all PDFs. Exhibit 3 is under seal.

On the other side, here's Motorola's opposition [PDF] and declaration in support [PDF], with Exhibit 1 [PDF].

You know motions, by now, if you read Groklaw regularly, so you know the party that has brought the motion gets to reply, and here's Microsoft's [PDF], along with another declaration [PDF] with Exhibit 1 [PDF], a segment from the Markman hearing, Exhibit 2, and 3 [PDFs].

Wait, you may be saying, I thought you aren't supposed to present new materials in a reply. Correct, and if you do, the other side gets to file a sur-reply, and here's Motorola's [PDF].

So then Microsoft filed a sur-reply [PDF] of its own.

This litigation in Microsoft's back yard is its best shot at trying to get its FRAND strategy to work, and they are fighting hard, as you can see. I also have a transcript [PDF] from a much earlier hearing, held on May 7, 2012, so you can get a feel for the judge and the parties.

Note that all of the PDFs are about patents, so forewarned is forearmed, if you are supposed to avoid reading about such things.

With that introduction, here's our report, with his notes to follow when our volunteer gets home:

It was in two parts, the first part with 20 minutes a side was on a long standing motion for summary judgement on bits of the 374,375,376 patents for invalidity.

Microsoft's argument is basically: um you don't have an algorithm in here you seem to be claiming any and all electronic devices that do this poorly described stuff with no information on how to implement it. References to Control Means cases. Examples of devices/covered things: codecs, Processors, FPGAs, ASICs. Look these are all programmable (he needed a better analogy for ASICs basically being programmed at the factory)

Motorola's argument for this was: the patent is totally specific to one with a knowledge of the state of the art and it clearly refers to the algorithm needed in the AVC standard. ASIC's aren't programmable (perhaps he meant FPGAs). 374 talks about stuff that is intracoding, 375 intercoding, 376 is clearly PICAFF and Dr. Draebik's declaration supports this. The entire function is included with the wherein clauses. Mentions lines of cases related to HW circuitry (which the judge characterized as old cases, though apparently Teleguardia is from 2010). These HW cases don't say how things are wired but describe classes of circuit such as "Frame Grabber", "computer video decoder" and this was sufficient. Favorite quote from lawyer approximately: "Can find all the algorithms you want in the patents", to which Judge Robart said, "Could you repeat that last sentence?" And the lawyer said, "I don't remember what I said". (She seemed stressed through this entire 20 minutes).

The judge told Motorola near the beginning of their time that basically Dr. Draebik's declaration is the only thing that could really save these claims.

Then after that it was on to the "ticking timebomb" of the MPEG-LA stuff. It sounded like there's likely to end up being a trial on breach of contract down the road.

It turns out that the only (and I mean the only) part of the contract in dispute is that parenthetical with a lower case scope. This bit was to be 30, 40, 10 but didn't last that long. Google has an AVC Products and AVC OEM license and an enterprise license. The debate is really just does the "commensurate" with the lower case "scope of the license" which describes the grant-back license include Motorola and what other terms.

Motorola's argument is that its meaning is unclear, there's no extrinsic evidence about this parenthetical (as opposed to the stuff about affiliates), and Motorola didn't help in the drafting of this bit so it should be construed against MPEG-LA under New York law, and that bit in the contract saying we're both smart parties doesn't count against us because we didn't sign the contract -- it was Google. And we're an operating company so that giant problem of hiding patents in holding companies doesn't matter for us so it's clearly inequitable that we'd be covered by the grant back. And MPEG-LA is totally not comparable and most certainly not for past damages before we got acquired. Also stuff about regardless of what MPEG-LA *wanted* it to say, parties get to rely on what it *actually said*.

Microsoft got asked why they didn't bring Google in so as to deal with this thing earlier. "Because we wanted to keep our trial date" was basically the sum of it (and we only kind of introduced it at trial ).

My impression of this bit of yesterday's article

That tells me that, at a minimum, there was a difference between the language of the regular AVC license and the Enterprise License prior to any change to the language of the former. That supports what Google is saying, that its license was an Enterprise License, so whatever the other license said, it had its own terms that it paid for, and those terms were different. In fact, Horn had pushed for the change because he wanted the change to be "like the grant-back in other licenses." That's if the change went the way Mr. Horn claims, which we can't know for sure without deposing him. And that means at one time, prior to this revision, assuming it happened, the grant-back provisions were not the same. Which is what Google is saying."
... is that only the enterprise agreement (which just seems to let you take advantage of some sort of license cap for affiliates) covers affiliates.

Regardless of how well or poorly the MPEG-LA contract is written, it's pretty clear that Microsoft's logical argument is that if one were to write a patent pool agreement, one would really want to make sure that all affiliates were included by the grant-back provision because otherwise what Microsoft and Horn are describing is all you would need to do to neuter the grantback provision entirely, and even if Motorola were specifically listed you'd just stick Motorola's patents in a subsidiary prior to acquisition.

What. You are surprised the judge is leaning toward Microsoft on the validity issue? On the affiliates issue, if you read the materials here, you will see that the Enterprise License that Google took allowed them to pick and choose which affiliates were covered. That's Google's position, anyway.

I want to say thank you to our volunteer for taking time off from work to do this for us, and a big thank you to his boss for letting him.

Update: And here, as promised (although a little delayed) are his full notes:

MS v Motorola 1/28/2013 1:21 pm

Looks like some extensions to the lawyers' tables are gone, only space for about six at each table.

13 in audience area, more people who look like students/public. Reuters woman here again, found courtroom with MS PR woman 2 wrong tries [wrong floor].

For some reason someone is on speakerphone to entire courtroom. Don't know who. Person in front of me is @SwiftStories on Twitter apparently. Only 6 a side on lawyers at bench. Last one on Motorola side looks new (might be paralegal? was moving docs). One who got threatened with contempt is not there (looks like the main Microsoft guy [the Motorola lawyer who looks like Mr. Harrigan of the Microsoft side]).

4 audience members in jeans, one with a pierced upper ear.

Ralph Columbo is guy on phone from Motorola.

"Delighted to see you again, it's been so long." [Robart]

Two matters finalized, Microsoft's summary judgement of invalidity, Markman hearing.
Inclusiveness of languages.
Relevant to know what was in and what was not. MPEG-LA stuff left as "ticking timebomb" and it matters if they're impacted. No hidden agenda in this despite some of the commentators [Robart].


Argument first on invalidity. 20 minutes each.
Spend time highlighting important (Jenner can tell war stories [joke])
Short break -> 2:25 for Google license 30 minutes Microsoft, 40 Motorola, 10 Microsoft.

Richard A. Cederoth for Microsoft.
Handout that can be tossed, the claim language.
Robart: "What would the day be without a handout from both sides."
Microsoft: No one has yet to identify algorithm within '374, '375, '376 patents on doing this stuff. Disclosure, specificity. It's important to disclose how a device does things. Motorola proposes "decoder" as sum of disclosure, refers to all electronic devices that decode stream of pictures. ASICs, FPGAs, processors, [also Codec as the 4th], no description how to program one to do things.

112 p. 6 [Section of US code] claim elements. "Means for decoding." Means plus function stuff. Basically.

"What's best case?" - Robart [meaning best legal precedent, not best-case-scenario as I thought at the time]. Microsoft: Control means cases. Biomedino? Any device that is programmed to decode. Law says it can't be every box that does this function; i.e. this is just doing function claiming. [There was language here about how the diagram would just be an empty box saying decoder].

Robart: Motorola's response is Draebik knows what a decoder is. [Dr. Draebik is one of Motorola's expert witneses from before].

Microsoft: Couldn't just plug them in, would need to program them. [This sounded a bit like that Samsung foreman, but it's not really]. How would you program them? No describtion how to make a decoder, so no one would know if they infringed or not. Nothing in patent to tell us. Different from Rembrandt where there was a known algorithm, i.e. Trellis decoding [a case where it didn't have the algorithm in the patent, but the patent said Trellis encoding and there was a known specific algorithm for one knowledgeable in the art]. Patent says decoder is "any device".

(Argument seems likely to be 20 minutes of the same stuff).

Rather than being algorithm, he [Draebik] just dealt with part of it. Federal Circuit says ignore it like Noah case. 2nd half of declaration where he purports to have an algorithm none of the examples do that. Declaration.

Robart: Is algorithm required if term decoder is used?
Current argument decoder + computer synonymous.

Microsoft: Position is that in patent decoder means any electronic device, CPU can be programmed, ASIC is configured once and then does things [he's a lawyer and knows he needs better wording/analogy on ASICs]. "Examples are 4 different blank slates." All four need to be configured before they will decode and how to configure is not disclosed. Motorola trying to create issue of fact. Noah case. Robart: "Where in your declaration is there an explanation of ASIC?" -- lawyer can't remember what ASIC stands for, until Lewis, Douglas I. Lewis, different Microsoft lawyer is first with page reference and finds it.

Motorola's time: it's the female Motorola lawyer from last time with the red hair.

Motorola: '374, '375, '376
Ben [not sure what this is in my notes] para 6 - ASIC -> hardwired physical.
Trying to claim ASICs aren't programmable and that MS lawyer was wrong and means FPGAs. [You give the factory a full description of the ASIC as a VHDL file and a giant pile of money and then you get chips, looks like 7042/how-much-does-it-cost-to-have-a-custom-asic-made]

It's a fair enough explanation, but it's just programming with gates or transistors and apparently a gate array (FPGA - FP) is an option]

Motorola includes entire function with wherein clauses and 3 elements.

Robart: Dont' identify how to decode. Encoding has one passing reference. Unless Draebik saves you, it's fatal.

[I think this was him asking her to focus her time on this aspect of it].

Slide 8 -- "aging judiciary" [Robart's comment as he was trying to find it in his booklet, the page number was in the bottom center of the page]

Lots of info on the structure of decoder. [yeah right]

It's video decoders, should look at them in the context of standards, and (she sounds stressed here).

Slide 11. Line of cases directed to hardware circuitry. When hardware circuit patent doesn't say how things are wired, but describes classes of circuit. Frame grabber, computer video decoder and this was sufficient [this was some sort of medical hardware case]. Microsoft Windows can use a hardware decoder.

Sufficient disclosure is enough [I think she meant to create an issue of fact, thereby avoiding summary judgement on these claims]. All the other cases apply to a general purpose computer.

Intel case -- core logic hardware and generic core logic adapted to perform fast write.
The DV decoder hardware gets past 112.

Robart: Old cases (Motorola) vs new cases.
Motorola: Dealer track referred to Computer aid. Aristocat case.
"Great name" [Robart] Teleguardia 2010 case.
Tying algorithm to patent. Page 17 map claim 13 as pictures. [the audience video screen wasn't on, and the lawyer was standing in front of her screen]

Function is about decoding in intracoding mode, next is inter, third is special PAFF [i.e. '374 is intra, then '375, '376] scanning in pairs. Directed to decoding the modes. Can find all the algorithms you want in the patents.

Robart: Can you repeat that last sentence?
... doesn't remember what she said.

Robart: Column 5 decoder will be used expansively to refer to everything. Having a hard time getting around your own language. [column 5 is some chart possibly of claim language, provided by Motorola].

2:20 return. Google license agreement:

Excerpts from various exhibits with tabbed docs. 8.3 - grant back. Who grants it, what it includes, end of discussion but for the parenthetical. Scope normally refers to what the licenses do.

Quote from letter to MPEG-LA. AVC products, OEM, AVC, enterprise licenses. Need to look at all of these, and Motorola ignores those two. Enterprise license section has nothing to do with the case.

Tab 7. Lists series of license types. 2.6 OEM, 2.7 Enterprise. AVC product license is a decoder, but not one in an OS, which is OEM license. And Enterprise not scope.

Page 10 sec 3, 3.1.1 sets out a cap, combines for all affiliates no provision for designated.

3.16 - Royalties caps, affiliates.

3.17 - Enterprise license. 3rd line coverage purpose is royalties, the structure and cap doesn't apply to OEM or products.

3.17 - says you can get this cap, doesn't address license scope. This says they are under the cap, have to be licensees already to get the cap. Notion that designation is fallacious because have to [be] designated and already be a licensee. [Basically this was saying that an Enterpise license just gets you a royalty cap for your entire enterprise with affiliates that are licensees as under one of the actual licenses such as products or OEM].

AVC products and OEM [what Google had].

Motorola makes equitable argument that we shouldn't have grant back if we don't get benefit. Page 4 of excerpts [that binder with tabs].

Horn declaration - page 5,6. Were discussions including Motorola, similar discussions for MPEG-4, and Motorola signed that one. Applying to affiliates avoids the avoidance of grant backs via affiliates. Could park patents in non-practicing entity [aka troll]. And without it, the evil could be accomplished.

All that's needed to get the license is the stroke of a pen, and Google's already paying the cap [so it's a free stroke of the pen].

Section 2.3 page 4 - each licensor ... has to do all SEPs now or in the future. Don't think there's any inequity.

Google selected AVC products, OEM, and Enterprise so doesn't cover the scope at all.

Argument should be construed against drafter, don't mention 8.13. construed without favor to either party. Motorola part of drafting process and aware. The NY cases show construction against last resort. [There was also something in here about it not applying in NY when contract is between sophisticated parties (such as people who can field 6 lawyers each side for months on end)].

Mid-2012 - acquisition. [I think Robart asked when the acquisition was].

Robart: Why wasn't it brought up sooner?

Microsoft: Getting google into the case would be complicated and wanted to avoid continuance. In case argued clear comparable and a legal issue [as to why they brought it up in the case, saying well we only kind of did]. Didn't want to lose trial date. Sorry it didn't bother Google soon enough.

They believe same rate applies to past rates as presumption applies forward and back.

And Microsoft finished, still had 3-4 minutes [of their 30].

Motorola [Jesse J. Jenner, of Ropes & Gray]:

Overview of Tab 2 [another binder]. What issues. Needed to know what if any impact is needed.

November trial, the Google agreement is/should not be comparable. Different kind of critter. Insofar as trial ... just another pool agreement.

Claim grants back doesn't extend to Motorola because of parenthetical clause, not affiliate language. Claims it's ambiguous because Google's licenses don't cover Motorola in the first place, and since never covered, no grant back. If it's ambiguous, doesn't touch on the scope language.

"Motorola is an affiliate, no question" - Motorola's Jenner [in response to Robart question]. "Anything else is just a diversion" .

Licensees have chosen different licenses in different years. 3.1.7 license fees can cover affiliates if they chose to do so.

"Took you almost 4 minutes to get wound up" [Robart jokiness, Jenner was being told to slow down for the court reporter].

Product license in 2012 is what would cover Motorola. No affiliate is licensed unless it gets its own license. Affiliates don't get benefit unless ... so didn't become a licensed affiliate [Jenner says of course we're an affiliate but we're not a *licensed* one].

January 2005 - 2009,10 then 2011 renewed, 2012 AVC product license. No affiliate licensed.

May 2012. Google didn't tell MPEG-LA and Motorola never became licensed affiliate.

Parenthetical is the important bit. Scope can cover the kinds of licenses, whether it includes affiliates, could cover the terms such as duration. Claim affiliate only grants back if it's included.

Motorola is an operating company, not holding company, re claim it's inequitable.

Tab 1 - agreement - 2.10 scope of licensee grants, 8.3 scope of licenses selected hereunder. Article 1 has definitions, when used with capitals. Scope in parenthetical *not* capitalized. Zilo says this has to do with AVC standard and parenthetical is much broader.

Motorola didn't sign agreement so the 'against the drafter' bit isn't outweighed [that term that says ignore that part of NY law].

Horn declaration and emails had to do with 8.3, not the commensurate parenthetical.

Language is there and needs to have meaning. If they wanted it to mean something else or ignore it, they could have gotten rid of it.

Robart: Were told to ignore parenthetical, figure out what it means, and then stick it in and see how it changes (before Scalia wrote some book). If that's the language would Google [something to the effect of be granting back Motorola's AVC SEP patents]?

Jenner: Would be telling war stories instead. [He made clear it was a hypothetical]

Robart: Now adding parenthetical...

Jenner: Includes lots of things like grant-back term duration. Basically the parenthetical is clear and there's no extrinsic evidence, and it's MPEG-LA's fault not Google's for any ambiguity.

Side letters - about license grant. Motorola shouldn't need to... If they wanted parenthetical [not certain what this was].

Robart: Has Google acquired a company (not Motorola) with H.264 [SEPs]? If they have a licencse then license back.

Jenner: Don't know if anything in record about this. [There was a mention of YouTube being covered as a licensee but don't know if they have H.264 patents to grant back, and there was a little discussion in glances at Motorola table before the 'we don't think so', and there was also a question that was an open-ended one for anything else relevant to that in the record].

Motorola finished.

Microsoft [Arthur W. Harrigan, Jr., of Danielson, Harrigan, Leyh & Tollefson]:

It's down to parenthetical. [Robart?]

Microsoft needs grant-back for AVC products and OEM. Says Horn says this when Robart asked why it [Horn declaration] didn't say this. Pages 5, 6 and page 18 of declaration.

MT wants scope to change definition of capital A - Affiliate. 3.1.7 Affiliate.

[Apparently this is all I have for MS's 10 minute allowance, they didn't use much of it. Their argument was basically that Microsoft needs a product and OEM license and that's what Google is granting back for the pool to be able to grant. I.e., if Google didn't have an OEM license, Microsoft might still be in trouble on that front, and this is really all that 'scope' with a lower case covers.]

Robart: Looking down the road - next monument will be potential breach of contract case (presumably on this). [He said stuff about figure out when it will be and have one guy from each side on a call with me to set a date so we can get it on the court's schedule and your vacation schedules.]

[There was the start of some Motorola question, but Robart responded, "No, I'm not going to tell you." I think about when November decision was going to come back.] Have some internal goals. ['Not the end of this month' (i.e., 3 days from when Robart said this)] Likely not end of February but start checking your mail then].

Update 2: Here's a quick and dirty text version of the May 2012 hearing (and you've already read his resulting order). You don't want to miss the judge's closing words at the hearing:












May 7, 2012






For the Plaintiff:
Arthur Harrigan, Christopher
Wion, David Pritikin, Richard
Cederoth, Andy Culbert, David
Killough, David Howard and Shane

For the Defendants:
Jesse Jenner, Ralph Palumbo,
Norman Beamer, Philip McCune,
Kevin Post and Neill Taylor

THE COURT: The clerk will please call this matter.

THE CLERK: C-10-1823, Microsoft versus Motorola. Counsel, please make your appearance.

MR. HARRIGAN: Good morning, Your Honor. Art Harrigan from Danielson Harrigan, representing Microsoft; and to the left here my partner Mr. Chris Wion; and David Pritikin from the Sidley firm; Rick Cederoth from the Sidley firm; Andy Culbert from Microsoft. And in the bleachers, David Killough from Microsoft; David Howard from Microsoft; and Shane Cramer from our firm.

MR. PALUMBO: Good morning, Your Honor. Ralph Palumbo, Summit Law Group for Motorola. Jesse Jenner who you know from Ropes & Gray.

THE COURT: Good morning.

MR. PALUMBO: And then starting at the end, Norm Beamer from Ropes & Gray; David LaComb from Ropes & Gray; Phil McCune from Summit Law Group; Neill Taylor from Motorola; and Kevin Post from Ropes & Gray.

THE COURT: Counsel, as usual we tried to give you some direction as to questions that we had that we thought were important. And we will follow more or less the schedule that we sent you in terms of who is speaking when.

It made more sense to me that each side address what -- not cross motions for summary judgment, but which go to somewhat the same area at the same time. And then we set


aside, at the very end, the question of the injunction. So, if that doesn't work you can blame me. But it seemed to me that was the most expedient way.

We are going to be issuing a written order on all of this, but if I feel it's appropriate, at the conclusion of today's hearing I will give you some preliminary observations, which would give you a chance to continue to work on your various matters in a manner with some greater guidance from the court. So, know that that is the situation that we're in right now.

And I guess the last thing I would say is, in getting ready for today's hearing, I think my principal frustration had to do with the fact that you are well into the law. I'm not sure you have done as helpful a job as I would have hoped on the facts. So don't be surprised if I interrupt you and take you back to the facts on some of these matters, because it would be helpful for us to get a better understanding of that.

So, that having been said, Mr. Jenner, are you carrying the flag today?

MR. JENNER: I'm carrying two-thirds of the flag, Your Honor, and Mr. Palumbo will carry the rest of the flag.

THE COURT: All right. Then I'll hear from you first, please.

MR. JENNER: Your Honor, let me begin by saying a


couple of things. First of all, we're as usual providing bench books of the graphics that we will use. I do want to point out that because of the nature of what's in these motions, the bench books contain some company business confidential information. What we have attempted to do, in order to try to protect that, is to redact confidential information from what will show up on the screen, but to include it in the bench books that Your Honor and counsel have, so that if I can hopefully adequately refer to things like "company X" and on the date you see with bullet 4, we'll call to your attention what I would like you to see without inadvertently putting confidential business information on the record.

THE COURT: That's fine, thank you.

MR. JENNER: The other thing that I would mention is that we have attempted to work into our presentation what we think would be helpful on the court's questions from Friday afternoon. I want to say in advance there's at least one question where I suspect, in the nature of what I think you're looking for or might be looking for, we could not get all of the information that you might want, over the weekend. I'll deal with that when we come to it, but I just want to let Your Honor know that we will attempt to address all the court's questions in going through the material.

So we are addressing the first two motions, what I would


call the March 30th cross motions. On Motorola's side, did Microsoft repudiate its claim to a RAND license for the reasons that we will discuss? And on Microsoft's side, the two aspects that remain from Your Honor's order. First of all, did the opening offer need to be RAND as a requirement? And if it did, was Motorola's opening offer consistent with RAND? So those are the motions that I'm going to address, and Mr. Palumbo will take up the injunctive issues later.

THE COURT: All right.

MR. JENNER: Topically here's what I would like to do is to give Your Honor a little background in brief in terms of summarizing what we think is important about Motorola's licensing program. I will go from that into the contracts discussing the relevant standards body's documents, what we think the contract is, and some things that flow from what the contract is or may not be. And then following on that I'll talk about Motorola's motion first and how we think the facts play into that. And then finally Microsoft's motion. I will, since Your Honor received an extra present on like Friday, I guess it was, of the determination in the ITC, it has some information which appears to be on the general subject matter of RAND licensing. And I would like to take a little bit of time to talk about two or three things that we think are salient there.

THE COURT: All right. Of that agenda, the one you


should probably spend the least amount of time on is Motorola's licensing program. I'm not sure that's as germane to me right now as some of the other topics, particularly your second one, which is the language.

MR. JENNER: Okay. So I will probably go into my accelerated voice mode and try to get that a little faster. So first of all the program -- I think what I want you to know about this, because it plays into the expectations certainly of Motorola, and we think others in the industry, is that this is a well-established program that people know about. It's got at least a 20-year history. It's based on substantial investments by Motorola in the technology. It's resulted in over 60 standard essential licenses that involve the various standards you see on the slide, including 802.11 and H.264.

What's important here, because I think it relates to the expectation of parties in the industry, that should be considered along with the contracts, they've all been the product of bilateral negotiations. Nobody ever presents a license agreement and says, "Sign here." Nobody would do that. These are all situations in which the information is discussed in bilateral negotiations and the parties, after a period of time in which they essentially knock out what all the terms should be, result in a license agreement.

THE COURT: Well, let me read you a line out of a


letter that -- "Motorola will leave this offer open for 20 days. Please confirm whether Microsoft accepts the offer." That's the last line in your letter. You're telling me that that's an invitation to negotiation? Sounds to me like it's an ultimatum.

MR. JENNER: Well, Your Honor, I can see that. But it is really in an entreaty for a party to respond. Motorola has done that in other situations. It's extended it when parties have come back and said, we're not ready to talk yet, we'd like another few weeks. And the deadline gets extended.

It's really an entreaty to the party to come back and engage in negotiations.

THE COURT: So what you're telling me is you said that but it didn't really -- that's not what you meant?

MR. JENNER: Well, I'm a little constrained here. I guess something else I probably ought to tell you, Your Honor, is that -- I think you've probably gleaned by the papers so far that there have, in fact, been continued meetings and negotiations between the parties. The parties did, in fact, engage. I'm limited in what I can say about that, because of an agreement between the parties. Things that did not make it into the record, we're not now anyway in a position to talk about. Things that did make it into the public record you can see in the briefs and you've seen some of it. This is something that parties routinely do. And


routinely parties either come back and have a first meeting, or they say, we're not ready yet, we want another three weeks. And three weeks get granted.

So, parties in the business understand that deadlines get set, the deadlines are flexible. They always have been.

THE COURT: I rather enjoy watching you argue with one hand tied behind your back. So I appreciate the dilemma that puts you in.

MR. JENNER: Well, maybe we'll get to a point some day that the parties will agree that we ought to lay out for Your Honor all the discussions that have actually happened, waive whatever agreements regarding 408 and non-confidentiality there are, and we can just all let our hair down. But, we're stuck. Again, there are things I would like to discuss, I can't discuss.

So, these are products of negotiation. There have always been a variety of terms introduced. Motorola is flexible that way. The licensing negotiating parties themselves are flexible that way. We would expect Microsoft to be flexible that way. You talk. You negotiate. New terms get brought up, they get changed. And ultimately it results in agreements.

And we've tried to point out to Your Honor by way of one example in the papers that these are not trivial one-page October 20th offering letters. That's not a complete offer.


This is a complete offer, which was signed by RIM after the parties had these negotiations and arrived at an 80-page document fully setting out the agreement between the parties. So the October letters may have offered certain terms for discussion, but by no means was that a complete offer that anybody would ever have contemplated signing as an agreement.

THE COURT: In your slide that you have up, you make the statement, "Over 60 standard essential licenses involving various standards."


THE COURT: Cellular standards for 2G / 3G / 4G. Wireless communications. The 802.11, and the ITU H.264.


THE COURT: We've had a terrible problem trying to understand what patents are covered, because going back to the letter that we were just talking about, "Enclosed is Motorola's 802.11 annex, which includes a non-exhaustive list of patents included in the license."

MR. JENNER: What does that mean?

THE COURT: Well, you know, when we talk about document language, contract language, don't I need to know what patent is covered by what -- I'll call them a convention, or an industry-standard agreement.

MR. JENNER: I think that's another one of the quirks -- the term of art at the last hearing was "murky". Today


it's going to be quirky or opaque, I suppose. But one of the quirks of this is, Your Honor, is in the position that the licensees are ordinarily agreeing, here are a set number of patents that Motorola believes are essential patents. There may be others. You may come to us and you may tell us that we have got a patent that you think you have to have a right to use to be able to practice wireless technology. And if you do, and the parties agree that it's an essential patent, you will be licensed, even though it's not in the annex.

So the annex can't cover or anticipate every patent that might come along, which the parties may agree that a licensee like Microsoft needs to have a right to use. If it becomes essential they will get it, even though it's not listed.

THE COURT: But how do I ascertain, then, the language that governs the procedure to get that license? You can see there are multiple versions of the language.


THE COURT: You love the ones that say "negotiate," Microsoft loves the one that says, "grant." That's not the exclusive terms and the language wanders all over the countryside. So what I'm trying to find out is, I mean, do I assume that whatever started in 1996 was replaced by multiple versions along the way, and it's the last one that now is the controlling language for everything going back to 1996?

MR. JENNER: No. The best way I can explain that,


which we'll come to, is in the case of the ITU and the Letters of Assurance, the LOA's that are in exhibit, I think it's 16 -- 15 for ITU. Those show patents. For each of the letters, attached to the letter there is normally a list of patents for which that LOA is being submitted. So you can correlate the ITU LOAs with patents for which those LOAs were being submitted.

THE COURT: All right. Well, you unfortunately wandered into something I want to know more about.


THE COURT: I'm looking at the Letter of Assurance for essential patents signed by Jonathan Meyer, senior vice president, dated April 21st. I've come to the conclusion that it's 2005. His handwriting is worse than yours and mine. And it says, "Patent Holder is prepared to grant a license." There is no attachment to it.

MR. JENNER: That's probably an IEEE version.


MR. JENNER: For the ITU there are patents, for the IEEE there are not.

THE COURT: But for the ITU you describe them as non-exclusive lists. Help me with that.

MR. JENNER: The parties would negotiate and agree on a need for additional -- that's the problem with judicial resolution of a term like this. I understand Your Honor's


difficulty in trying to understand what precise set of patents are we talking about. The parties know that they're not talking about a precise set of patents, they are talking about the ones that are listed. That's on the table. But the parties appreciate that other patents may come along which are essential for the benefit of the licensee, and they become included because they are essential. There's no way for you to know that.

THE COURT: Let me ask you this question, then. Is there any patent which is in dispute in this matter before me that is not covered by either the ITU or the IEEE?

MR. JENNER: Let me answer that one this way: To the extent that --

THE COURT: I think yes or no would be a great answer.

MR. JENNER: Then the answer has to be yes. And I'll give you a concrete example, because I think we've alluded to it in our briefs. One of the patents under the IEEE, the 802.11 standard, is a patent that we call Finkelstein. Finkelstein, the '712 patent. It's one of the patents litigated in the International Trade Commission case. The record on Finkelstein is a little bit different, because the IEEE expects you to submit continuing Letters of Assurance as additional portions of the standard get added, your letter is applicable to the new standard and the new portion. And


you've seen that.

One of the portions is 802.11-I, had to do with new security techniques. Finkelstein relates to new security techniques. Finkelstein would relate to 802.11-I. Motorola did not submit a Letter of Assurance for 802.11-I. There is no LOA covering Finkelstein, even though Finkelstein would be considered in the 802.11 patent. So that's a wrinkle. There may be other patents like that that we're not litigating at this point that fall into a similar wrinkle.

And I just don't know, because when we saw your order on Friday and thought about what it might mean, one of the things I thought it might mean is that you're, in fact, wanting to know how can we correlate at least the 802.11 patents with the individual Letters of Assurance. And Friday afternoon at 5 o'clock I can't get Motorola engineers to help me with that. If Your Honor wants that information, we will get it for you. But it's going to take time to get engineers to dive into the standard, which is about 1400 pages long of technology, and to figure out how to correlate the individual listed patents with the adds to the standard, which patents go with 802.11-I, which ones go with N, which goes with E. That's not a trivial exercise to go through, and I just can't do that today.

THE COURT: Well, I think what would be helpful for us and you've already answered this, you've said it's a


non-exclusive listing, so there may be additional ones. Some of them may be in the wrinkle-free zone, and some may be in wrinkles.

MR. JENNER: Or others, yes.

THE COURT: But I can look to IEEE or ITU as the mechanism that's being employed for those patents which are industry essential.

MR. JENNER: Yes. And as I will get to, we don't think it makes a difference. Microsoft may disagree with that. We don't think the analysis that the court should go through will cause that to make a difference, and I'm prepared to explain why.

THE COURT: All right.

MR. JENNER: So just to kind of wrap up with a little bit on the standard. I've mentioned aspects of the program that many companies have joined in, large substantial companies, all of whom negotiated with Motorola the way we think is required in a sensible industry like way. They arrived at agreements.

We're dealing with what that offer is. And the reason I include slide 6 is because we're in part dealing with the reasonableness of Motorola offering to Microsoft, as a starting point, what it offered to all these other companies. It's, "2.25 percent of the net selling price of the end product, subject to a grant-back of licensee's essential


patents." That's by no means a license agreement. It's some fundamental terms to consider. There were issues. Microsoft apparently thought that 2.25 percent for each license meant 4.5 percent total. We call that stacking. Motorola has never stacked any of the licenses. That's something you find out by negotiating. If Microsoft had asked, they would have been told.

"Subject to the grant-back license" means logically if you've got patents to grant back to me, I'm going to value them. My demand from you is going to go down. And that's also what happens in all Motorola licenses. There are lower resulting royalty rates. There are some royalty rates with substantial companies -- that I could whisper in your ear, but I won't say out loud -- where, in fact, it's a zero/zero cross license, because they had a lot to come back with. So the idea that it's a royalty-free license that Motorola was asking for is just wrong, as shown by history.

THE COURT: Let me take you down another rabbit hole, then. You just used a phrase that appears frequently in your pleadings, but is inconsistent with your position, which is you said, "I'm going to value them," referring to Microsoft's patents. Your position in the litigation is, you don't value the patents, you value the product. I've run into this dichotomy --

MR. JENNER: We value both. We value both. One of


the things that would be given credit is the patent portfolio that Microsoft would be willing to license back. If they have valuable patents to license back, that's enormously important to Motorola. It would decrease what it asks for.

You also value the products in terms of what the resulting royalty cost will be that the licensee has to pay. And if the licensee comes in and says in a negotiation, here is what you're asking from me, it's too much, it's too much, you need to decrease your royalty, then to use the words of Judge Posner, that I'm going to show you later, "Tell them that they're asking too much, and negotiate." And the price for the products comes down. People put in place caps, for example.

THE COURT: We've done a fairly exhaustive literature search, and there's this fellow who is a law school professor, he's at Berkeley but seems to be on leave to Stanford right now, and his writing is as close as I can find to addressing the issue of valuing royalties. And what he says is, "You don't look to the value of the end product, you look to the contribution of the patent and determine its value in the context of the value of the product." I need you to pick which argument you want to make.

MR. JENNER: Your Honor, it has to be both. The man said what he said in his article, and I'm happy that he said it. I don't think he's right. I think that when you


negotiate licenses you look at the licensee's portfolio in terms of value going back to them, and the impact on the product line, which will dictate the value coming to you. And you start to negotiate trade-offs. You negotiate both.

And I respectfully say to that author, if he thinks it's one and not the other, he doesn't know what he's talking about, Your Honor. That's my position. I don't know how many licenses he's negotiated. Maybe he's an Ivy Tower guy, I don't know.

But when you license portfolios, you look at the value of the adversary's portfolio as a benefit to them. You look at the royalty that will relate by applying royalties to their products, which will either be cash payment, they could be lump sum, they could be percentage royalty rates, they could be cap numbers, all of this gets negotiated as to what's coming back to you. And you have to factor both in. It's both not one or the other.

THE COURT: Well, then how can you tell me, then, that you have this 2.25 standard royalty rate that you offered everyone at the start? I mean, that seems to me to be intellectually inconsistent with what you've just said.

MR. JENNER: I don't see why, Your Honor. We say this is a rate that we've offered to others, we're offering it to you. The probable first thing that's going to happen, in a typical negotiation, is that the potential licensee is


going to come to a first meeting and say, here's why that doesn't work for us. It's going to result in too high a payment. We have certain enduser products you shouldn't be able to reach. There could be a panoply of things that people come back and say as to why we've got to get off your opening number and go on and negotiate different terms. That's why these things have to be negotiated.

THE COURT: But help me here. Let's assume two situations: One, a company that has an extremely valuable library of patents.

MR. JENNER: Like Motorola.

THE COURT: All right, Motorola. Well, actually since you're going to get the money, I'll pick Microsoft. I have no idea if they do or not.

MR. JENNER: They do.

THE COURT: Okay. They've got valuable patents and you ask 2.25 percent of the end value of the product.

MR. JENNER: Right.

THE COURT: If we had a company that had one patent and it was worthless, but it's an industry-essential patent that's easily duplicated technology from other sources, you would still say, cross license that worthless patent, but by the way pay us 2.25 percent.

MR. JENNER: No, it may get some value back. Motorola would like the cross license, because one of the


things you're trying to do is get what we call freedom of action. You don't want to find yourself a year later being sued by that patent. So, it will be assessed as to having some value. And it could result in a cross payment or a reduction of the royalty rate. If it's one patent that's a crummy patent, as you say, it's not going to get a lot of value. And the likelihood is that a company like Microsoft or Motorola is not going to make a huge diminution of the royalty rate.

But if you take a completely different situation where you have a company, and I won't get into details, but think in terms of the Ericssons, the Nokias, the IBMs of the world, that show substantial patent portfolios, those are going to be valued very highly, and they can result in incredible diminution of the royalty rate from 2.25 percent all the way to zero, or maybe money going to the other company.

THE COURT: So logically, then, what I hear you saying is 2.25 is a ceiling. You would never ask above it and you go down from there.

MR. JENNER: As a practical matter, that's right.

THE COURT: You're making this offer knowing nothing about the other side's patent.

MR. JENNER: As a practical matter the starting point, show me what you've got. That's the "subject to the grant-back." Show me what you've got and it


will go down. There have been a couple of higher numbers. We mentioned in our papers the agreement with Simple Technologies, for example, where there was a six percent jury award. There was another number that was higher. But typically Motorola starts with this number as a starting point, because it's where the starting point has been, and says, show me what you've got and I'll work with you. And the number goes down. It doesn't go up.

THE COURT: All right. Why don't you go to slide 10, because I've used up a bunch of your time here.

MR. JENNER: I'll breeze quickly by slide 7, because I want you to see there are these substantial companies, they provide grant-back rights, and that's been important.

So breezing through to slide 10, this is the first slide of the section on the contract. We wanted to hit quickly some principles of contract interpretation. The only one I'll linger on, Your Honor, is the one at the bottom, "Washington courts follow the context rule which permits you to look at extrinsic evidence, whether or not there is ambiguity." So you can, and we submit you should, look at information outside the contract.

Slide 11 is simply to show you the typical operative language of the Letters of Assurance. The Patent Holder will grant or is prepared to grant a license to applicants, an unrestricted number of applicants. And that, as you know,


leads to some of our arguments. This is typical language, it's not the only language, and I'll show you some more language shortly.

On slide 12, here I want to stick my neck out, Your Honor, and tell you as of today what I think the operative contract is. And the reason I'm sticking my neck out is that I admit in advance this is a little bit different from the conclusion you came to in February. But I'm going to tell you I don't think it leads to a different result.

We believe at this point that the Letters of Assurance are unilateral offers made by Motorola that it will grant licenses on reasonable terms, and that offerees, like Microsoft, if they satisfy the conditions to apply for a license in some form and negotiate, are entitled to the license.

So the offer is -- there's never a signed piece of paper constituting the contract. The offer is unilaterally made by Motorola. It's like, I'll give a reward of $500 to somebody who brings my cat. Show up with the cat, then you've accepted and you get the reward. You didn't have to sign a piece of paper. If you apply for a license and negotiate with me, then you have formed a contract under the Letter of Assurance.

THE COURT: Just a minute. I may not understand your entire argument, but I think you've changed the entire


footing of your case.

MR. JENNER: I think it gets to the same result. Give me one more slide to explain it.

THE COURT: All right.

MR. JENNER: I think what happens here is that you have a contract where Microsoft is obliged to be an applicant for a license, as you've heard endlessly from us in some form or another, and they are required to negotiate in good faith towards a contract.

If you look at slide 13, there are two other ways that we've seen this formulated, but I believe they come back to the same point. Your Honor has -- I think Your Honor has concluded, I'm always worried about putting words in your mouth, but I think Your Honor has concluded that the LOA is in agreement with the SSO. Microsoft is therefore a third-party beneficiary. And we agreed to that back in February. But that still gets you to the implementation of an agreement. That still requires Microsoft to comply with the Letter of Assurance on its part. It's still going to call upon Microsoft to do the same things. I don't think it leads to a different result.

The other implementation is from the Apple case. I don't know if you've seen this, but in the Apple case, Apple took the position that it's a flip. It's the SSOs who make the offer through their policies. And a company like Motorola,


by joining into the SSO and participating, accepts the SSO policies. And that makes the LOA just something submitted pursuant to the policies. And Microsoft can be a third-party beneficiary of that.

Judge Crabb essentially didn't rule on that, but for purposes of a motion to dismiss, she acknowledged Apple's position and discussed it in her order.

I submit to the court that no matter which of these three ways you look at it, there is ultimately an arrangement between Motorola, as the submitter of the LOA, and Microsoft as the intended beneficiary of the LOA, where if Microsoft applies for the license and negotiates in good faith, it's entitled to the grant of a RAND license. I don't think there's any difference in result.

THE COURT: Didn't you just read the industry essential patents out of your argument, then? I mean, what you're telling me is that everyone is going to do this unilaterally. Motorola on one side, Microsoft on the other. I'm missing something. You just took away the whole concept of industry essential.

MR. JENNER: No, it doesn't, Your Honor, because the LOA is still submitted to the standards organization in relation to a portion of the standard that invokes the standards essential patent. So the LOAs all relate to standards essential patents. The patents are still there.


For example, Motorola submits an LOA for 802.11-N. 802.11-N has certain patents that relate to it. Microsoft wants the license. Microsoft simply applies for a license and negotiates in good faith with Motorola. It is entitled to the grant of a license negotiated by the parties that will apply to those standards essential patents.

So they are basically there by virtue of the Letters of Assurance. They relate to standards essential patents. It doesn't read them out at all.

THE COURT: All right. I mean, it seems to me that you're missing what the court is inclined to see as the way that this works, which is that you have, in effect, a hybrid situation. You have -- at this point Microsoft has a license to use these industry essential patents that you have given to the licensing organization. They, however, in their bylaws disclaim any involvement in the negotiation of the terms. That's why I say, you know, we basically have got a dual situation. And I'm not quite sure why they did this, but the IEEE and the ITU both say, we don't have a dog in that fight. You, and in this instance Motorola and Microsoft, you sort that out.

However, you have already conceded that they have the right to use this patent.


THE COURT: I think you need to let me finish.


MR. JENNER: Oh, I'm sorry.

THE COURT: You have conceded that they have the right to use this patent. What you're fighting about is the terms for it. Otherwise, the whole industry-essential patent system collapses. Why go through this? Why list them in the first place, if I accept your analysis?

MR. JENNER: Let me first jump ahead to slide 17 and point out some of the language in the LOA. If you look at the bottom box, there is explicit language --

THE COURT: Hold on a minute. Let me get to slide 17. Okay.

MR. JENNER: There is explicit language in all the LOAs that says, "No license is implied simply by submission of the letter." And it has to be that way. The parties have to negotiate in order to create a license. It is disavowed that simply submitting LOAs creates a license. There is no license until the parties negotiate and sign one.

So, I think there is a misimpression if merely submitting LOAs is thought to create licenses. They do not. And that's well understood by everybody in the business. You need to negotiate a license. I think we have some quotes in the briefs from people, even at Microsoft, that acknowledge that. And that every license will be different.

Every license is going to be different after you negotiate it, because the circumstances of the parties in any bilateral


situation are always different. Somebody may wind up paying a lot of money, somebody may not. Somebody may have a lot to cross license, somebody may not. Somebody may want different terms in China, somebody else may not care about China. Somebody may want a defensive suspension clause in order to protect themselves in future litigation, somebody else might not care about it. There is no license implied by a submission of a Letter of Assurance. There is no license until one is negotiated and executed.

THE COURT: What is a defensive suspension clause? Either that or tell me that it doesn't matter.

MR. JENNER: It matters only because it's another important term. In brief what it does is it allows a licensing party to suspend a license as to customers of a licensee. If the customer of the licensee turns around and sues me, it gives me the ability to get my patents back. It doesn't negate your license as to all the rest of your customers. But if customer X sues me, I can defensively suspend my license to you, so that X is no longer licensed, I can fight back with them, I can defend myself. And parties negotiate for this. There was extensive testimony by Jennifer Oakes in the ITC about defensive suspension clauses.

THE COURT: Counsel, I want to make sure I choose my words carefully here. I understand and accept your argument that -- and you don't like my phrase, "they have a license."


I'm using that in a slightly different sense than you are. They have a right to a license. What you are arguing about are the terms for that license.

However, the fact that you all are here and asking the court to ultimately determine the terms of that license, seems to me to imply that there is an obligation on the part of Motorola by having sent in this Letter of Assurance.

MR. JENNER: Well, the thrust of our motion, leaving aside Microsoft's, is that if Microsoft had responded to our letters by effectively becoming an applicant, if they had engaged, put it that way, and sat down to negotiate with us in good faith, they would have satisfied the only conditions of these licenses that apply to them. And they would be entitled to proceed.

They chose not to do that for strategic reasons. They chose not to do it. And we submit by doing that they preferred litigation for strategic reasons over engaging with Motorola pursuant to these policies and Letters of Assurance to lead to a license. Now they cry foul because they find themselves in situations where courts are saying, "Microsoft, you lose."

And, Your Honor, we've submitted extensive statements by people in the industry, showing the knowledge of the industry, that say that the licensor, until such time as there's a license, the licensor retains all the benefits of


the patents, as they must, so that the licensee will have an incentive to negotiate.

In the absence of a threat of an injunction, even as to essentials, until there's a license, Microsoft has no incentive to do anything. They can sit back and litigate for years. They can decline to engage. They have no incentive, because the usual incentive in licensing negotiations is stripped away. That's been noted -- I anticipate knowledgeably that Mr. Palumbo may have something to say about that. But that is basically part of the negotiation process. And I submit that, Your Honor, we would all be better off if you left that out there so that they would have an incentive to come to the table and negotiate.

THE COURT: Well, the pleadings in this case, both sides now say that you have an offer out there, and they have unambiguously accepted that offer, which is why we're on point 3, and not on point 1, of our analysis.

MR. JENNER: No, we said that they're a third-party beneficiary. We didn't say they accepted anything. Point 2 of the motion is are they a third-party beneficiary? And under one formulation or another, they are. They have the right to accept the offer. They never accepted it. We never said they accepted it. We say quite clearly they rejected it. They could accept it. They could have done that by being a third-party beneficiary. They simply didn't do it.


THE COURT: You've got about 20 minutes left. So I'm going to stop asking you questions unless you provoke another one here.

MR. JENNER: I'm happy to have them, because I want to know what you're interested in. I appreciate that. So let me go back to the extent that this is something else on Your Honor's mind.

These are the various iterations of the IEEE, the 802.11 LOAs. And I suspected that Your Honor was caught up on all of this. This was the one where we simply could not, over the weekend, deal with engineers in a way that would enable us to tie individual patents to individual letters. We submit that it doesn't make any difference, because all of these say the Patent Holder is prepared to grant a license, and will grant a license to somebody who comes in and asks for one.

The thing that flows from that is it's granting a license. There's nothing in the LOAs that says the initial offer must somehow be a precise set of RAND terms. Nobody knows what RAND is going in, in a particular case.

THE COURT: Well, here is what is troubling me, Mr. Jenner. I'm looking at the ITU what I think is Exhibit 4, Document 79. The operative language signed by a representative of General Instrument Corporation, looks like a Mr. Bawel, B-A-W-E-L. He checks the box that says, "The


Patent Holder will grant a license," then the language continues. "Will grant." In that context, it's mandatory. It says, "You will grant."

Then I look at the IEEE, the same Letter of Assurance, or same form Letter of Assurance signed in this case by Mr. Meyer, and it says, "The Patent Holder is prepared to grant a license." Now, you make a big, big thing out of the difference in the language here. And now when it serves both sides, they kind of sweep that whole argument away and say, this is what it means. And that's what's troubling me, the language changes.

MR. JENNER: Your Honor, I submit to you that the important aspect of the language doesn't differ. Because I think all of these formulations say that the patent owner is prepared to or will grant a license. The patent owner will grant a license to applicants who request a license and negotiate in good faith. And there is an intention to do this. That doesn't mean, as we see here, that the parties are going to be able to get through negotiations.

You can have good-faith negotiations by parties on both sides and not get there. Just as a matter of logic, these things are so complicated, it is quite possible for each party to get hung up on the other end of various terms and simply not be able to figure out where the middle is.

So the fact that you agree to negotiate in good faith does


not guarantee that you can get to a license. And these organizations acknowledge that. They don't tell you what the terms should be. They don't tell you what any of the terms are. They don't tell you how to negotiate an agreement. Totally ambiguous on that. They leave it silent. They just say it's left to the parties to figure out how to do it.

So, there's no formulation anywhere in the world on what a RAND license is in a particular circumstance or how to get there. And the only way that anybody has been able to try to steer you there is to say, "We want you to negotiate -- we want you to agree to negotiate in good faith. We want you to negotiate towards granting a license on RAND terms." Then it's left to the parties to do that.

The parties ordinarily are able to do that. The parties ordinarily negotiate. The parties here, at least prior to the filing of the complaint, did not negotiate. And I hasten to say to you in my footnote, in fact, there have been further negotiations.

THE COURT: Counsel, the good faith argument doesn't get very far with me, because I'm troubled by the fact that Microsoft's position in this litigation is, your initial offer -- not you personally -- but Motorola's initial offer was not in good faith. And, judge, on that basis you should find they breached the contract.

You say, their rejection of your offer was not in good


faith in their decision to pursue a court resolution. And, you know, they have obligation of good faith, and therefore they've, in effect, repudiated the contract.

It strikes me that I'm back to my dilemma. It is nearly impossible for me to evaluate either of those until I know what RAND terms are. And I'm not going to know what RAND terms are until November 19th when you start your trial.

MR. JENNER: That's a problem. It is a fundamental flaw that everybody acknowledges in the SSO policies and procedures. It's what led some people, and we've alluded to this in the past, it's what's led some people to say that these are nothing more than agreements to agree, that don't mean anything, because they've got no substance to them, that tell you anything about what it is you're agreeing on. That's the problem with these policies. And as a result of that, no other adjudicator has ever adjudicated what RAND is, or RAND should be, from one of these 80-page agreements.

THE COURT: Well, let me stop you there. And I apologize, because I'm using up your time here still. It strikes me that we have been unable to find a legal authority for the proposition that a failure to agree on RAND terms then goes to a court, and the court sets up RAND terms. Mostly because every time that nightmare scenario has arisen, the parties have retreated to being reasonable.

MR. JENNER: Right.


THE COURT: And entered into, many times, some industry-wide resolution of this.

However, there is abundant case law, Black Letter authority for the proposition that the parties can have a contract and the court can impose terms which are not determined in the contract. Do you disagree that that's the status of the law?

MR. JENNER: I think I've seen one case, maybe, where a court declined to enforce an obligation to negotiate in good faith, went on to say what a substitute damages remedy might look like, and said, I can deal with that by figuring out what the parties would have agreed to. Of course, the court never went on to do it. I don't know of any other case -- well, there was the earlier RIM litigation in Texas, where the court on a motion to dismiss reserved the ability to do this, but never went forward and did anything or said how to do anything.

I don't know of any court that's ever said how you would go about trying to do this. I know of one agency that tried to do it. And after a year or two's worth of proceedings and a multi-hundred page report, it was vacated by the district judge.

I don't know of anyone who has ever said anything more than courts have various powers to do various things. Nobody has ever suggested how to do this, much less done it. Ever.


THE COURT: Okay. And I'm going to put words in your mouth now. You're agreeing that you don't know a court that's done it in this context. But you don't disagree that that's a fairly common procedure in courts supplying missing terms in contracts.

MR. JENNER: In relatively simple -- yes, in certainly non-standard settings, in ordinary garden-variety non-patent contract cases, courts are asked to look at disagreements between the parties about whether or not a contract has been made, so as to enforce the contract. And they specify missing terms if they can determine the intent of the parties. I think that's light years away from what we've got here.

THE COURT: Because I don't want you to run out of time here, another issue that's troublesome to us is both sides interchangeably drop in the bylaws periodically when they help their particular position. What is the relationship of the bylaws to the Letters of Assurance?

MR. JENNER: Your Honor, I submit that -- if I could help myself here a little bit -- the bylaws are incorporated by reference. And there's even a Washington case that tends to support that. If you look at slide 12.

THE COURT: Well, let's take the Letter of Assurance in the IEEE. It has some language that says, "In accordance with clause 6 of the IEEE standards review bylaws."


MR. JENNER: That's the patent policy.

THE COURT: Should I assume that those are then incorporated into the Letters of Assurance?

MR. JENNER: Absolutely. If you look at the footnote at the bottom of slide 12 there's a Washington court case that construed the term "in accordance with" to result in incorporation by reference of the reference document. We believe and we submit, and consistent with this case, that the patent policies are, indeed, incorporated with -- incorporated by the Letters of Assurance.

THE COURT: All right.

MR. JENNER: And you consider them together.

THE COURT: Thank you.

MR. JENNER: Your Honor, I'm never going to get through all of this. Let me just hit some highlights.

THE COURT: Please do.

MR. JENNER: We've made a number of references to the understanding of people in the industry, notably Microsoft, I'd like to just stop briefly on slide 19, where there are several statements that have been made by Microsoft which demonstrate that before they had litigation motives they repeatedly recognized the obligation to negotiate in good faith. That includes the redacted second item.

Similarly, on slide 20, there are three additional statements made by Microsoft that explain that the RAND


framework is a framework to allow people to negotiate. And that's what you have to get to, is to negotiate. It's a mistake to focus unduly on an opening offer, especially where it's consistent with what Motorola has ever done. I've posed the question, Your Honor, in terms of thinking of a starting point, which would not be just a giveaway, what more logical place would there be to start than where you did it in the past.

Surely Motorola can come in and say, we'll come up with some low-ball offer and just give Microsoft what they want, bid against ourselves. I'm sure Microsoft would be happy to have that. We'll give you everything you want for a penny a pop. That's not rational. No licensor is going to do that. The rational starting place has to be where you did it before. And other people negotiated with you. They arrived at licenses. That shows that it's reasonable.

The argument that Microsoft ultimately makes as the supervening argument, is when you run the numbers the way they ran the numbers, you come up with $4 billion. And that's got to be unreasonable. First of all, put aside the fact that Microsoft is a very big company, so that any royalty rate you apply to their products is going to look a lot larger than anybody else. But get into the context of negotiations, and what is going to happen here is Microsoft is going to say, okay, that's your "ask," here's what I don't


like about your "ask," including the fact that it's large. Here is my "ask." I've got a lot of patents I want back from you, I want so much money for phones, I want so much money for set-top boxes. I would say to Your Honor, even though this is not what is going to happen, when you have a fully-formed negotiated contract, you could have as much as $4 billion going one way, and $3.96 billion going the other way, so that the net is a cross license with not much money following at all.

So, if you were to ask me the question, I'll put it with apologies in the court's mouth, is this an offer that Microsoft could have accepted? Because that came up in the ITC. The answer is, there was no offer that could be accepted, because the letters of October 2010 were not offers. Fully-formed license agreements with all the terms negotiated might or might not have had this kind of a 2.25 percent royalty. Maybe yes, maybe no. But in the context of a fully-formed offer, sure it could have been accepted. Now, I would like --

THE COURT: At the risk -- it is the philosophy of this court that we're here to resolve disputes. But I think for the fourth time today I've heard you say, if they would just talk. And you've also said, outside the four corners of the docket those discussions are underway. Are you implicitly asking me to order you to go somewhere, or are you


doing that on your own?

MR. JENNER: I wouldn't put it in terms of an order. I think Your Honor can recognize, if you don't grant our repudiation motion, which would end the whole thing for now, but Your Honor could simply recognize that there's a duty to negotiate in good faith, and advise the parties, for example, that if we don't have a result based on good faith by negotiations by November 26th, that I'm --

THE COURT: 19th.

MR. JENNER: The 19th? November 19th.

THE COURT: It moved to the 19th. We wanted you to have Thanksgiving in Seattle.

MR. JENNER: We appreciate that. If it's like it is today, we'll stay for weeks.

Your Honor, you could say, I'm going to do whatever it is, I the court, figure out that I need to do, if you the parties don't do it first. And by the way, maybe one of the things that I will look at is how you negotiated to see whether I think somebody didn't negotiate in good faith, because that could lead to results, too.

But basically what you could say if you choose to do it is you've got whatever the time is, six months, eight months to continue to process this. And if you succeed, God bless you. If you don't succeed, I the court, am going to figure out exactly what it is I think I should be deciding, have the


authority to decide, and then you're all going to be sorry because I'm going to do what I think is right.

THE COURT: To open the door to the skeleton in that closet is you all have asked for a jury. I'm just going to sit up here and watch six good citizens of the Pacific Northwest decide what the royalty is. So, if you don't want that to happen, you want to start discussing that question, because that's where you're headed right now.

MR. JENNER: Your Honor, let me take you quickly to slide 48. Because I anticipate Microsoft feels that they got some good things out of Judge Shaw and the ITC. And I don't want you to think that we agree necessarily with that. I've quoted three of the judge's conclusions from pages 300 to 303 where the judge focused on RAND.

THE COURT: Before do you that, Judge Shaw is an administrative law judge?


THE COURT: And there's an appeal process?

MR. JENNER: There's a petition for review by the full commission. The petitions are actually getting filed today. I think they are getting filed today. That will result in a determination by the commission of what it wishes to review, probably further briefing. And they will issue a final determination sometime in late August.

THE COURT: So, would it be correct to characterize


Judge Shaw's comments, then, as informed opinion but not legally binding precedent?

MR. JENNER: Certainly not res judicata. Nothing that you are bound to follow. You can take it for what it's worth because it's not a final determination. In fact, it's called an initial determination.

THE COURT: I just wanted to make sure I understood that.

MR. JENNER: So the first thing he said, quoted on slide 48, is that the offer, "Could not possibly have been accepted by Microsoft." And I think I've spoken to that a little bit. Nobody contends that anybody would simply accept what was in the October 20th letter. It was not a fully-formed offer that could be accepted. And again it requires negotiation. Providing a rate was not providing a complete offer. There was nothing to accept. The terms had to be acknowledged.

And very significantly, the last bullet on that page, Your Honor, that I call your attention to was Judge Shaw's conclusions. He says on page 302, "Motorola's offers may not be the same as the terms that might eventually be contained in a RAND license." To the extent that what Judge Shaw says you find persuasive, he's actually answered from his perspective the first part of Microsoft's motion by saying, it doesn't have to be a RAND offer, it needs to get to RAND



And I end with that statement by Judge Posner, "If you think it's too high, just tell them they're charging too much."

The second slide, 49, Judge Shaw said, "The offers made to Microsoft show that although Motorola assured the standards organizations and the public that it would provide reasonable non-discriminatory licenses, those communications were misleading." That sounds bad. It's in the context of deciding legal estoppel. Estoppel requires a determination of whether the statements to the SSOs were misleading when made. We're not talking October 2010. We're talking the original Letters of Assurance. Those were made over a period of 15 years. And what we do know that happened in those 15 years is that Motorola has signed dozens of agreements with licensees, none of them contend the agreement was not RAND.

So, given that Judge Shaw found the opening offer doesn't have to be RAND, and that Motorola has repeatedly negotiated RAND licenses, how could the Letters of Assurance have been misleading when they were made? I submit the judge did not have an evidentiary basis to say that. Just the fact that there's an unresolved dispute with Microsoft doesn't make the Letters of Assurance themselves misleading.

And finally on slide 50, Judge Shaw said, "The evidence


supports Microsoft's conclusion that Motorola was not interested in good-faith negotiations in extending a RAND license to it."

Well, the evidence here is quite different and includes things Judge Shaw didn't have. The evidence here includes Mr. Taylor's deposition where he explained, at length, how Motorola intended and expected to have negotiations with Microsoft. And Microsoft's Gutierrez testified, far from saying, we didn't think they had any interest in negotiating, he testified he had no idea what Motorola would do if Microsoft countered, he simply turned it over to the litigators, and the litigators proceeded with what they characterized as "litigation tactics."

So, there's no support in this case for Judge Shaw's belief that Motorola had no intention to negotiate in good faith. And all the slides between 20 and 50 that I haven't had a chance to show you, but they're in our briefs, lay out all the factual basis on which negotiations have always proceeded, terms have always been arrived at, cross licenses have been agreed to, caps have been put in place for parties like Microsoft that think they're going to have to pay too much, termination and term clauses have been determined. Some cases -- some licenses have different rates in different countries, which is something else you may have to think about some day. All of these different things wind up in


these 80-page agreements. And that's why you have to do it, and everybody always does it, the way that Motorola submits was required here.

THE COURT: We got started about ten after nine, so you technically have about two minutes left.

MR. JENNER: That's kind of why I'm into my windup.

THE COURT: Well, tell me what happened in Germany. I will tell you, we have not had the opportunity to analyze that in the care that I would like.

MR. JENNER: I will tell you in brief. It may be that Mr. Taylor, who had been there, can elaborate. But basically in Germany, as everybody expected, the German court came down with a decision in which it concluded that Microsoft had infringed Motorola H.264 patent. Two patents, sorry, two patents. And the court found Microsoft had not complied with the German Orange Book, that its offer of one cent and two cents per unit, it was not unreasonable for Motorola to reject that offer.

So as the matter sits right now, were it not for your TRO which of course I'd love to ask you to vacate, but were it not for Your Honor's TRO, there would be the normal pressures of an adjudicated court decision that would be giving impetus from the bottom to Microsoft to up it's offer, just as Motorola has impetuses in Germany to bring down an offer. There would be offers made of additional rates. That isn't


going to happen, because everything in Germany is now on dead hold because of the preliminary injunction.

THE COURT: Help me with one aspect of this, because I want to make sure I have the chronology right. Microsoft files the pending lawsuit, and eight months later you file an action in Germany. Is that basically the chronology?

MR. JENNER: Roughly, right. Eight months, yeah. I'd say so.

THE COURT: I mean, didn't you put yourself in the crosshairs of inconsistent rulings? I mean, it sounds to me like you were attempting to manufacture, for negotiating leverage, which is an honorable trait, the potential of a conflicting resolution of this.

MR. JENNER: Let me not be cute in answer to that. Number one, we were certainly looking for additional ways to defend ourself. Don't forget, they started this. We didn't start this. They filed the initial lawsuits on October 1st.

THE COURT: Spare me that argument. There's already way too much --

MR. JENNER: Okay. Just so you don't think that we were out there in the woods with rifles, the remedies in Germany are certainly additional remedies that can be brought to bear in order to try to get this to a resolution. They're not inconsistent results. If you litigate the U.S. counterparts of those two German patents, you could find the


U.S. counterparts invalid not infringed, at the same time they're found valid and infringed, because they're different instruments being interpreted differently in two different legal systems.

THE COURT: All right.

MR. JENNER: So, it's not circumventing this court. And I have to tell you, Your Honor, we filed that German action before they ever actually asked Your Honor to make a rate determination. They did not do that in the complaint. They didn't do it until September, two months after we filed in Germany. We did not jump the gun.

THE COURT: Why don't you take one minute further and then we'll take our morning break.

MR. JENNER: All right, Your Honor. I will eschew any further slides. I appreciate that there are some aspects of these agreements, which to use my anticipated word, are a little opaque. But the fact of the matter is all of these agreements, properly interpreted, require that Microsoft have been an applicant and have negotiated in good faith with Motorola. There's nothing to their argument that we usurped their ability to be an applicant by sending the letters first. All they had to do is respond and they're an applicant. So that's silly. They needed to respond to the letter to engage and negotiate. They didn't do that. That's all over the LOAs and the patent policies. You really ought


to end this inquiry by saying, if the words of the contract mean what they say, and we enforce the words of the contract for what say, there was repudiation because they did not fulfill either of the conditions precedent in order to come in and get the RAND license.

If you don't go there, then the fact of the matter is, number one, there is no rational requirement to make a RAND offer. Nobody has any idea what a RAND offer is in any particular case. Judge Shaw found that, for the sake that it is of interest to Your Honor. You need to come in with something that's reasonable.

I know Microsoft now loves "blatantly unreasonable." Well, the counterpart of that is "reasonable." And once you get rid of the patent pools they love to run to, which have a completely different purpose, and one of their own people admitted it is a non-revenue generating purpose, it has nothing to do with bilateral association, the only reasonable starting point is where Motorola started. The 2.25 percent of end products that it has offered everybody for 15 years, in which everybody prior to this has come in and engaged. There have been a couple of litigations. One of them got settled, because they engaged. There is another one going on with Apple. We'll see what happens with that one. Everybody over 15 years have engaged. They've negotiated. And it has resulted in the RAND license, that's required, not the RAND



If Your Honor were to find that a RAND offer is required, I therefore submit to Your Honor that Motorola's offer was consistent with RAND. It was as consistent as it could be, without Motorola knowing what all the impacts are on Microsoft, that it can only learn in negotiation.

The thing that is being eliminated from this process by Microsoft that I urge Your Honor to put back into this, is commercial reality in the commercial real world. People negotiate, whether you're buying a car, whether you're buying a house, whether you want an 802.1patent portfolio. People negotiate. They have to engage. They've got to talk to each other. The standards organizations know it. They tell you that. They don't have anything to do with it. They don't tell you how to go about it. The parties have to engage to do it, and Microsoft simply refused to go there.

So if there's an opportunity for that to happen, that would be great. But we submit there's been repudiation. If there hasn't been, Motorola sure hasn't breached any contract. It has acted in good faith and it stood ready to engage with a company that would not engage back. 2

THE COURT: All right. We will be in recess for ten minutes. I'll be back out at 10:25 and we'll hear from Microsoft.

(Court recessed.)


THE COURT: Mr. Harrigan, who is carrying the flag on your side?

MR. HARRIGAN: That will be me, Your Honor.

THE COURT: All right.

MR. HARRIGAN: Your Honor, I'd like to pick up on some of the questions the court was asking a few minutes ago initially, even though it's out of sequence. But I think Mr. Jenner was out of sequence, too. So I think that seems to be the order of the day, which is good.

One point the court made was that under the RAND system Microsoft has a license that is essentially subject to arriving at the terms, or alternatively the court said at least Microsoft has a right to a license under that contract subject to arriving at the terms. We concur with that and we believe that that is why here, in order to avoid having that contract be illusory, if necessary the court has to figure out what the terms are.

And I would refer the court to the authority that's probably getting a little worn in this case, but there is a case at least that says that the court can do that. In fact, Motorola argued that the court could do that in the RIM case. That's RIM v. Motorola, 64F.Sup., Texas 2008.

"Motorola's second argument in support of dismissing the contract claim is that RIM has not suffered any damages, contending that even if it has breached eventually RIM will


receive a FRAND license. Either this court will determine FRAND terms, or the parties will settle on FRAND terms. Either way Motorola contends RIM will incur no injuries."

So that's pretty good authority, from Motorola, that the court can, in fact, determine what the RAND terms are. And we agree with the court's characterization of the general contract principle that once it's determined that the parties have a binding agreement, if the agreement doesn't provide specifically, with respect to certain terms, and especially where the agreement provides a standard, which in this case is commercially reasonableness, it's quite common for the courts to supply the terms in order to carry out the parties' intent of having a binding agreement. The court has already ruled there's a binding agreement here and that Microsoft is a third-party beneficiary of it. And so those cases seem to apply here, as they were apparently thought to apply by Motorola in the RIM case.

THE COURT: Let me stop you there. My friend, Mr. Jenner, was struggling with the fact that it's not a license that Microsoft holds, it's the right to a license. And that that right to a license becomes a license when the terms are agreed to -- putting words in his mouth. What difference does that make in my analysis of this case?

MR. HARRIGAN: Your Honor, I'm not sure that it makes any difference under the facts of this case, because under


the facts of this case Microsoft has unequivocally stated that it will take the license on RAND terms. And if the court has to determine them, it will take them on those terms. So the offer has been accepted, regardless of whether you characterize it as Microsoft already having a license, or Microsoft having a right to a license. Once Microsoft says, "and we'll take it," there's no longer an issue with regard to the obligation or the, frankly, existence of the license. The license exists, it's just a matter of having the court, if necessary, decide what the terms are.

THE COURT: Both sides, in their briefing, make that statement that Microsoft has unambiguously stated that it will take a license. Where is that in the record?

MR. HARRIGAN: Your Honor, we've handed up a notebook to you, and I'm going to be referring to it periodically. And in tab 3 we have a list of the many statements by Microsoft to this effect, starting with the complaint, which is less than crystal clear. But as of September 30, 2011, "Microsoft is seeking and remains ready and willing to take a license."

And then more recently -- there are numerous statements along those lines -- but in the preliminary injunction motion March 28, 2012, this is over on the second page at the top, "A license that Microsoft is eager to obtain. A ruling that Motorola is contractually bound to grant a RAND license,


coupled with Microsoft's express commitment to accept the RAND license, necessarily means that Motorola cannot seek to enjoin," et cetera. And there are a number of other statements in the intervening period. So that statement is unequivocal, and if it needs to be any more unequivocal I'll make it more unequivocal.

THE COURT: Well, I guess what I'm finding interesting is -- I mean, your evolving litigation position seems to be now that you're unequivocally going to take the license. You also have a motion that they breached the contract, and that would be the contract between Motorola and the IEEE, for one of the two licensing bodies. If they breached that contract, then that contract doesn't exist. So how can you take a license under a contract that doesn't exist?

MR. HARRIGAN: Well, Your Honor, I don't think their breach destroys the contract, it just creates a claim for whatever damages flow from the breach.

That isn't something that we've spent a lot of time figuring out, because as far as we're concerned what this case is now primarily about is getting the RAND license defined, because that's how it's going to end. And whether Microsoft has any current or past damages arising from the breach is not the main issue. But I'm not saying there aren't any. It could be that all the legal fees expended in


Germany and the ITC would be part of that. But that's a separate issue. And obviously a party can sue for damages and still get the benefit of the contract, because otherwise then their damages are even worse.

THE COURT: All right.

MR. HARRIGAN: So a second point, Your Honor, relates to the language of the standards which, you know, I think it's clear that it would be an enormously complex task to figure out what the standards said on different subjects at different times.

But at tab 2, here's what we have done, hoping that it might be of some use. We have taken the excerpts from the two standards that each party has quoted. The ones with yellow highlighting, the yellow highlighting is where Motorola likes it, and the underlining is where Microsoft likes it. So the parts that were quoted in the briefs by the two parties are distinguished in that way. And the court noted a few minutes ago the mandatory language from the ITU standard, "will grant a license," and contrasted it with the IEEE language that the court referred to is, "Prepared to grant."

The first section of this is the IEEE. And I would just like to call the court's attention to a few items that help to clarify what the IEEE thinks the rule -- the requirement is, and it's really very parallel to the ITU language.


The court noted the statement in the middle of the page, "Is prepared to grant." That was in 2005. In 2006 it was changed to, "The Patent Holder will grant a license under reasonable terms." In 1994 when Motorola submitted an early LOA it said that it, "Agrees to license these patents on a non-discriminatory basis offering fair and commercially reasonable terms," which I think sheds some light on whether the offer is supposed to be RAND, or if it's something that is not RAND, then you bargain toward RAND, because that would not be offering fair and commercially reasonable terms.

By the way, in answer to the court's question about the bylaws, we concur with Mr. Jenner's characterization of the situation regarding the bylaws.

On the next page, in 2005 the IEEE bylaws said that there has to be a statement that a license will be made available without compensation, or under reasonable rates. And another point worth noting, Your Honor, is that the commitment as we've highlighted here is irrevocable. And that runs through these standards, which I believe relates to the question of, you know, can you accept this? It's an irrevocable commitment. Do you call it a license or an offer? The obligation to provide a RAND rate is irrevocable. And I'm not going to read the rest of it. But whatever use it is, Your Honor, we've got a collection there of the various phrases used throughout the period, which we think the gist


of all of them is that the Patent Holder is committing to offer and make a license available on RAND terms. And there is no exception for the first offer.

THE COURT: Is Microsoft in agreement with the position taken in this matter that all of the patents that are before the court are standard essential patents, and therefore the fact that I do not have any definitive chart listing those patents should not be a concern to me?

MR. HARRIGAN: Your Honor, if I understand what you're asking, I think the answer is, yes. All of the patents that are before the court on this breach claim are the ones that are attached to the two letters. And whether they're standard essential patents or not -- and I take it from Mr. Jenner's comment that he thinks there was one where Motorola didn't submit an LOA, but it was still a standard essential patent, the letters state that they are providing a RAND rate for all of them. So we believe that they are -- even if there are some in there that are not standards essential, and I can't tell you for sure whether that's the case, Motorola was representing in the letter that it was providing a RAND rate for every patent that's attached to either of those two letters. And, therefore, for purposes of this case we believe that they are all included within the RAND obligation.

Now, I'd like to address the comment by Mr. Jenner, a


number of times, that the offers or the letters, or demands for offers, were just a starting point. And the royalty might very well have gone much below 2.25 percent. This is contradicted by Motorola's own briefing and by statements in its declarations that it always gets 2.25 percent at the end of the day. The only question is how do they get there? If they get some technology coming back the other way, then they value it in a certain way, then perhaps the royalty rate goes down, but they're still getting 2.25 percent.

In other words, this was a "take it or leave it." Maybe you get to talk about how you're going to pay the 2.25 percent. But Motorola's response to our summary judgment motion at page 6 says, "Because each licensing situation is unique, negotiated license terms often reflect the 2.25 percent overall value in different ways." For example, three, a grant-back of license rates. So the grant-back -- and this is according to Motorola's revisionist version of its own letter, because in fact the letter says, you pay us 2.25 percent, and you grant us back your technology. And there's no indication that the 2.25 percent is coming down for that reason. That was the demand in the letter, which I'll get to in a minute.

But the fact is in their own brief Motorola says, we're sticking to 2.25 percent, no matter what, the only question is how are we going to get there.


So the suggestion the court made that, tell us whether you accept within 20 days, sounds like an ultimatum, is consistent with the fact that Motorola wasn't going to back off its 2.25 percent, no matter what counteroffers Microsoft made.

THE COURT: How do you know that?

MR. HARRIGAN: Because they say so, in their brief. They say they always get 2.25 percent.

THE COURT: You didn't know that at the time.

MR. HARRIGAN: Well, what Microsoft knew at the time, Your Honor, was the demand was 2.25 percent for the standard essential patents on the price of a laptop, among other things -- which is kind of important, which I'll also get to in a second -- and you give us your standard essential patents also. That was what Microsoft knew.

And what Microsoft didn't know, I presume they didn't know this, was that Motorola was never backing off the 2.25 percent. But what matters for this case is, was the letter a breach? Because the breach has to be measured based upon what Motorola was saying when it said it, not what it says now about what it really meant. 2

THE COURT: Well, this takes me to one of my favorite aspects of this case, which is how am I going to determine if it was unreasonable until I know what RAND terms are? And I'm not going to know what RAND terms are until November 26th


when the jury comes back.

MR. HARRIGAN: Well, Your Honor, I think that -- if we take the example of the laptop, I believe that as a matter of law it's unreasonable. And that's apart from some of the other evidence with regard to the total amount of royalties and how they relate to essentially being 20 percent of Microsoft's annual profits for a tiny little piece of the operating system.

The fact is that Motorola's technology that contributes to the operating system is a tiny little part of Microsoft's operating system. And as a matter of law, the only way that Motorola could get a percentage of the price of the operating system, would be to demonstrate that its little contribution to that operating system is the basis for customer demand for the operating system. But it's not asking for a percentage of the operating system, it's asking for a percentage of the laptop price.

There is no way that Motorola's standards essential patents on this, for the operating system, are on the basis of customer demand for it, much less the customer demand for the laptop, which is the requirement under the entire Market Value Rule, if you are going to get a royalty based on a percent of the product price. And under those cases the burden is on the Patent Holder to demonstrate that its technology is the basis of customer demand.


And failure to do that, there are a lot of Daubert motions granted on the basis of excluding evidence using that royalty approach, because as a matter of law first the Patent Holder has to sustain the burden of showing that its technology is the basis for customer demand. There has been absolutely no effort made by Motorola to even try to do that here. And it obviously can't, as to the laptop.

And so, Your Honor, on that basis we believe as a matter of law, it is clear that at least with respect to the laptop, which is kind of an important piece of this case, the demand was unreasonable as a matter of law. And the other thing is, Your Honor, these letters don't invite anybody to negotiate about individual products. It lists the products that the demand relates to very specifically. And there's no suggestion that you could have different rates for different ones, or, oh, we'll talk about this, or whatever. They're listed there in each of the two letters.

So the court raised the question about valuing the patents. And, Your Honor, you cited to an article which we believe, based on what you said about it, states the law correctly, which is that you value the contribution of the patented technology to the accused product. And that's really what I was just talking about. That is a general proposition for how you determine patent damages and how you measure them.


In the case of asking for a percentage of the product, you have to show that your technology is the basis of customer demand, which is a version of this general proposition, because that is how you measure the contribution of the technology to the product. And there is no way that that is -- I won't repeat myself -- but that burden has not been met here. But the court's statement is correct with regard to what the overall rule is.

And here, not only is Motorola using the laptop product of which Microsoft's product is a piece, to charge the royalty, which violates the general principle because it's not even applying it to the right product, but in addition we have cited -- and I'll get to it if I ever arrive at my outline -- we have cited statements by Motorola folks who came up with these letters and determined what was going to be sought.

To the effect that in the case of the Xbox, what they were valuing was the contribution of the standard to the Xbox. They thought that the standard had high value to the Xbox, which is exactly what you do not get to do in a RAND context. That is the holdup value. You don't get the value of the standard. You get the value -- you get the proportionate contribution of your technology to the standard. And that has to then relate to its contribution to the product. And, in fact, Motorola's deposition testimony admits that what they considered was the value of the standard.


Would you take a look, please, at tab in the notebook. I just want to call the court's attention to, in a little bit more context, what Judge Shaw said, which is at tab 4. The first quote is the one that Mr. Jenner read that the royalty rate of 2.25 percent could not possibly have been accepted by Microsoft. He then said, "Indeed there is no evidence that any company would agree to the offer that Motorola sent to Microsoft." Then he said, and this is significant in that it shows how he was reading the RAND obligation, "The offers made to Microsoft show that although Motorola assured the SSOs and the public that it would provide reasonable and non-discriminatory licenses for the patents essential to certain standards, those communications were misleading." ie: These letters show that the commitments had been misleading.

And then finally, "The evidence supports Microsoft's conclusion that Motorola was not interested in good-faith negotiations and in extending a RAND license to it."

We concur that the court is not bound in any way by those observations. They're worth whatever the comments of an independent third party about this situation are worth.

The court asked what happened in Germany. And at tab 10 there is a quote from the -- one of the translations. This is Motorola's translation of the May 2nd order. And I am merely calling the court's attention to the fact that the


German court does not recognize third-party beneficiary rights. And there was a communication glitch here. And there is one other statement we wanted to call to the court's attention from the German case, and that is, "In the opinion of the court, this consideration may be restricted to the question whether the offer constitutes a blatant violation of antitrust law."

And what the court is talking about there is that Microsoft had made its Orange Book offer, Motorola did not accept it, and the question was, what is the significance of that in terms of the failure to accept a reasonable proposed royalty? And the court's answer was that the criteria for determining that is whether the failure to accept that Orange Book offer was a blatant violation of antitrust law, not just a violation of antitrust law.

So the court's determination that this case is going to go forward with an injunction, in spite of Microsoft's Orange Book offer, was predicated on the fact that by turning it down Motorola was not committing a blatant violation of antitrust law. And that's the only determination of reasonable royalties the court made or will make. So that case is clearly inconsistent with RAND. And the fact that it doesn't even recognize that Microsoft has contract right as a third-party beneficiary, would suggest that the probability of inconsistent outcomes and the motivation to do the end-run


are clear.

THE COURT: Well, let's stop on that question. It is a standard feature of judicial training that we are taught to avoid conflicting judicial declarations, for the reasons that they leave the parties in precisely the predicament that we're in right now. How do I harmonize these two positions? I mean, I was very careful not to enjoin the German legal system and the German court. On the other hand, Motorola at this point has a lawful opinion in Germany. How is it that the court here can pretend like that doesn't exist without depriving Motorola of its rights?

MR. HARRIGAN: Well, Your Honor, the anti-suit case law provides the answer. And that is that this was an end-run, it was an effort to create a situation where there is a high likelihood of inconsistent outcomes, one in which Motorola can get the leverage of an injunction that it would not get under the jurisprudence in this country or in this court.

And so it is a classic end-run around a court that was first seized with jurisdiction of this matter, and is in the process of determining whether Microsoft has a license -- actually determining simply what the terms are of the license that Microsoft will get. Because the stage is set, Microsoft has committed to take a license, it has already been ruled by the court that it has a right to such a license, and the


court can determine the terms. So there is no basis for getting an injunction in this case, which I guess we'll be talking about in a few minutes.

But this is a classic anti-suit situation, and the decisions -- the decision of the German court simply underscores the fact that in addition to the reasons that we advanced earlier, now the injunction is imminent, which is the basis for -- which was the motivation for the motion. And it's clearly demonstrated that the legal system in Germany is more antithetical to the RAND scheme of things than we even suggested in the motion. We were hesitant to say German law doesn't recognize third-party beneficiary rights, but there seemed to be some confusion about it, but there isn't any in the mind of the judge who made the decision.

Your Honor, in the interests of time, I'm going to address the -- let me make sure I don't have anything left here. Oh, I'm going to address the repudiation issue as briefly as I can. The original argument by Motorola was that when Microsoft filed the lawsuit, it repudiated the contract. And the court seemed to look askance at that proposition. And in the current motion the ground has shifted and Motorola is now arguing that there are -- arguing for two conditions precedent that added together seem to amount to repudiation. And so I will just address first the issue of conditions.


The first condition is that Microsoft must negotiate. In other words, Motorola's duty to make a RAND offer is subject to a condition precedent that Microsoft has to negotiate when it gets the offer. And that just doesn't make any sense. In terms of sequence, you can't have a condition precedent that doesn't even -- where the occasion for the condition doesn't even arise until after the other party has taken its action.

The duty that Motorola has under the contract that it says Microsoft repudiated, obviously exists at the time that it makes the offer. And it can't be subject to a condition that -- a precondition that can't happen until after the demand was delivered. And there is no --

THE COURT: Let me stop you, because I'm not sure I understand the legal underpinnings for this argument. Do you disagree with the statement of one of the witnesses here that you need to look at the conduct of both the patent owner as well as the implementer, they both need to be willing to negotiate in good faith, and there is an obligation on both parties' parts to negotiate in good faith? Is that in disagreement to Microsoft's position?

MR. HARRIGAN: I think, Your Honor, that the RAND contract does not contain any such duty.

THE COURT: Well, that's your senior director of intellectual property talking in this context.

MR. HARRIGAN: Well, I think that the witness was


stating a belief with regard to how this should work. I don't believe the witness was attempting to render a legal opinion on what the RAND contract requires.

THE COURT: Well, his words speak for themselves. It seems to me you're ignoring the second half of that sentence.

MR. HARRIGAN: No, Your Honor.

THE COURT: You know, what good faith is there in saying: You know what? We don't want to play in your sandbox, we're going to go sue you.

MR. HARRIGAN: Your Honor, first of all, that is subject to the proposition that the first party has acted in good faith to begin with.

But the court, if I can quote a higher authority on what the contract means as opposed to how people should behave themselves, has said, "Motorola has failed to provide any legal authority that requires negotiation as a precondition to a breach of contract claim based on RAND licensing commitments." Or, and another statement, "Motorola attempts to insert a requirement that Microsoft negotiated the license terms prior to filing suit for breach of contract. The IEEE and ITU guidelines provide no such requirement." And if you look through the tab where we put all of this in there, and you look at all the ones with yellow on them, you will not find a word that says that the recipient of a RAND demand has a duty to negotiate.


The fact is that if the recipient of the RAND demand, as Microsoft did, looks at this offer and says, no one in its right mind can ever accept this, this is not RAND, they've breached their agreement. You have a right to file a lawsuit to enforce the contract, that is exactly what we did. It wasn't a repudiation.

THE COURT: Well, counsel, you know, I have two questions about that. First, you apparently had been, you Microsoft, had been disregarding Motorola's patent rights for 18 months. And then you accuse them of somehow improper conduct when they write you an offer saying you have been using our patents for 18 months, here are the terms for licensing them. Isn't that inequitable?

MR. HARRIGAN: I think not, Your Honor. And, in fact, I'll quote Motorola on that point, from one of their motions for summary judgment on this issue at page 5, "Companies sometimes choose not to engage each other in licensing discussions, despite the fact that each is getting value from the other side's patented technology. For years that was the case with Motorola and Microsoft."

So companies, for whatever reason, think it might be better to not bother with this, and we'll just proceed. And the whole point of the RAND scheme is that if someone does decide that they want to collect something for the standards essential technology, you can be comfortable that it's not


going to cost you any more than a reasonable amount to take care of that problem.

And presumably if you're a company like Microsoft you're going to get something in return for your own standards essential patents. And so it's all going to kind of come out in the wash. And therefore maybe it's not worth bothering with.

What happened here, we believe, is that Motorola decided to point a gun at Microsoft for various reasons, and it sent them a letter that it had no intention of ever having accepted, or didn't regard as being -- didn't actually regard as being reasonable.

So it's completely outside the normal behavior of the parties in this situation.

THE COURT: You know, counsel, you both have filed so much stuff under seal, I'm hesitant to try and sort through it, because your knowledge of that is better than mine. But Motorola offered a compelling case that there had been prior discussions, and negotiations, and business arrangements, that had postponed this resolution. Pointing a gun at your head seems to me to be the worst of hyperbole. 2

MR. HARRIGAN: The gun didn't get pointed until the letters were delivered. The letters were completely outside the context of any of those discussions. And, Your Honor, I confess, I am not an expert in the content of those


discussions either. But I don't think anybody has suggested that they were about the list of patents that were attached to those two letters. They were about a variety of things.

THE COURT: Well, let me take your argument to a slightly more extreme position. What I hear you saying is that arrangements like the IEEE or the ITU, one side has a good faith -- Patent Holder, has a good faith obligation to propose a term. And every one of those is going to imply the question of, is it RAND, because we don't know until it's ultimately resolved.

And then the implementer, as the language is used, is free to immediately run to court and say, we don't like the terms, court, you resolve them. That doesn't seem to me to give rise to a commercially reasonable context for these essential patents use.

MR. HARRIGAN: Well, Your Honor, if the predicate is that a RAND offer was made, then running to court would not be appropriate. But you can run to court, as long as you satisfy Rule 11, if you have a reasonable basis for believing that you have a cause of action for breach of contract. And the RAND scheme does not denigrate that right, nor does a lawsuit to enforce the contract constitute repudiation.

And I'll just mention one other thing about that lawsuit, which is that Microsoft did not merely sue for breach of contract. Microsoft also asked for a decree that Microsoft


is entitled to license from Motorola any and all patents, et cetera. In other words, the declaratory judgment action.

THE COURT: Well, you were doing better when you were attempting to persuade the court that that wasn't the most precise use of language. You need to take a long walk off a very short pier to get to the position that you're arguing here. That complaint does not ask for a license, only by implication.

MR. HARRIGAN: Well, it asks for the court to rule that Microsoft is entitled to a license. And it asks for the court to determine that there are binding and enforceable contractual obligations. Now, the court dismissed that declaratory judgment action based on procedural grounds that I'm not here to argue about. The question is what did Microsoft say in its pleading that would be a repudiation? And what I'm saying is that Microsoft didn't just say, you breached. It also said, enforce this agreement. Declare that Microsoft is entitled to a license, and that there is a binding and enforceable agreement, which is the opposite of repudiation. And under the repudiation standard, repudiation will be found only where there is an unequivocal indication that the repudiating party will not perform. Asking to enforce a contract can not possibly meet that standard.

THE COURT: Well, wouldn't a less arrogant position have been to say, Microsoft wishes to take a license under


this. Court, set the terms.

MR. HARRIGAN: Could have done that. Did do that later.

THE COURT: The evolving litigation position.

MR. HARRIGAN: The evolving litigation position. I think it's fair to say the position of Microsoft specifically asking the court to grant -- to see to it that it was granted a license and that it would take one, arose in September of 2011.

THE COURT: All right. Please continue.

MR. HARRIGAN: So, Your Honor, I think it might help at this point to turn to the actual letters for a second, which are --

MR. WION: Tab 6.

MR. HARRIGAN: These have the attachments and some yellow highlighting on them. I'd like to turn to the second one in that tab, which is Exhibit 13, and just run down what these letters actually say. And, Your Honor, the breach claim that we are making should be measured by the actual terms of the letters, because that's when we believe the breach took place, and should not be read in light of subsequent revisionist history about what we really meant and what we normally do.

The October 29th, Exhibit 1letter, is for a worldwide non-exclusive license for H.264. Motorola represents in the


letter that this offer is RAND. And that's highlighted. It includes a royalty, a reasonable royalty of 2.25 percent, subject to a grant-back license under the H.264 patents of Microsoft. And that means you pay 2.25 percent, and we get a grant-back license. It does not mean you get 2.25 percent and we'll talk about reducing this if you give us a grant-back license. The offer is made subject to the receipt of a grant-back license.

The next sentence says that, "As per Motorola's standard terms, the royalty is based on the price of the end product, e.g., among other things, each PC/laptop, and not on component software, e.g., Windows 7 software." I've already covered why we believe that is a breach. It's very clear that that is what's going on here. And those are stated to be Motorola's standard terms. And their brief, which I quoted from earlier, confirms that their standard term is that they get 2.25 percent somehow.

So you can either -- what the letter actually says is we get 2.25 percent, and we get the grant-back. But even if you buy the revisionist history, Motorola says, we always get 2.25 percent somehow, taking into account what we might get back.

And finally, as the court already noted, "This offer is open for 20 days. Confirm whether Microsoft accepts it." So it is an ultimatum. It contains terms that we believe are


clearly not reasonable. And, therefore, it is a breach, if the court determines that there is an obligation to make a RAND offer. And I'm not going to go back through the highlighted standards. The court has already read about them numerous times. They're in the notebook.

We have underlined a number of statements by each of the two organizations stating you either make it available, or you offer -- you either make RAND terms available or you offer RAND terms. And those provisions cannot logically be that, well, at some point down the road you will finally get to making a RAND offer. They state what the obligation is of the Patent Holder with respect to an offer. And they say you will make a RAND offer, or you will make your technology available on RAND terms. It's not available on RAND terms if your offer isn't RAND. You're making it unavailable RAND terms.

THE COURT: Go back to diagraming the sentence in the October 29th letter. It says, "Including a reasonable royalty of 2.25 percent per unit, subject to a grant-back license." It seems to me -- I don't know what that sentence means. Does that mean 2.25, less the value of the grant-back license? It doesn't say 2.and a grant-back license, which is how you choose to read it.

MR. HARRIGAN: Well, Your Honor, the way I would read it is this: We're starting out with the second word of the


sentence. "Motorola offers" -- offers to license. So here's the offer: "Offers to license on a non-discriminatory basis on reasonable terms and conditions, RAND, including a reasonable royalty of 2.25 percent, subject to a grant-back license." So what's subject to the grant-back license is the offer. This offer is subject to a grant-back license. In other words, we are offering you 2.25 percent. But the offer of 2.25 percent is subject to a grant-back license. It doesn't say the 2.25 percent is modified by a grant-back license.

THE COURT: You know, there was a wonderful Latin phrase that attaches to construction of these terms, which I think in more dignified language than I would use says that the subject relates to the clause before it, not modifying the entire sentence. Do you want to reconsider that, or are you sticking to that position?

MR. HARRIGAN: Well, Your Honor, I hate to be stubborn, and it's been awhile since I diagrammed a sentence. However, I think -- and I'll be short here -- I already am short. "Motorola offers to license." Then we go to the comma, and it says, "Including a reasonable royalty," et cetera, comma, "subject to a grant-back license." I believe with those two commas around that phrase, the "subject to" is modifying the fact that Motorola offers, for what it's worth.


So, why is this offer -- it is inherently unreasonable for two main reasons: One, I've already stated and I don't have time to repeat it, and that is that there's -- but very briefly -- there's been no demonstration particularly in the case of the laptop, Motorola can sustain the burden under the rule requiring that it show that it was the basis of customer demand.

Secondly, and more intuitively obvious than the legal analysis of patent courts, is what is the -- how is it possible for a royalty based upon Motorola's contribution of a small part of a standard, that is a small part of an operating system, how is it consistent with the general requirement of proportionality for the royalty on -- for that to depend upon the price of a device, the laptop that the operating system is a small part of, when the price of the laptop varies depending on how big its screen is, whether it's got a titanium case, what kind of a keyboard it has, how fast it is, how much memory it has. None of those things have anything remotely to do with the contribution of Motorola's technology.

So, apart from the intricacies of patent law, just as a matter of common sense, it doesn't make any sense for the royalty that Motorola gets to be increased by ten times because somebody buys a $4,000 laptop, instead of a $400 laptop. Maybe there isn't a $4,000 laptop. But maybe a


$3,000 instead of a $300. Because there's been no demonstration of proportionality between those numbers and Motorola's contribution.

THE COURT: Mr. Harrigan, shouldn't you be addressing the jury? I mean, this is your opening statement.

MR. HARRIGAN: Well, Your Honor, the facts that I just stated I don't believe are disputable. The fact is that we know why people pay more for certain laptops. And there's been -- Motorola would have to come forward with some evidence that those variations are connected to its technology somehow, or else it's simply inherently unreasonable. So that's how we believe that that should be viewed.

And if the concern is that it's a factual issue, I will revert to the entire Market Value Rule, which says you can't do it this way unless you sustain the burden of proving that your technology is the basis for customer demand. And we submit that Motorola hasn't even started to or attempted to sustain that burden. So, on that basis as a matter of law it is unreasonable. And that would be outside the RAND context. Even if you didn't have the constraints of RAND, that rule would apply.

I've already covered the ITC comments. With regard to the various license agreements that Motorola has cited, they have not come forward with any licensing agreement, where they did


what they're doing here in the case of the laptop. Whatever else is wrong with their comparisons, and we've provided some detailed comments on that in the briefs, they have produced no comparable situation where the product of which they're seeking a percentage royalty is not the product of the person from whom they're getting the royalty. And for the reasons I've already said, that is a grotesque situation which is part and parcel of the letter, because you can't accept it piecemeal. And that is, that the product of which they would have -- the product that Microsoft is producing, the operating system, is not the product that is the subject of the royalty.

I'm a little confused about where I am on time.

THE COURT: You have about eight minutes left.

MR. HARRIGAN: Does that include the injunction issue?


MR. HARRIGAN: Okay. Thank you.

THE COURT: It doesn't mean you have to use all of it.

MR. HARRIGAN: I understand. Another aspect of these letters that needs to be measured, Your Honor, is the fact that Motorola is now claiming that it was only seeking a total of 2.25 percent. And if we're -- I believe that it is a valid basis for summary judgment on


breach that, in fact, there is no way to get there by reading those two letters. They asked for 2.2 -- there were two standards. They sent two letters. They asked for 2.25 percent in each letter. They listed the products they wanted it on. If you read those two letters you would immediately conclude that you're paying four and a half percent total; or at least that they were separate royalties for 2.25 percent, for each standard.

And Motorola has come forward with no evidence to suggest that that level of royalty would be reasonable. And so if we're going to measure their conduct in those letters it should be measured in the way that -- it should be measured according to the way that the letters were written. And you just can't get to the position that they now say is their normal approach.

Let me just see if I have left off anything terribly important. Oh, one other thought I did want to express, Your Honor, you alluded to the jury setting the RAND rate, or determining the terms. And we believe the court can decide that without a jury. We're not here to debate that today. But I just want to let you know that that's something that would probably be debated when the appropriate time comes. Thank you.

MR. JENNER: Your Honor, at the risk of wearing out my welcome, will you take four points in reply?


THE COURT: I think you had your time, Mr. Jenner.

MR. JENNER: Okay. Thank you.

THE COURT: Mr. Harrigan, I think it is -- we're going to do injunctive relief. And do you want to do your injunctive relief speech now, or are you delegating that to someone else?

MR. HARRIGAN: I'm doing it.

THE COURT: All right. Then I'll hear from you.

MR. HARRIGAN: All right.

THE COURT: Mr. Palumbo, you will get the last word today.

MR. PALUMBO: Thank you, Your Honor.

MR. HARRIGAN: As usual I have too much paper, so I've got to find it.

So, Your Honor, we believe there are three reasons that the court should dismiss the claim for injunctive relief. The first I've just talked about, which is that if, in fact, the letters were a breach, it remains for Motorola to even make a RAND offer.

Second, we believe it's clear that Microsoft is going to get a license in this case. It is entitled to one. It's committed to take one. And it's asking the court to determine the terms. And therefore at the end of the day there will be -- not only at the end of the day, but at this point in time, in light of those commitments and that


program, there will be no basis for injunctive relief.

And third, the lack of irreparable harm. And since I've already talked about the first two, I will focus on the last.

THE COURT: Well, please do so in the context of the eBay case, because it seems to me that's the controlling authority that I'm to follow.

MR. HARRIGAN: I agree. Let me turn to the eBay case then, right off the bat.

THE COURT: And also as part of that, I thought Motorola made a strong argument in regards to, how do I know what is irreparable harm in this context? Both of you have cited things that the court would not normally think of as irreparable harm, because it's not in this business. So I'd like you to cover that also.

MR. HARRIGAN: So first of all, Your Honor, under eBay, basic equitable principles of it relating to the availability of injunctive relief are viable in patent cases. And the factors that the court has identified that have to be shown are not -- they're not balancing factors, they are four independent factors, each of which has to be demonstrated. The first one is that the party has suffered an irreparable injury. The second is that remedies available at law, such as monetary damages, are inadequate to compensate for that injury. Then the court balances hardships and looks at the public interest.


The first two items, as well as the other two, are requirements for getting injunctive relief. The court doesn't balance the probability of irreparable injury against some other thing in order to make a decision, it determines if there has been irreparable injury, and if monetary damages are inadequate.

So we believe that the best evidence that monetary damages are not inadequate is that Motorola has written two letters stating that it will take what we think is an astronomical amount of money, but nonetheless money, in exchange for a worldwide license to these patents. And therefore it must believe that it can be adequately compensated in money. It is essentially an admission.

In fact, we had a similar statement recently which is at tab 9 of your notebook, in describing the German -- outcome of the German litigation Motorola said -- after stating it was pleased -- it said, "Fair compensation is all that we have been seeking for our intellectual property."

It has not been suggested -- Motorola has not come forward with anything indicating that they have irreparable harm. And, in fact, the two letters and their statement in Germany strongly indicate that they do not.

Now, the question of whether there's been a breach by Microsoft, or repudiation by Microsoft, doesn't bear on this issue, because the whole notion of when do you get injunctive


relief, and do you have to show irreparable harm, presumes that there's been in this case an infringement or there's been some breach. The issue is, what's the remedy? And here the remedy is money, and it will be decided in this case in a RAND context pursuant to Microsoft's commitment to take a license. And so, the end game here in this case will inevitably result in Motorola receiving reasonable compensation, and that removes any basis for injunctive relief.

THE COURT: Well let me take you back to your anti-suit briefing, in which you argued that Microsoft would suffer irreparable injury if there was not an injunction entered against Motorola, among other reasons that potential customers wouldn't buy the product because of uncertainty, that it was a damage to Microsoft's reputation for reliability, all of those arguments which you were forcefully making at the time.

If Mr. Jenner or Mr. Palumbo were to stand up, they would say the same thing. So why were you right then, and they're wrong now?

MR. HARRIGAN: Well, Your Honor, in fact Motorola does not say the same thing. It has done nothing to identify irreparable harm. Microsoft's irreparable harm actually began before we even came into the court. And that is that it had to move its distribution center to the Netherlands


because it wouldn't have time to make the change after an injunction was entered. There were hundreds of people dismantling its German operations. There was concern about all kinds of partner relationships being dismembered, because the German operation is huge and complicated, and there was no way to comply with an injunction without making the preparations.

And that irreparable harm was already happening. Motorola has come forward with nothing comparable to that at all.

THE COURT: That just seems to me that Microsoft made a bad legal decision. German law was the same when it set this up as it is now. And they chose to go into a large and very lucrative market in the face of law which was known to them. So, that argument doesn't have much traction with me.

MR. HARRIGAN: Well, Your Honor, I'm not trying to debate the wisdom or the merits of the German legal system. But the question was, wasn't Microsoft arguing it would suffer irreparable harm from a German injunction? And the answer is yes. And it really was irreparable harm. I'm saying, if you look at Motorola's evidence, they just talk about, well, there are these cases that say that this might happen or that might happen. But there is no evidence that it is happening or it actually would happen.

THE COURT: All right.

MR. HARRIGAN: For example, some of the cases say you


might lose market share, and that might be irreparable harm; or, your litigation expenses are robbing you of the money to do research. And Motorola cites those cases and mentions those potential irreparable harm factors. But there is not a declaration that says that Motorola is running out of research money because of the lack of this licensing revenue, or that it's lost market share as a result of this problem.

Motorola and Microsoft are not competitors. So the fact is that it's up to Motorola, under the eBay case, to come forward with something that at least creates an issue of fact as to whether it has suffered irreparable harm.

THE COURT: Mr. Harrigan, I think the court could take judicial notice of the fact that the legal fees in this matter would finance a small country. Why don't you go ahead and wrap up.

MR. HARRIGAN: All right. I will just briefly address two things: One is, Motorola also argues that this motion is coming too soon because, "The factual record has not yet been developed to allow for adequate consideration of these issues." And we suggest, Your Honor, that that is no longer -- if that were ever the case, that is no longer the case since there's been ample opportunity for discovery, and that that work has not produced any evidence of irreparable harm that would justify denying this motion.

Finally, Your Honor, I just want to mention the fact that


I believe the court's temporary restraining order, by its terms, will expire upon the court's rendering a decision with regard to the issues that we've been debating this morning. And Microsoft is here requesting that there not be a hiatus, and that when the court does rule, and thus potentially satisfies that termination condition of the temporary restraining order, that the court determine and act on whether that order should be extended.

Thank you, Your Honor.

MR. JENNER: And, Your Honor, just for the record, if Your Honor decides to entertain it, we would of course like to be heard in opposition to that. No surprise, I'm sure.

THE COURT: No surprise. Mr. Jenner, given the timing, you may get your four points here. Looks like we're going to have some time. But have Mr. Palumbo go first.

MR. JENNER: I just would like -- four points I would make in response to counsel's argument. Could you bring up Dave's slide 46? This goes to what I take to be the overriding, "they ask too much" argument, $4 billion. And I would emphasize we didn't ask $4 billion, we asked the standard rate of 2.25 percent applied to products. And nobody came back and said, if you do that, it's going to be too big. Any time anyone has ever come in negotiations, and we always have negotiations, there have been caps, there have been


discounts, there have been royalty-free cross licenses. Negotiations allow customization and remove this magnitudinal problem that Microsoft brings up.

So I do not want to leave this notion that total money is a demonstration of reasonability. And at the bottom of the slide, as Judge Posner said, "If you think it's too much, negotiate, just tell them they're charging too much."

Could you pull up slide 40. Slide 40 goes to the issue of no way that you should be charging for the end product in the first place. And we just want to call to Your Honor's attention that the law, in particular the Lucent v. Gateway case, in the middle of the page, recognizes that sophisticated parties -- I don't want to say always, routinely enter into license agreements that are based on the end value of commercial products. Because that's the convenient way, the foolproof check way, where you're not speculating about somebody's profits or anything else. The end product has a price, and you can work with it. Of course you can negotiate that away. But it's recognized as a common point.

And at the bottom of the slide Your Honor will even see the IEEE's Letter of Assurance even provides using the end price of the product as a permissible option. So to say using the end product price is improper is wrong.

THE COURT: Did you check that box?


MR. JENNER: I'm sorry?

THE COURT: Did you check that box on the IEEE?

MR. JENNER: Didn't have to.

THE COURT: You selected another option on the RAND terms.

MR. JENNER: It's in the context of saying that the price won't exceed a certain price. And we didn't agree the price wouldn't exceed a certain price.

THE COURT: Counsel, the argument that you just made to me was we selected a different basis for RAND terms, and now we're proposing RAND terms that include the rejected basis. That doesn't strike me as a particular powerful argument.

MR. JENNER: All I'm trying to say the IEEE understands that parties will, on occasion, use the end price as a basis for pricing. It recognizes that that's possible.

The third point that I would like to make goes to this question about "subject to." It's tab 6 of Microsoft's binder where they showed you Exhibit 14, the ITU RAND letter. And they take the position that it was appropriate to interpret "subject to" as something that would come along for free.

What I would ask Your Honor to consider is a line further down. At the end of line 3 of the second paragraph there's another clause where it also says, "And subject to any


Motorola commitments made to JVT in connection with an approved H.264 recommendation." That shows that there was going to have to be a reduction in recognition of JVT. Nobody could possibly suggest that Motorola used "subject to" in that context to mean that Microsoft was supposed to pay Motorola for obligations Motorola had to JVT. So clearly the second "subject to" shows that it was going to be a decrease in what was owed.

The last thing I would point out, Your Honor, is on slide 18. If you could bring up slide 18. The notion of Microsoft saying that Motorola only had a duty to negotiate in good faith. And that is not a duty that should be imposed upon Microsoft. The middle box shows that Washington State law imposes on both parties a good-faith negotiation obligation. I just wanted to call that to the court's attention.

THE COURT: All right. Thank you. Mr. Palumbo, other than me, you get the last word of the day.

MR. PALUMBO: I also have a bench book, Your Honor. And I guess since you and I are going to have a conversation, that makes it impossible for me to get through my bench book, so I want to set this into context.

First, if you grant our repudiation motion, we're done, since Microsoft's motion to dismiss our injunctive relief claim is based on their right to a RAND license. So I'm


going to explain why you should not dismiss the injunctive relief claim at this time, even if you deny our repudiation motion. And as I'm sure you understand, the injunction motion and the other motions you heard this morning, are inner-related.

So I don't want to be flippant, but let me start with a very simple and perhaps silly example. You fall in love with a house. More importantly, your wife falls in love with a house, and she tells you to go buy it. Your real estate broker tells you that the seller wants $million, won't take a dollar less, you've got 20 days to accept. What do you do? You tell the broker, yeah, yeah, go offer them $800,000. That's exactly what happened in this. And we can't tell you the substance of those negotiations, but there have been negotiations, and they have been significant.

So let me first explain to you what I think Mr. Jenner was saying, and make it crystal clear about how we think this case should proceed. If you determine that Microsoft has not repudiated its right to a RAND license, we submit that you should find the contract imposes a duty of good faith negotiations on both parties, a mutual duty, and that that duty is continuing.

We submit that that holding is consistent with the terms of the contract where the parties clearly anticipate the RAND terms will be set by negotiations and that that is a good


policy for the federal court.

In other words, federal courts should permit and even encourage the parties to continue negotiations in good faith until it's clear that both have negotiated in good faith, and they have a genuine good-faith disagreement on the RAND terms, and the dispute will not be resolved without the court's intervention to resolve the dispute. Proceeding in that manner does not require any change in the case schedule in this case. Motorola and Microsoft have something less than seven months between now and November 19th to reach an agreement on all the RAND terms.

So what are the possibilities? First possibility, you could determine on November 19th that one or the other party had not negotiated in good faith, and you could think about remedies for that. Second possibility, the parties could reach an agreement on some but not all RAND license terms. And if the court then determined that it was going to submit those terms to the court's determination, you'd have less to deal with. Or, the parties could agree upon all terms. And proceeding in that manner is, we think, consistent with the law, we think it's good policy for the federal court, and we think it makes a great deal of sense.

THE COURT: Does that mean you're joining Microsoft in taking this issue away from the jury?

MR. PALUMBO: We have to think about that, Your


Honor. We certainly considered whether this is simply a matter of equity that would be for your determination only. But I'd like to talk with the clients and talk with the other lawyers before we weigh in. But if there is a disagreement between us and Microsoft on that point, I'm sure you're going to hear about it and the basis for it.

So the issues before the court are the two issues that I have on the screen. Do the RAND Letters of Assurance and our offer to Microsoft categorically bar Motorola for seeking injunctive relief for the three H.264 patents? It's only the H.264 patents that are at issue in this motion. And the second issue is whether you should refrain from determining whether Motorola could meet its burden of proving the four-part test.

This motion comes to you in a manner that is somewhat unprecedented. In all the cases cited in both the parties' briefs, the Patent Holder makes a motion for injunctive relief, supported by evidence that the Patent Holder has offered to satisfy the four-part test for granting injunctive relief. Some of those cases are preliminary injunction cases, some are permanent injunction cases where there had been a finding at trial of patent validity and infringement. Motorola has not made and does not intend to make a preliminary injunction motion.

If Motorola's patents are judged valid and Microsoft's


products are judged to infringe, whether Motorola makes a motion for permanent injunction will depend on facts which are yet to be determined, including future developments in the markets in which Motorola and Microsoft's products compete. The competing products right now are Windows 7, which is offered on PCs, and on the Nokia phone. Microsoft will release Windows 8, that will be a cross-platform license that operates on PCs and all mobile devices, in direct competition for Motorola's project.

So it remains to be seen, even to us, whether we would make a motion for preliminary injunction. If we decided that there was a basis to do it, we would offer the evidence in support of the four-part test at trial and make the motion at the conclusion of trial. And the evidence in that motion will be undoubtedly different than the evidence we offer today.

Now, Microsoft argues in its reply that it is not arguing that the RAND commitment is a categorical bar to injunctive relief. But if you look at the third slide, Your Honor, if you look at what they say consistently in their opening motion, they are arguing precisely that the RAND commitment is a per se or categorical bar. And I have shown you several quotes out of Microsoft's briefs. And if you can look at just the last one on slide 4. It's clear what they're saying, they're saying that because we have made a RAND


commitment, that's an adequate remedy of law for use of the patented technology and we have no right to injunctive relief.

So what Microsoft's contending is that the RAND commitment is an admission that a compulsory license is an adequate remedy. And if that contention were true, if the RAND commitment was a per se bar to injunctive relief, then there would be a basis to grant this motion. But Microsoft's contention is contrary to law.

Federal cases uniformly hold that a Patent Holder's willingness to license its patent, including by making a RAND commitment, does not bar injunctive relief. Rather, the availability of injunctive relief is decided in each case based upon the traditional four-factor test, and the specific facts in that case. And we have eBay, the language which I'm sure you're familiar with, Your Honor, where the district court found that the willingness to license would be sufficient to show that the Patent Holder would not suffer irreparable harm. And Justice Thomas said, "But traditional equitable principles do not permit such broad classifications." And this is the language in eBay, that the lower courts cite every time they're confronted with this question.

The CSIRO case is a RAND case. And the court found that CSIRO's only intent was to derive license revenue, and CSIRO


made a RAND assurance to the IEEE. And in the face of both of those, the district court granted a permanent injunction, finding that a compulsory license will not adequately compensate CSIRO for the infringement.

Courts have not distinguished between a willingness to license evidenced by a RAND commitment, and a willingness to license evidenced by the fact that the Patent Holder has licensed to other parties, or even stated its willingness to license to the infringer at issue.

So, we don't have many RAND cases. We do have a large number of cases where the court considers evidence of a Patent Holder's willingness to license, rejects that that is a basis, per se, to deny it. And in each case they follow the Supreme Court's decision in eBay.

So I'm going to go through very, very quickly, Your Honor, a whole series of cases. Here is Transocean. And in this case, Transocean, the evidence was that Transocean was willing to consider licensing its invention to GSF, the defendant in the case, and even in the face of that the court granted a permanent injunction.

Then you have ActiveVideo, same ruling; Callaway Golf, same ruling. Willingness to license does not forego the ability to get injunctive relief, rather injunctive relief is judged by the four-part test. And willingness to license is a factor the court considers, but it is not a dispositive



And then here's a whole series of cases, again none of these are RAND cases, Your Honor, but as I said, the courts do not distinguish between a willingness to license, evidenced by other evidence, and a RAND willingness to license.

So let me turn to what ALJ Shaw says, and this is consistent with our research, and Microsoft cites no cases to the contrary. What he says in denying Microsoft's RAND defense is, "Microsoft was not able to cite one case in which an exclusion order was foreclosed, due to the existence of RAND obligations." And I submit, Your Honor, there is no case that holds that a RAND commitment, standing alone, in and of itself, bars injunctive relief.

So then Microsoft takes the position that if the court establishes the terms of a RAND license, injunctive relief cannot be granted, since Microsoft will have a license to Microsoft's H.264 patents. And that proposition is contrary to the district court's decisions in CSIRO and Transocean.

So here is the language from CSIRO, which was a RAND case. And the court says, "Further, such royalty payment, a royalty payment under compulsory license, does not necessarily include the other non-monetary license terms that are as important as monetary terms to a licensor such as CSIRO." And Mr. Jenner has told you at some length that a RAND


license, and I'll show you some specific language, would include not only a royalty rate, but many other material terms.

So at least the CSIRO district court determined that even though they could grant a compulsory license, that license would not include all the essential terms that a Patent Holder was entitled to for the infringement in this case on the specific facts of the CSIRO case, and an injunction issued, in the face of a RAND obligation.

Transocean, as I said before, was not a RAND case. But the court said the same thing. "The court's persuaded that if it does not enter a permanent injunction, it will force a compulsory license on Transocean, that will not contain any of the commercial business terms typically used by a Patent Holder."

And I promised that I would show you specific language about the fact that a RAND license is going to be and have more like the 80-page license that Mr. Jenner held up. What the ITU policy says -- this is a policy that applies where the Patent Holder checks the box that they're not going to charge a royalty, and what the ITU says is, even in that case where there's no royalty, the Patent Holder is still entitled to require that the implementer sign a license agreement that contains other reasonable terms and conditions such as those, and it goes on.


So if you find yourself in a position where either you or the jury has to determine the terms of a RAND license, you will be doing much more, we submit, than simply determining a royalty rate. You'll be looking at cross licenses, how the cross licenses for Microsoft products impact the royalty rate, and many other material terms.

So let me turn to now --

THE COURT: Before you leave that, in our research on this, we could not find a RAND case in this context. The RAND cases, including the ones that you're mentioning, are all situations where the infringing party refuses to take a RAND license. That seems to me to just wipe that whole line of authority out. Because it is a dramatically different situation. I would concede to you that it's appropriate to have injunctive relief then, because you need to stop the inequitable conduct.

MR. PALUMBO: No question.

THE COURT: So, tell me why you then carry that over into the RAND context.

MR. PALUMBO: I'm not sure I understand your question. But let me try to answer it, and then you can correct me. If you were to determine that both parties had negotiated in good faith, we would still have the opportunity to offer evidence to meet our burden of proof under the four-part test that a compulsory license would not be


sufficient to protect our patent rights. And the courts go on and they cite Justice Robert's concurring opinion where he says, yes, that's the law that's in the majority opinion, but we have a long history of honoring Patent Holder's rights to exclude others from practicing their inventions, and that history has to be honored. It's not dispositive as it was before eBay, but it has to be honored.

Now, Your Honor, the burden of proof that we would have to meet in that circumstance would be very substantial. And as I said, we can't sit here today, because facts are yet to be developed, and tell you that we could meet the burden of proof. I'm prepared to tell you, we're not in a position where we could even decide that we were going to seek a permanent injunction. That decision will be made prior to trial based on the evidence we believe we can offer at trial. So where there is a RAND commitment, there's no question that there's a balancing between the Patent Holder's right to exclude, and the RAND commitment, and the burden for us to show and meet the burden that CSIRO was able to meet in its case is very substantial. And if you've read that case, there are facts in that case which support it. And they are different than the facts that we would be able to offer you. So I'm not saying we would be entitled to it in the face of a RAND commitment, I'm saying that is an issue that has yet to be determined.


But I want to turn to another subject, Your Honor. Microsoft seems to suggest that there's something wrong and unfair about requiring it to negotiate a RAND license, unless the potential for injunctive relief is removed by this court. But the clear intent of the parties to the contract is that RAND license terms would be established by negotiations between the parties. And we submit this court should stay its hands until those negotiations have failed.

Since court intervention at the inception of negotiation is unprecedented, as far as we can determine, I can find no case, every infringer seeking a RAND license does so with the potential that unsuccessful negotiations could result in an injunction.

The potential for an injunction, the potential, Your Honor, not the injunction, but the potential is an incentive for the infringer to engage in good faith negotiations, and the countervailing incentive for Motorola as the Patent Holder to engage in good faith negotiations, is the potential such as this seeking to have the court set a compulsory license. So there are equal and offsetting incentives. And what we suggest is it would be a mistake for the court at this point to remove the potential for an injunction.

And let me just show you a few slides on that issue. These basically say what you've just said, Your Honor. Members of the industry and the ABA standards clearly say if


you have a RAND commitment but you can't successfully negotiate in good faith a RAND license offer, the Patent Holder isn't precluded from getting an injunction. And if you note in each of these, the underlying assumption is the potential for injunction is out there as you negotiate.

Let me show you what Microsoft's two executives who are responsible for standards have said in a June letter to the ITC, and I'm not going to read you the whole thing, but look at the bolded language at the bottom, "Any uniform declaration that such relief" -- preliminary injunction -- "would not be available if the Patent Holder has made a commitment to offer a RAND license for its essential patent claims in connection with a standard may reduce any incentives that implementers might have to engage in good faith negotiations with the Patent Holder."

So that's a letter submission to the Federal Trade Commission by Microsoft, and it says precisely that. This is an incentive. It's out there. There's no guarantee that there will be injunctive relief if there is no RAND license. But it is an incentive. And I said, there are equal and offsetting incentives for good-faith negotiations that weigh upon Motorola, just as the potential for an injunction weighs upon Microsoft.

I'll show you a couple slides. Ericsson is, as you know, a very large cellular company. And Ericsson basically says


the same thing, "The availability of injunctive relief for standards essential patents indeed has depended on the behavior of the parties to the proceedings and, in particular, on their conduct in bilateral negotiations." So Ericsson is recognizing the fact that courts do grant injunctions even in the face of a RAND license, and resolving that that is a good thing for the benefit of those negotiations.

And then here is Transocean where the court says effectively the same thing, recognizing the benefit of a potential injunction on the commercial negotiating power in a licensing negotiation. And because this is not a RAND license, what the court in Transocean says is, "If GlobalSantaFe can continue to infringe with a court-issued compulsory license, then others would be encouraged to infringe, and Transocean loses part of its commercial negotiating power in license negotiations."

So what this is saying is if somebody gets a compulsory license from Motorola, and then the risk of an injunctive relief is removed, then that is diminishing the power to successfully achieve future successful negotiations over a RAND license.

And here is the German court. And the German court says the same thing in the certified transcript. And I think Mr. Harrigan has contended there is just no relationship


between RAND and this antitrust thing, yet he cited absolutely no authority to you whatsoever for that proposition, Your Honor. And you were troubled in the motion we had the last time we were here about the impact that the potential for an injunction would have on Microsoft. And you were concerned about a disparate ruling by the German court.

But just in terms of negotiation, in the German court if Microsoft -- if Microsoft's offer is deemed to be not reasonable, not meeting the German court standard, we get an injunction.

If Microsoft makes an offer and the German court determines that our denial or rejection of that offer is unreasonable, then we can't enforce our patent rights. So we don't have that here. But we do have a similar situation where there are equal and offsetting incentives to both parties to engage in good-faith negotiations, and you should not grant a motion to dismiss the injunctive relief claim because it hasn't even been posed properly and would be contrary to law; but also because it removes one of the critical incentives that may get the parties to agree upon the terms of a RAND license without you ever having to do anything in this case.

And then I have a whole series of slides, but I want to conclude pretty quickly. And these slides just go on to demonstrate why it is Mr. Harrigan said that -- well, they


say that we've got the burden of coming forward with all of our proof. And yet here is the cite from their own case which confirms what I've told you, which is this motion is based solely on the RAND commitment as evidence that there can't be irreparable harm. Motorola says because -- Microsoft says, "Because Motorola cannot show irreparable harm and because monetary relief would provide an adequate remedy, it is not necessary for the court to consider any of the other eBay factors in rejecting Motorola's claim for injunctive relief."

So the other factors and our proof in this motion of the four-part test, wasn't even put on the table by Microsoft's motion. Microsoft says, well, we're not direct competitors and so you can't give an injunction, because we're not direct competitors.

If a motion for permanent injunction is made, you're going to look at that issue, and you're going to look at it very closely. The fact is, as I've said, Windows 7 is a platform for mobile phones, Windows 8 is a platform for smart phones and tablets, that will compete directly with Motorola's mobile devices. And the ActiveVideo court says, "The court is not aware of any precedent which requires direct competition in any form before an injunction is made."

Microsoft also argues in its briefs that we could never get an injunction because H.264 is not a core aspect of our


business. In fact, Motorola has been a leader in video compression for 20 years. H.264 is a core functionality, and Motorola and Microsoft were co-chairs of the joint video team responsible for H.264 development. So to say this is a non-core functionality for Motorola simply is not true factually.

And moreover, here's the Bosch court, which says, "The federal court granted a permanent injunction based on indirect evidence of lost market share." And it says further, "Injuries that affect a non-core aspect of a patentee's business are equally capable of being irreparable as ones that affect more significant operations." Even if it were non-core, and it is core, that alone would not be a basis.

Then I'm just swinging through --

THE COURT: You should go ahead and wrap up.

MR. PALUMBO: So Microsoft argues that the fact of a RAND commitment standing alone means that a compulsory license is an adequate remedy of law, and as a matter of law we can't get injunctive relief. We've demonstrated that the Supreme Court's decision in eBay and every single decision of the federal courts following eBay, is contrary to Microsoft's position. And we submit that you should refrain from determining whether Motorola can meet its burden to prove the four-factor test for permanent injunctive relief, unless and


until we seek such relief and offer evidence at trial. Thank you, Your Honor. That's all I have.

THE COURT: Thank you. Mr. Harrigan, do you want to take two minutes?

MR. HARRIGAN: I would. Thank you, Your Honor. I was going to suggest the same amount of time.

Your Honor, this motion is really primarily predicated on two things: The first one is that Microsoft, for all practical purposes, has a license at this point. And the only issue is what are the terms going to be? And they're going to be set by the court. If that proposition accords with the court's view of the matter, then there will never be any need for a basis for injunctive relief because Microsoft will have a license to the two standards and that will be the end of it. And that is what was proposed in Motorola's letters, but on unacceptable terms. That's the first proposition.

The second proposition is that the lack of irreparable harm is not based on the fact that this is a RAND situation. At page three of our reply brief, among other places, we indicate that the key basis for this motion is that Motorola offered to license its H.264 patent portfolio to Microsoft at a 2.25 percent royalty rate.

In other words, this is not a case where Motorola expressed a willingness to do this to some other party, or


even just expressed a general willingness to Microsoft. It gave a specific amount of specific royalty that it would take in return for a worldwide license for these patents with this party. And that is a unique situation, and it means that, especially in light of Microsoft's agreement to accept the license at whatever rates the court sets, there isn't going to be any basis for injunctive relief. But it's also an admission by Motorola that at least payment of that much money is acceptable, an acceptable outcome, and is all of the relief that they are seeking in the letters.

Basically, Your Honor, Motorola is entitled to RAND rates, and it's going to get them as a result of this lawsuit, if not in some other way. Thank you.

THE COURT: Counsel, as I indicated at the start, I'm taking these matters under advisement and will file a written opinion. I'm reserving my ruling, in part, because I need time to consider the material that you've given us today. I'm not sure that there is a tree left standing in the forest, given the volume that's been submitted. And I also want to think about some of the arguments that you've made today.

However, I will tell you that it is at least my preliminary -- and I stress "preliminary" -- view that Microsoft's motion for breach of contract is going to be denied and that Motorola's motion for repudiation is going to


be denied.

Regarding Microsoft's motion to dismiss the injunctive relief claim, Mr. Palumbo acknowledged what's been troubling the court, which is there is not much legal authority regarding RAND cases. And the authority which we've been given by both sides has to do with infringers who decline to take a license. That complicates that particular motion.

Secondly, the parties are well ahead of the court in what a trial in this matter might look like. I need to go back and try and determine from your pleadings, as opposed to your argument, what issues are in and what are out in order to evaluate the availability of injunctive relief. So that one is reserved for further consideration.

In response to Mr. Jenner, I am acutely aware that I have outstanding a temporary restraining order, and we may convert it into a preliminary injunction, if that is in accordance with our consideration of your motions. And I'm not inclined to have another argument in doing so. You've had your opportunity to present what you wanted to the court. And I think you've done a good job of doing so.

I'm going to close with the following observation, which I've thought about a fair amount, and which hopefully will offer you some guidance in the court's view of this matter. The court is well aware that it is being played as a pawn in a global, industry-wide business negotiation. The conduct of


both Motorola and Microsoft has been driven by an attempt to secure commercial advantage. And to an outsider looking in at it, the conduct has been arbitrary, it has been arrogant, and frankly it appears to be based on hubris.

When I use the word "hubris" I am reminded of Sophocles' Antigone, when Creon refuses to even bury Polynices; or, for those of you who want to be more highbrow, Icarus for flying too close to the sun.

These days hubris is usually defined as extreme pride or arrogance, often associated with the loss of contact with reality, and an overestimation of one's own competence or capabilities. In this case, it is an indictment of the character of the parties.

So, returning to the court's self-described role as a pawn in this chess game, I leave you with one of my favorite traditional Irish sayings: When the chess game is over, the pawn and the king go back to the same box.

You should think about that. We will be in recess. Thank you, counsel.

(The proceedings recessed.)


[see pdf]



Report from the Seattle Courtroom in Microsoft v. Motorola ~pj Updated | 144 comments | Create New Account
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Corrections Thread Here...
Authored by: lnuss on Monday, January 28 2013 @ 09:14 PM EST

Larry N.

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Authored by: lnuss on Monday, January 28 2013 @ 09:15 PM EST

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Authored by: lnuss on Monday, January 28 2013 @ 09:16 PM EST

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Authored by: lnuss on Monday, January 28 2013 @ 09:17 PM EST

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Thanks to the Volunteer!
Authored by: lnuss on Monday, January 28 2013 @ 09:23 PM EST
Thanks very much for taking the time and effort to cover this for us.

Larry N.

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Report from the Seattle Courtroom in Microsoft v. Motorola ~pj
Authored by: Ian Al on Tuesday, January 29 2013 @ 03:31 AM EST
From Wikipedia:
An application-specific integrated circuit, or ASIC, is an integrated circuit (IC) customized for a particular use, rather than intended for general-purpose use. For example, a chip designed to run in a digital voice recorder is an ASIC. Application-specific standard products (ASSPs) are intermediate between ASICs and industry standard integrated circuits like the 7400 or the 4000 series.

As feature sizes have shrunk and design tools improved over the years, the maximum complexity (and hence functionality) possible in an ASIC has grown from 5,000 gates to over 100 million. Modern ASICs often include entire microprocessors, memory blocks including ROM, RAM, EEPROM, Flash and other large building blocks. Such an ASIC is often termed a SoC (system-on-chip). Designers of digital ASICs use a hardware description language (HDL), such as Verilog or VHDL, to describe the functionality of ASICs.

Field-programmable gate arrays (FPGA) are the modern-day technology for building a breadboard or prototype from standard parts; programmable logic blocks and programmable interconnects allow the same FPGA to be used in many different applications. For smaller designs and/or lower production volumes, FPGAs may be more cost effective than an ASIC design even in production. The non-recurring engineering (NRE) cost of an ASIC can run into the millions of dollars.

The initial ASICs used gate array technology. Ferranti produced perhaps the first gate-array, the ULA (Uncommitted Logic Array), around 1980.
VHDL was originally developed at the behest of the U.S Department of Defense in order to document the behavior of the ASICs that supplier companies were including in equipment. That is to say, VHDL was developed as an alternative to huge, complex manuals which were subject to implementation-specific details. The idea of being able to simulate this documentation was so obviously attractive that logic simulators were developed that could read the VHDL files. The next step was the development of logic synthesis tools that read the VHDL, and output a definition of the physical implementation of the circuit.
I don't know how modern ASICs are configured, these days, but I have a better idea of how Field Programmable Gate Arrays (FPGAs) are configured. An FPGA has a lot of circuit blocks that have special electrical properties such as Input/Output drivers and functions, computation, memory and clock circuits. The core is the logic block.

Logic circuits, such as an AND gate, are conventionally made with a handful of transistors. The 2 input AND gate transistors make sure that when both the inputs are at '1' the output is '1'. For all other permutations the output is at '0'. If you think of the device as four, one-bit memory cells, then the address 11 contains '1' and the other addresses (10, 01, 00) contain '0'. If you wanted an OR gate or an Exclusive OR gate you just have to put the correct values from the truth table into the memory cells. As I understand it, that is how ASICs and FPGAs are 'programmed'.

Programmers don't program the ASICs or FPGAs. They use GUI logic simulation tools that can load and save Verilog or VHDL files and, once the logic and other functions operate correctly in the simulation, set the values required by the chip to deliver those functions. The programmer does not have any knowledge of how the real world circuits are used or interconnected.

The 'programmer' does not write in a programming language. The programmer devises a virtual circuit on the computer screen and the software tools configure the chip. For FPGAs the design is not usually held in the chip. There is a serial memory chip that holds the configuration memory values and the FPGA loads the values when the power is turned on. Note what Wikipedia says about the cost of designing an ASIC. The abstract engineering functions are not the difficult part: it is the fine-tuning of the virtual circuit to deliver the function. None of that cost would be incurred during the conjuring of the abstract engineering functions. How novel and useful are the engineering functions?

The patent that Motorola released to the ITU and the IEEE under FRAND terms for H264 does not define the virtual logic circuit needed to deliver the function in the ASIC or FPGA. It just defines the function of the circuit.

No matter what real world electrical, hydraulic mechanical or other engineering system is used to implement the patented functions, the system infringes upon the functions.

If one realises the electrical functions using vacuum tubes and selenium rectifiers, one still infringes on the electrical functions in the patent.

If one realises the electrical functions using a program in a computer, everything changes. The actual logic executed by the processor has to be programmed using a mathematically valid computer programming language. The programmer does not know the actual codes executed by the processor, but there is a mathematical correlation between what he writes and what the processor does.

As the report puts it,
Microsoft's argument is basically: um you don't have an algorithm in here you seem to be claiming any and all electronic devices that do this poorly described stuff with no information on how to implement it.
It is abstract engineering ideas not narrowed to an engineering environment. Fair point, Microsoft, but you argue that stating a math algorithm that helps in implementing the engineering function would rescue the patent from invalidity. However, the only time the math algorithm implements the engineering function is when the invention is programmed into a computer. The math algorithm does not implement the invention in an ASIC or an FPGA. It would only help a math literate user of the relevant computer tools to create the virtual circuit implementing the 'invented' electrical functions.

My reason for boring you silly about this stuff is to make a comment on the patent system (and not just the US patent system).

A review of the above against U.S.C. 35, Sections 101 and 112 and the associated Supreme Court opinions shows that the invention is non-statutory subject matter being abstract engineering ideas and not a machine or process. In addition, no 'one' can be skilled enough in all of the engineering arts that might be used to design an infringing machine from the disclosures in the patent. In fact, there is insufficient disclosure to make any infringing machine.

I feel sure that the equivalent patents around the world are invalid for the same reasons even though the patent laws will vary greatly from jurisdiction to jurisdiction.

There are no such things as 'software patents'. The software is never patented. The Fraunhofer Institute patented the mp3 algorithms around the world and they are deemed infringed by the courts whether implemented by programming a computer, creating the abstract idea of electrical logic in ASIC and FPGA design tools, or using analogue operational amplifiers.

Oh, wait a minute, the mp3 algorithms don't work on analogue signals. They only work by manipulating the digital symbols representing analogue audio by encoding using the international CCITT standards. Abuse of the patent laws is not restricted to the US or software or computer devices.

Ian Al
Software Patents: It's the disclosed functions in the patent, stupid!

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Report from the Seattle Courtroom in Microsoft v. Motorola ~pj
Authored by: Anonymous on Tuesday, January 29 2013 @ 04:12 AM EST
Thanks very much for covering this. In a way I am actually impressed by the
Judge's observations that this case is hubris with either party using the courts
as a commercial negotiating tool.

The judge has IMHO correctly rejected the "breach" claim by Microsoft
but at the same time rejected the ability for Motorola, for the time being, to
block Microsoft products. The latter would be unacceptable if the case were not
going to trial, which seems to be the case.

Basically he is holding in both parties in contempt (not in a legal sense) but
unfortunately, probably because Motorola has obtained an injunction in Germany,
has not thrown the case out with prejudice. In my opinion he should.

It is unfortunate that he cannot force both parties to negotiate (even if one
has indicated a willingness to negotiate) and so he believes that he has no
option but to hear the case, as will the higher courts when the final decision
is appealed.

But this is the problem with patents of this sort, whether they are FRAND or
"Design". Patents provide a commercial advantage and corporations are
under a duty to make full use of all tools, including the courts, to maximise
that commercial advantage just as corporations are under a duty to minimise
taxation. This is where morality and corporate duty separates and the result is
that all are damaged.

As the judge says this case is an expression of "extreme pride or
arrogance, often associated with the loss of contact with reality" of both
parties. If it were an individual they recipients would hang their head in shame
and so they should.

[ Reply to This | # ]

The court is well aware that it is being played as a pawn
Authored by: Anonymous on Tuesday, January 29 2013 @ 07:20 AM EST

Wow. The judge sounds less than pleased.


[ Reply to This | # ]

Watch your language
Authored by: Ian Al on Wednesday, January 30 2013 @ 03:51 AM EST
THE COURT: Well, you know, when we talk about document language, contract language, don't I need to know what patent is covered by what -- I'll call them a convention, or an industry-standard agreement.
THE COURT: I'm looking at the Letter of Assurance for essential patents signed by Jonathan Meyer, senior vice president, dated April 21st. I've come to the conclusion that it's 2005. His handwriting is worse than yours and mine. And it says, "Patent Holder is prepared to grant a license." There is no attachment to it.

MR. JENNER: That's probably an IEEE version.


MR. JENNER: For the ITU there are patents, for the IEEE there are not.

THE COURT: But for the ITU you describe them as non-exclusive lists. Help me with that.

MR. JENNER: The parties would negotiate and agree on a need for additional -- that's the problem with judicial resolution of a term like this. I understand Your Honor's difficulty in trying to understand what precise set of patents are we talking about. The parties know that they're not talking about a precise set of patents, they are talking about the ones that are listed. That's on the table. But the parties appreciate that other patents may come along which are essential for the benefit of the licensee, and they become included because they are essential. There's no way for you to know that.

THE COURT: Let me ask you this question, then. Is there any patent which is in dispute in this matter before me that is not covered by either the ITU or the IEEE?

MR. JENNER: Let me answer that one this way: To the extent that --

THE COURT: I think yes or no would be a great answer.

MR. JENNER: Then the answer has to be yes.
THE COURT: Well, here is what is troubling me, Mr. Jenner. I'm looking at the ITU what I think is Exhibit 4, Document 79. The operative language signed by a representative of General Instrument Corporation, looks like a Mr. Bawel, B-A-W-E-L. He checks the box that says, "The Patent Holder will grant a license," then the language continues. "Will grant." In that context, it's mandatory. It says, "You will grant."

Then I look at the IEEE, the same Letter of Assurance, or same form Letter of Assurance signed in this case by Mr. Meyer, and it says, "The Patent Holder is prepared to grant a license." Now, you make a big, big thing out of the difference in the language here. And now when it serves both sides, they kind of sweep that whole argument away and say, this is what it means. And that's what's troubling me, the language changes.
I think you know my view: neither the ITU nor the IEEE agreed contractual terms constituting a meeting of the minds and an exchange of consideration. Neither the ITU patent declaration nor the IEEE Letter of Assurance qualify as contracts and therefore there can be no third party beneficiary.

The judge has decided otherwise and has decided that, in his jurisdiction, there are third party beneficiaries to the contracts. Further, those third parties are everybody in the world. Now the judge has to determine the legal meaning of the language in what he deems to be contracts.

The writing of the GPL was difficult because it had to have the same meaning in every jurisdiction in the world. Even though the Letter of Assurance and ITU declaration text are not intended as contracts, they are, nevertheless, intended to have the same legal meaning everywhere in the world in the same way as the GPL.

The third party beneficiary concept does not appear in many legal jurisdictions. Even taken as contracts, the global nature of the IEEE and the ITU language cannot be assumed to encompass third party beneficiaries. Motorola made the specific point with regard to the German injunctive action.

The judge is in error in his interpretation of 'will grant' in the ITU wording to be a mandatory contract condition. In fact, the latest wording is changed to more accurately reflect the ITU's intention (bearing in mind that we are not talking about a legal contract).
2. The Patent Holder is prepared to grant a license to an unrestricted number of applicants on a worldwide, non-discriminatory basis and on reasonable terms and conditions to make, use and sell implementations of the above document.

Negotiations are left to the parties concerned and are performed outside the ITU-T, ITU-R, ISO, or IEC.

Also mark here __ if the Patent Holder’s willingness to license is conditioned on Reciprocity for the above document.
Since the ITU documentation is not a proforma contract, then it is correct to look to the latest text to establish the ITU's intent. Further, the original declaration made it clear that the ITU would play no part in the negotiation of the licence. The court conceded that the third party beneficial term in the deemed contract was the preparedness to issue a licence. The licence only exists after the closing of the negotiation and the signing of the contract terms. That seems to be the judge's basis for deciding there was no breach of contract.

The reciprocity section is also relevant, here. It says (if there is a tick in the box - a strange element in a contract!) that if the licensee is also a holder of an essential patent listed in the standard, that the licensor is only willing to licence if the licensee is prepared to licence its own patent in a reciprocal licence deal.

The court discussed 'reciprocal' patent licences. However, they were not discussing the named IEEE and ITU standard essential patents.
One of the portions is 802.11-I, had to do with new security techniques. Finkelstein relates to new security techniques. Finkelstein would relate to 802.11-I. Motorola did not submit a Letter of Assurance for 802.11-I. There is no LOA covering Finkelstein, even though Finkelstein would be considered in the 802.11 patent. So that's a wrinkle. There may be other patents like that that we're not litigating at this point that fall into a similar wrinkle.
So, a standard essential patent not covered by a LOA FRAND agreement. Then there are what the court referred to as worthless, industry-essential patents like the MPEG LA pool for H264.
THE COURT: Let me take you down another rabbit hole, then. You just used a phrase that appears frequently in your pleadings, but is inconsistent with your position, which is you said, "I'm going to value them," referring to Microsoft's patents. Your position in the litigation is, you don't value the patents, you value the product. I've run into this dichotomy --

MR. JENNER: We value both. We value both. One of the things that would be given credit is the patent portfolio that Microsoft would be willing to license back. If they have valuable patents to license back, that's enormously important to Motorola. It would decrease what it asks for.
The judge is not talking about just FRAND agreements in this case: he also has to consider standard essential patents that are not formally included in an IEEE FRAND agreement and a bunch of MPEG LA litigation pool patents that are priced at 'as much as the market and patent holder can bear'. He has narrowly interpreted international LOA and declarations under US law and used that to declare them contracts. Is he really going to try and put a cash value on this mess? Is he really intending to throw the Google - MPEG LA extortion pool into this judgement?
THE COURT: Okay. And I'm going to put words in your mouth now. You're agreeing that you don't know a court that's done it in this context. But you don't disagree that that's a fairly common procedure in courts supplying missing terms in contracts.
It sounds as though he is! Towards the end, he is very critical of both sides for arrogantly forcing him to settle a purely commercial dispute instead of being reasonable and coming to a settlement. I think that he showed arrogance in disregarding the sovereignty of foreign legal jurisdictions and the global nature of standard setting organisations' participation agreements. His failure to distinguish between world standards and US industry standard patent pools has dragged him down this particularly surreal rabbit hole.

Ian Al
Software Patents: It's the disclosed functions in the patent, stupid!

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