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In a First, Seattle Judge Sets RAND Rate in MS v. Motorola ~pj Updated 2Xs
Friday, April 26 2013 @ 09:11 AM EDT

I did tell you not to be surprised if the judge in Microsoft's home court in Seattle favored Microsoft in setting a RAND rate for a couple of Motorola standard essential patents in Microsoft v. Motorola. And in fact, he more or less did, in a Findings of Fact and Conclusions of Law [PDF, 207 pages], although he ordered more than Microsoft offered or thought fair. But interestingly, as Matt Rizzolo points out on The Essential Patent Blog, he used Motorola's methodology to come up with a figure, not Microsoft's:
One interesting thing about the findings is that while the ultimate RAND royalty appears to favor Microsoft, Judge Robart seems to have sided with Motorola as to the right approach to determine RAND royalties — simulating a hypothetical, bilateral negotiation between the parties (whereas Microsoft had suggested determining RAND on the basis of an ex ante, multilateral negotiation at the time of the standard’s adoption).
I feel confident that this will be appealed by Motorola, because the judge in effect sets the "rule" that you can be ordered to accept pool rates in pools you haven't joined instead of following the normal negotiation structure of the standard body you did agree to put your standard essential patents in. And that just can't be right. Who'd donate patents to standards bodies if they know it has no bearing on the royalties they can expect in return?

While we read the judge's magnum opus together, I'll just say one quick word about Florian Mueller's strange article today that gloats that it will take 7,000 years at this RAND rate for Google to recoup its price paid for the Motorola patents. []

First, if you noticed, in the most recent round of quarterlies, Google isn't in the "let's sue and get a lot of money from royalties on patents" business. That's more a Microsoft strategy. Probably because no one wants Microsoft's products. Google does make money, though, buckets of it, because people like Google's products. I believe that would indicate that Google knows how to make money. Nor did they, or anyone but Florian, ever imagine that they'd get repaid the purchase price by royalties on only two of the many patents that came with the Motorola purchase. That wasn't the plan. It was, from what I read, defensive in nature. Where does he come up with this kind of stuff? In his dreams, I guess. I believe Freud called those kinds of dreams wish fulfillment dreams. Of course, Microsoft did hire him. In his universe, Google is always doomed.


In litigation, it's not over 'til it's over, and there is a long way to go with this case. Perhaps you noticed that in the Apple v. Samsung litigation, after the disastrous jury decision against Samsung, with all its conceptual and math problems, post-trial activity by Samsung has been quite successful in balancing out an unfair result, even in the same court, let alone in the appeals to come. Litigation isn't like football, where the end of the game is really the end and suddenly it's over with a clear winner and a clear loser and nothing can change it. Litigation's a process, and now the long appeal process begins. The same law firm, Quinn Emanuel, is representing Motorola here, and rest assured, they'll be making their moves.

Sometimes judges get things wrong. Juries do too, sometimes. And that is what the appeals are for, because humans are human, and you need a corrective safety net to make up for that. But one thing you can take to the bank: Google is not going out of business over this. I'm sure they noticed, if I did, and I'm only a paralegal, that this judge seemed to favor Microsoft whenever he could, so they've likely had some plans cooking on the back burner on what to do next. Lawyers don't just say, "Oh, that's bad, that ruling. I guess I'll give up now."

Deeper, this was a case where Motorola made an offer, and it expected a negotiation. They were not expecting Microsoft to accept the opening offer. It's not how these things work. Instead of negotiating in the normal course, Microsoft took them to court. Now the judge, instead of ordering Microsoft to negotiate, accepted Microsoft's suggestion that he set a price himself, despite the judge having no experience in standards bodies and how they work at all, and Rizzolo describes the result like this:

That’s about 4 cents/unit total — and even at the upper bounds, it’s about 36 cents/unit. From a review of the parties’ post-trial briefs (Motorola, Microsoft), these RAND royalty rates are much closer to the ones urged by Microsoft than Motorola. And obviously, they are much lower than the 2.25% rates offered by Motorola in its initial licensing letters (which work out to about $4.50 on a $199 Xbox). Judge Robart apparently did not find Motorola’s prior licenses (many of which involved Motorola’s cellular SEP portfolios) to be good comparables for a license between Motorola and Microsoft involving 802.11 and H.264 patents. Instead, he appears to have based much of his determinations on rates offered by patent pools (the MPEG LA AVC/H.264 pool and the Via Licensing 802.11 pool), as well as license rates charged by chip designer ARM Holdings.
But Motorola didn't put its patents into the MPEG LA/H.264 pool. So it's a strange way of figuring a rate, frankly. Do you seriously think companies will offer patents to standards bodies if this can happen to them? I think not.

And so, as so often has happened in the software world, Microsoft tries to ruin things for everyone else to get a benefit for itself. A leopard doesn't change its spots.

That's why there are regulatory bodies. And as you know, claims of Microsoft and friends using patents, via trolls, against Android as an anticompetitive weapon are already in the air, with Google, Red Hat, Blackberry and Mindspring joining together to ask the US Department of Justice and the FTC to investigate antitrust implications of aspects of the patent strategies afoot, and rightly so, in my view. The smartphone patent wars are not just about patents. That's just on the surface. Think SCO Group, but with patents instead of copyrights. This particular litigation is just one small corner of a much bigger picture.

But here's what I know: when a judge writes a 207-page explanation for what he's done, it's because he expects there will most likely be appeals. No court has ever set a RAND price like this in history, so we are in uncharted waters, and so is the judge. Motorola's position from day one, in fact, was that he lacked the authority to do what he has just done, so stay tuned.

After I have time to read the entire 207 pages carefully, I'll add anything else that strikes me, if you want to come back by later today. And if anyone would please volunteer to help me do this honking PDF as text, I'd appreciate it very much.

Update: While I'm still reading the ruling, I see Matt Rizzolo has a followup article explaining the methodology the judge followed, which he views as more important for future cases than the actual amount set in this instance:

While much of the focus in the media has been on the amount of RAND royalties determined by the court, it’s the methodology for determining these royalties has the potential to be truly important for future cases.

To determine RAND terms in this case, Judge Robart analyzed what would occur in a hypothetical negotiation between Motorola and Microsoft for the 802.11- and H.264-essential portfolios at issue. As in many patent-related cases, the court here used the factors outlined in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970) formed the basis for this hypothetical negotiation. But to account for the unique considerations present in the standard-essential patent RAND licensing context, Judge Robart modified the G-P factors somewhat — noting that “the parties in a hypothetical negotiation would set RAND royalty rates by looking at the importance of the SEPs to the standard and the importance of the standard and the SEPs to the products at issue.”...

Importantly, Judge Robart found that negotiations in the RAND context should be constrained by the following “economic guideposts”:

  • The level of a RAND royalty should promote adoption of the standard;
  • The methodology for determining RAND terms should recognize and mitigate both the risk of “patent hold-up” and royalty stacking (the total royalties payable if other SEP holders made the same demands);
  • RAND royalties should guarantee the patent holder a reasonable return on its IP-related investment; and
  • RAND royalties should be interpreted to limit the patent holder to a reasonable royalty on the economic value of the patented technology itself, apart from the value associated with the patent’s incorporation into an industry standard.
He then goes into satisfying detail on exactly what the judge did, tables and everything. How helpful it is to have a lawyer who specializes in patents and standard essential patents in particular write about this litigation. I'm learning a lot. Here's what I notice in particular, and I expect this to matter in any appeal, should one happen. The judge ruled that past practice means looking at what patent pools do. Right there he's misunderstood, in my view, the difference between a patent pool and standards bodies, and he's thinking the latter must act like the former. They don't. Can they be forced to do so, midstream, when everyone donated patents not under the lower pool-payment strategies but following for decades a system using a negotiated rate, case by case? Can a judge change the rules and remove value from an owner, after the fact, when the deal was set on different terms? We'll see. Because that is what he's done.

Next, he says that the price can be reduced by alternatives that could have been written into the standard instead of the patented tech. I mean. That's another change. And he thinks you need to look at how much the patent contributed to the standard. That, by the way, is exactly what patent pools do not do, in that the whole idea of a patent pool is to not have to do that kind of math per patent, as I understand pools from this litigation. Next, instead of figuring the portion of profit or of the selling price that may be customary in the type of business, the judge says:

This factor must be viewed through the lens of business practices involving RAND commitments. In other words, licensing fees for non-RAND committed patents customary in a business industry cannot form the basis for comparison. Instead, factor 12 must look to customary practices of businesses licensing RAND-committed patents.
So what is the incentive to donate your patent to a standard? You devalue its worth the day you do it. And he says you can't judge the value of the standard in figuring out the patent's value, only how much it contributes to that value.

Here's another issue I see in the judge's reasoning: he thinks the purpose of RAND patents is to make sure there's no holdup or stacking. Standards bodies are set up to allow patent owners a reasonable return, as they see it, if they will donate to the standard. That is a goal that is ignored in this ruling. Instead, he seems to think it's a generous act on the part of patent owners to make this a better world, writing that RAND patent owners have to abide by "... the purpose of the RAND commitment of widespread adoption of the standard through avoidance of holdup and stacking." No. That sounds like the BSD license, where people care more about widespread adoption than protecting the code base from takeover, so they give it away. Patent owners who donate to standards bodies under RAND terms do not do so with such public-improvement goals. They expect to get something for their patents.

Next, he devalues the RAND patent further by saying you have to look at all the other patents that are essential to the standard, whose owners might also seek royalties from an implementer's use of the standard in its products. In other words, he doesn't want the XBox to be overwhelmed with royalty requirements from others, so Motorola has to reduce its price to leave room for others to also get paid.

Does that sound like the patent universe we've been watching? Don't get me wrong. I totally hate patents, particularly software patents, which I don't believe are patentable subject matter to begin with. And RAND patents are not a solution to my way of thinking. I think standards should be totally royalty free or they shouldn't be in a standard. But in the current world of patents, companies don't donate their patents to make the world a better place. And so the judge's solution is impractical. If widely adopted, it's the end of standards, except in the FOSS world which learned long ago the value of sharing without payment. And that is the real solution here, not reducing the RAND patents' value to almost nothing but getting rid of software patents, everybody's software patents. They are gumming up the works, and I don't mean just RAND patents. What the judge has created is a tilted playing field.

I guess this is a problem that the courts can't fully solve. It probably requires a change in the law. You can see courts trying to figure out what to do with the rat's nest that software patents have created. It's a problem Google pointed out some time back -- there are hundreds of thousands of patents that could be used to sue a single smartphone vendor, and if they all do it, you can't afford to make and sell the phone any more. The judge sees that problem very clearly in the RAND context, but he has not come up with a really fair solution.

Update 2: I woke up realizing I should explain a bit better. Here's why it's not a real solution to address only RAND patents. It's because even if you reduce the value of all the RAND patents in the world to zero, there are still hundreds of thousands of patents that a vendor of a smartphone has to tip the owners of or risk an injunction barring the sale of his phone. And every day, there are more and more software patents issuing -- here's a blog, Patently Apple, that lovingly publishes every one of Apple's patents as they issue, because he thinks it's wonderful, I guess, but I think his name is a bit derivative of Patently O. None of my business, but I do. Anyway, in due time there will be 350,000 software patents the vendors will have to deal with to sell one phone, then 450,000. Add on the design patents everyone is trying for now that Apple used them successfully, so far, against Samsung, and no one can safely make a phone that ordinary people can afford to buy. If the vendor pays off everyone who has a *legal right* under patent law to demand a royalty, a phone will have to cost a zillion dollars to make it worthwhile to offer it in the market, and you and I can't afford to buy it even if they did.

Did you see the solid gold iPhone with the black diamond for the home icon? Who buys that? It is worth $15 million. Not me, even if I could afford it, which I can't. I can think of better things to do with $15 million. There are children who don't have enough to eat, for example. Or give it to Groklaw and we'll cover all the copyright and patent trials that matter in the world for you. But I digress.

Here's my serious point, that courts are beginning to see that there is a software patent problem, a big one, and companies see it too, but none of them is ready to really solve the core problem, because the only way to do so is to get rid of software patents, which you could do, since they are unpatentable subject matter. Which it is. Here are some articles that hopefully will help you to understand why I say that, and why I believe it's inevitable that one happy day, software patents will be a nightmare we can wake up from.

A word to the wise in Europe, New Zealand, and the rest of the world: Look at the US and realize you don't have to duplicate our problems, but if you say software "per se" is not patentable, you will. Take out the "per se" and you will be safe. Realize that patents are now being used to try to kill Free and Open Source software, and if you wish to avoid falling back into a Microsoft-style monopoly, please pay attention to the US smartphone patent wars, and plan accordingly, because that is what these wars are really all about.


In a First, Seattle Judge Sets RAND Rate in MS v. Motorola ~pj Updated 2Xs | 352 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
In a First, Seattle Judge Sets RAND Rate in MS v. Motorola ~pj
Authored by: Anonymous on Friday, April 26 2013 @ 09:47 AM EDT
<blockquote>I feel confident that this will be appealed by Motorola,
because the
judge in effect sets the "rule" that you can be ordered to accept pool
rates in
pools you haven't joined instead of following the normal negotiation structure
the standard body you did agree to put your standard essential patents in.

1. The decision to set a RAND rate has already been appealed and upheld.

2. He didn't set the pool rate — he said the pool rates were closer to a
comparable and acceptable rate (and were largely compliant with the George
Pacific factors) and applied Motorola's method of rate setting — ex-parte,
bilateral negotiation.

3. The standard bodies are afraid to set rates on antitrust concerns so there is
complete and utter lack of guidance from the standards bodies on proper rates.

[ Reply to This | # ]

In a First, Seattle Judge Sets RAND Rate in MS v. Motorola ~pj
Authored by: Anonymous on Friday, April 26 2013 @ 09:59 AM EDT
You make a clear assertion that you don't believe that
companies would offer patents to a standards body given the
terms asserted in this case. I respectfully disagree with
this assessment.

I think that it is worth noting that companies don't make
patents available to standards bodies solely in order to
make money from licensing (they do have to be offered at
FRAND rates after all, even if not the rates from this
ruling). Companies give patents to standards bodies for a
number of other reasons, for example:

* to prevent other companies controlling the content of a

* to base a standard around a technology that they already
have developed and are experienced with thus giving them an
early advantage in product development

* because the existence of standards depends on patents, and
in a lot of cases a standard is a pre-requisite for
expanding a market (think 802.11, standards gave consumers
confidence and the market then expanded quickly).

Such a ruling might give some companies pause before
offering patents in some circumstances, but often, in the
tech industry, once a good standard exists this standard
rules and companies prefer their technologies to form the
basis of this standard.

[ Reply to This | # ]

Authored by: Kilz on Friday, April 26 2013 @ 10:04 AM EDT
Please mention the error in the title of your post.

[ Reply to This | # ]

Off Topic
Authored by: Kilz on Friday, April 26 2013 @ 10:05 AM EDT
For all posts that are not on topic. Please make links
clickable by using html.

[ Reply to This | # ]

In a First, Seattle Judge Sets RAND Rate in MS v. Motorola ~pj
Authored by: Anonymous on Friday, April 26 2013 @ 10:05 AM EDT

And that just can't be right. Who'd donate patents to standards bodies if
they know it has no bearing on the royalties they can expect in return?

One answer may be that in an area where many folks have essential
patents, going with the pool means the key people don't waste resources
suing each other, i.e., it reduces risk for products that do advance the
technology, since so very little is absolutely new.

[ Reply to This | # ]

  • Please Disregard - Authored by: Anonymous on Friday, April 26 2013 @ 10:10 AM EDT
Authored by: Kilz on Friday, April 26 2013 @ 10:07 AM EDT
Please mention the name of the news story in the top post. A
link back to the story is also helpful to others because the
story will eventually fall off the Home page.

[ Reply to This | # ]

Authored by: Kilz on Friday, April 26 2013 @ 10:12 AM EDT
Please place all transcriptions of Comes exhibits here for
PJ. Please paste the html in Plain Old Text mode so it can be
easily copied.

[ Reply to This | # ]

207 pages.... ah ha
Authored by: SilverWave on Friday, April 26 2013 @ 01:49 PM EDT
OK seriously wonky.

Everyone will be going hmmm....


This judge has just put himself square in the spotlight.

RMS: The 4 Freedoms
0 run the program for any purpose
1 study the source code and change it
2 make copies and distribute them
3 publish modified versions

[ Reply to This | # ]

Troll City today
Authored by: Anonymous on Friday, April 26 2013 @ 02:08 PM EDT

At least that's my bet. The Microsoft Fanbois will be out in full force.


[ Reply to This | # ]

What about the issue of a US judge overruling a German Judge
Authored by: ArtimusClyde on Friday, April 26 2013 @ 02:39 PM EDT
If this was addressed, I may have missed it. Isn't this type
of thing odd, considering the infringement was occurring on
another continent, and a German court ruled that MS was
infringing? I just feel like this whole thing has been in
Microsoft bizarro-land.

[ Reply to This | # ]

(Wishfull thinking)
Authored by: Anonymous on Friday, April 26 2013 @ 02:52 PM EDT
In other news today, a German court finds that the Seattle Judicial system
appears to be biased to a large corporation in the vicinity, overturns the
ruling, and finds the judge in contempt, ordering a long-term incarceration of
said judge, while a massive audit is performed.

Now back to reality...

[ Reply to This | # ]

PDF as text
Authored by: Anonymous on Friday, April 26 2013 @ 05:41 PM EDT

Please find the following 3 items in this shared Google drive folder:

1) OCR text recognized 206 page PDF (first page omitted)
2) Exported rich text format of that PDF
3) Exported plain text format of that PDF

They'll need some editing but hopefully this will save your wrists from some
aches and pains! :)

--- Josh O.

[ Reply to This | # ]

In a First, Seattle Judge Sets RAND Rate in MS v. Motorola ~pj
Authored by: Anonymous on Friday, April 26 2013 @ 06:25 PM EDT
"Probably because no one wants Microsoft's products. Google does make
money, though, buckets of it, because people like Google's products."

ROTFLMAO! Yeah, nobody uses or wants Microsoft's products, and they don't make
any money. They only make twice as much as Google makes.

[ Reply to This | # ]

  • not exactly. - Authored by: jesse on Saturday, April 27 2013 @ 01:47 AM EDT
    • not exactly. - Authored by: Anonymous on Saturday, April 27 2013 @ 07:32 PM EDT
Accepting the opening negotiation == paying the MSRP for a car
Authored by: Anonymous on Friday, April 26 2013 @ 06:34 PM EDT
For the persistent anonymous person who keeps insisting that
Motorola only finding 4 people who paid the opening rate as
HARD PROOF that the judge had to step in, please answer me
this: how many people do you know who have paid the list
price for a car?

Following up on that: how many people do you know paid the
list price for a car after making a trade-in? Because that's
what a cross-licensing deal does: it takes the value of one
portfolio and subtracts out the value of the other
portfolio, and they arrive at a rate based on the valuation
of those portfolios together.

Of course given the comments our poster has made before, I'm
sure they'll insist that this is somehow fundamentally
different, or that some other reason means I'm wrong and
they're right.

[ Reply to This | # ]

Naive Wish
Authored by: hedronist on Friday, April 26 2013 @ 09:18 PM EDT
I'm really tired of reading posts by "Anonymous". Some of them support PJ's position, others attack it, but what none of them do is put their name on it!

Is there any possibility that we could do away with the tsumani of Anonymous postings? I'm not sure that they ever add anything meaningful to the conversation, but I'm absolutely certain that they are often a huge distraction from civil discourse.

I feel sure that this post itself will get attacked ... c'est la guerre.

[ Reply to This | # ]

Reality kicks in at groklaw?
Authored by: Anonymous on Friday, April 26 2013 @ 11:16 PM EDT
What's with all the moaning about the judgment?

Imagine you were MS and had been participating in the standardization of
h264. You and the other companies (including motorola) make a joint
contract that the involved patents are under frand agreement. As MS you
join the mpegla pool which is running the licensing issues as most parties
did. Some chose not to do so, one of which was Motorola. Still they have
pledged to the frand commitment just as you have. So far so good. You
and others have all signed the frand contract.

Your patented input to h264 is governed by the patent pool administration.
Firms like Motorola take their licenses there. Under the frand commitment.
Now the question arises of the license you have to take from Motorola,
which you have to negotiate with Motorola separately because they didn't
join the pool. Motorola demands over 2% of sales price, you compare this
with what Motorola pays for licensing the patents you put into the pool. You
think: "WTF? Did we have a joint frand agreement or not?".

Anybody would think this unacceptable, you had a joint commitment to
frand after all. Whatever negotiations there were or not were between you
and motorola, at some point you feel you have no other choice but to sue
Motorola because of BREACH OF CONTRACT! The judge happens to
agree regarding the far too high rate demanded by Motorola (the question
of breach of contract will be judged later) and that frand is about 1/2000 of
what Motorola wanted in the first place. The judge used other frand rates
as a guideline for making a decision. What's not to like?

Or? Did the companies make a frand commitment together? Why complain
they are kept to their promises? I don't get it....

[ Reply to This | # ]

welcome to the future
Authored by: sumzero on Saturday, April 27 2013 @ 12:17 PM EDT
legally-enforced lawlessness will be the new norm.

48. The best book on programming for the layman is "alice in wonderland"; but
that's because it's the best book on anything for the layman.

alan j perlis

[ Reply to This | # ]

What's good for the Goose is good for the Gander
Authored by: argee on Saturday, April 27 2013 @ 02:13 PM EDT
It seems to me that the next time someone wants to
stomp Google with a RAND or Essential patent, that
they (MotoGoogle) will whip out this ruling and offer
them 1.5 cents per unit as well. Fair is fair.


[ Reply to This | # ]

Authored by: Steve Martin on Saturday, April 27 2013 @ 05:39 PM EDT
PJ, check your inbox for a rough OCR of the doc.

"When I say something, I put my name next to it." -- Isaac Jaffe, "Sports Night"

[ Reply to This | # ]

The method is sound...
Authored by: Anonymous on Sunday, April 28 2013 @ 12:16 AM EDT
A reasonable and non-discriminatory price would be the same
price in ANY context. Be it as part of a standard, a patent
pool or private negotiation. It should all be theoretically
be the same. With perfect information and a free market for
patent licenses, fair is fair no matter how you look at it.

[ Reply to This | # ]

That's not a patent site, ...
Authored by: Anonymous on Sunday, April 28 2013 @ 03:23 AM EDT
... this is a patent site:

It details issued patents for a large variety of biggish tech companies.

[ Reply to This | # ]

Stacking is a red herring
Authored by: Anonymous on Monday, April 29 2013 @ 12:51 PM EDT
Had MS done this the way EVERYONE ELSE does it, stacking would not be a problem.
The reason is that one entity is supposed to cross-license during negotiations.
Through such negotiations, stacking becomes almost moot, as cross-licensing
tends to reduce royalty payments to reasonable levels.

[ Reply to This | # ]

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