I told you these FRAND litigations by Apple and Microsoft were not about what they say they are about, and now Apple has provided some confirmation that my suspicions were on target.

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[Update, Update 2, Update 3
Apple's Response as Text, Motorola's Response as Text
Judge's Nov. 2nd Order as Text]

From the judge's order:

...Apple states that it will not commit to be bound by any FRAND rate determined by the court and will not agree to accept any license from Motorola unless the court sets a rate of $1 or less for each Apple phone....

In other words, if Apple is unsatisfied with the rate chosen by the court, it “reserves the right to refuse and proceed to further infringement litigation.” ... Despite its position, Apple maintains that it is entitled to specific performance in the form of the court determining what a FRAND rate is for Motorola’s patents. At the final pretrial conference, I asked Apple to explain why it believed the court should determine a FRAND rate even though the rate may not resolve the parties’ licensing or infringement disputes. I questioned whether it was appropriate for a court to undertake the complex task of determining a FRAND rate if the end result would be simply a suggestion that could be used later as a bargaining chip between the parties. Apple responded that the rate would resolve the dispute in this particular case, namely, whether Motorola’s license offer was FRAND and if not, what the rate should have been.

Apple’s response was not satisfactory and did not assuage my concerns about determining a FRAND rate that may be used solely as a negotiating tool between the parties. After further consideration, I believe it would be inappropriate to grant Apple’s clarified request for specific performance.

Here's the Apple filing [PDF] that first clued in the judge, and notice the arrogant tone Apple adopted:

Apple’s request is rooted in Motorola’s contracts with ETSI and IEEE to offer its essential patents on FRAND terms. Dkt. No. 194 (Summary Judgment Order of Aug. 10, 2012) at 46. Motorola’s commitment to the SSOs does not create a contractual obligation on Apple to accept the rate that Motorola offers, let alone to blindly accept any such offer and write a blank check before it even knows exactly what that offer is. The Court should therefore determine whether Motorola was required to offer the particular rate to Apple, not whether Apple had to accept that rate....

D. Although It Is Not So Obligated, Apple Is Willing To Pay the FRAND Rate
of Not More Than $1 Per Unit Going Forward

Apple has publicly spoken about the necessity for setting a rational and reciprocal framework for assessing the FRAND rate on wireless declared standards-essential portfolios. In fact, Apple has been a leader in adhering to FRAND policies for licensing cellular standards-essential patents on rates proportional to the share of standards patents and on common bases that actually embody the standardized technology. Apple’s litigation conduct has been fully consistent with its public statements regarding the proper approach to evaluating the FRAND rate. And as an industry leader, Apple conducts itself responsibly and owns up to its own public statements.

Although Apple does not believe that Motorola may now seek an order compelling Apple to pay the rate this Court sets, Apple would be willing to pay a Court-ordered FRAND rate of less than or equal to $1 per covered product on the going-forward basis. This is the rate that Apple believes is appropriate in these circumstances for Motorola’s portfolio of cellular and WiFi essential patents. It is also consistent with the reasoned framework Apple has publicly articulated, and the only rate that can be supported by the evidence at this trial. Because neither party is asking this Court to draft a fully executable cross-license with all the necessary terms, Apple does expect that further negotiation will need to take place before the parties actually come to an agreement, covering topics such as the FRAND value of Apple’s cross-license, the role of Apple’s existing license to Motorola’s portfolio through Qualcomm, and the treatment of past sales.

The trial is scheduled to begin Monday in the afternoon, and this matter will be handled at 9AM, so anything can happen. Maybe there will be a trial and maybe there will not. High-priced lawyers are who you hire to get you past problems like this, so I'm guessing there will be, but the hearing itself is where we will find out more details on Apple's position. And it's always conceivable that the Apple lawyers said what they did precisely to avoid going to trial. This judge has already refused to rule that Motorola can't get an injunction if Apple doesn't license the patents, and Apple now is asking for reconsideration [PDF]. Maybe they'd like out of Wisconsin to fight another day elsewhere with a more favorable judge. Who knows? This judge also has stated that she doesn't think courts are the best place to decide a FRAND rate:

As I explained at the final pretrial conference, courts are not in the best position to determine a FRAND rate for a portfolio consisting of hundreds of patents that would be used later in licensing negotiations between two highly sophisticated parties. Both parties in this case employ licensing experts whose job it is to negotiate these types of licenses and who are in a much better position than the court to determine a FRAND rate. Apple’s request that the court determine the FRAND rate places an enormous and possibly unjustifiable burden on the judiciary’s resources. In light of this reality, it would not be in the public interest for the court to spend such enormous resources to determine a FRAND rate that may ultimately lead only to additional litigation and would set a troubling precedent for future cases involving FRAND commitments.

Are any of you readers living in Wisconsin near the courthouse in Madison? If so, could you go to the hearing and tell us what happens? I know it's last minute, but if so, email me and we'll talk in more detail, and I can explain how to do it. And if any of you can volunteer to attend the trial, if it happens and report back to us what you see and hear, that would be useful for the community. As you know, I believe all these RAND disputes are about attacking Linux and Android.

The trial was scheduled to last 8 or 9 days, from 9 to 5:30, with breaks for lunch. But even if you can only go one day, we'll get some benefit.

The final pretrial conference order [PDF] shows a good reason to be there:

Counsel should know that matters that have been kept under seal during the pendency of this case, including exhibits, will be disclosed to the public to the extent they are the subject of testimony. The exhibits themselves will not be part of this court’s record; counsel are responsible for their own exhibits.

If you go without contacting me first, keep these court rules in mind:

The court does not allow the use of electronic devices in the public galleries. This includes telephones, tablets and laptop computers. Please turn off ALL electronic devices before entering the courtroom.

And for the record, FOSSPatents is calling this case Apple v. Google in his titles. It's inaccurate to call it that. It's Apple v. Motorola, if one is interested in legal accuracy.

[ Update: I obtained the order [PDF] that the judge issued on October 29th that she references in the first sentence of her decision and order regarding whether or not there should be a trial. It includes something that I think may be central to Apple's possible desire to escape this trial, but for sure Apple will have to face it sometime. The judge points out that Motorola's obligation to offer a license to Apple is conditional on Apple offering a license back to Apple's standards related patents. It's on page 22 of the PDF:

Motorola’s contracts with ETSI and IEEE placed the burden of fair and nondiscriminatory licensing on Motorola, not on potential licensees. As Judge Posner explained, Motorola received an important benefit from the agreements by having its intellectual property rights incorporated into standards. Apple, Inc., 2012 WL 2376664, at *12 (“Motorola agreed to license its standards-essential patents on FRAND terms as a quid pro quo for their being declared essential to the standard.”).

All that being said, Motorola raises an issue in its response to Apple’s motion in limine to which neither party has given much attention in this case. Motorola points out that under ETSI’s Intellectual Property Rights policies, it was entitled to condition its license offer to Apple on receiving a reciprocal license for Apple’s standards-essential patents. The provision at issue states that members’ commitments to license standards-essential patents on fair, reasonable and nondiscriminatory terms “may be made subject to the condition that those who seek licenses agree to reciprocate.” Dkt. #288-3, Annex 6: ETSI Intellectual Property Rights Policy § 6.1.

This provision does not change my conclusion that Judge Posner’s decision is entitled to preclusive effect on the issue whether Apple was required to make counteroffers and negotiate with respect to Motorola’s 2.25% offer as a condition to Motorola’s offering a fair, reasonable and nondiscriminatory license. However, this provision does suggest that Motorola cannot be found to have made an unreasonable or discriminatory offer simply because it demanded that Apple provide a reciprocal license to Apple’s standards-essential patents. Additionally, this provision suggests that Apple may have been required to engage in licensing negotiations related to its own patents. In other words, evidence that Apple refused to provide a license to its own patents or refused to engage in negotiations related to its own patents would be relevant to whether Motorola breached its contract with ETSI. Neither party has provided evidence or argument on this issue, so I cannot determine the significance of this provision at this stage. The parties should be prepared to address this issue at trial.

[ Update 2: The parties have responded to the judge's order to provide her their positions:

496 - Filed & Entered: 11/04/2012
Response re: [487] Order, Motorola's Brief Regarding Jurisdiction and Availability of Remedies by Defendant Motorola Mobility, Inc.. (Swedlow, Stephen)

497 - Filed & Entered: 11/04/2012
Response re: [487] Order, Apple's Response to the Court's Order of November 2, 2012 by Plaintiff Apple Inc.. (Ernst, Samuel)

See Apple run. See Apple backpedal:

APPLE’S RESPONSE TO THE COURT’S ORDER OF NOVEMBER 2, 2012

Apple is acutely sensitive to, and shares, the Court’s desire that the result of this trial be meaningful in resolving the extensive disputes between the parties. Apple believes that, under Apple’s original conception of the trial, it would have been so. Motorola’s refusal to make a FRAND offer was, in Apple’s view, the single greatest impediment to a successful negotiation of a worldwide license that would have eliminated all litigation between the parties, and Apple believed that, if the Court set such a FRAND rate, such a successful negotiation was likely. That is the reason Apple brought this case and prepared it for trial as it did. Motorola’s motion for “clarification” filed on October 30 sought, for the first time, to bind Apple to whatever FRAND rate the Court set, relief it had not pled and could not have pled given the claims in the case.

When the Court asked Apple on late Tuesday afternoon, October 30, to commit by noon the next day as to whether it would be bound by whatever FRAND finding the Court made, Apple agreed but with caveats as to the amount and scope. The Court’s order dated November 2 states that, because Apple would not make an unconditional commitment to be bound, the Court would reverse its prior decisions regarding the availability of specific performance and

declaratory relief should Apple prove that Motorola breached its FRAND commitments, and questioned whether the trial should proceed at all. This submission is in response to the Court’s request that the parties comment on the November 2 order.

The fundamental reason that Apple placed conditions on the commitment the Court asked for is that it would have been one-sided, because Motorola would have no similar obligation to pay a FRAND rate for Apple’s standards-essential patents (because Motorola had not brought a similar action seeking to establish a FRAND rate for Apple’s patents). Thus, even with the unconditional commitment the Court sought, the disputes between the parties regarding standards-essential patents would not have been fully resolved. Apple agrees as to the benefit of a process that effectively binds the parties, but not one that does so only in one direction.

Accordingly, as requested by the Court’s November 2 order, Apple makes the following proposal that it believes will address the Court’s concerns that the trial effectively resolve the parties’ disputes. Apple’s proposal is in two alternative forms, depending on the Court’s preference:

(1) the trial proceed as planned starting tomorrow with the understanding that the Court will set a FRAND rate according to a methodology that both Apple and Motorola will agree to be bound by, thus effectively eliminating the disputes between the parties as to their standard essential patents; or

(2) if Motorola is unwilling to agree to be bound by the methodology adopted by the Court in option one, the Court defer the trial for a limited period (e.g., 6-9 months) to allow the development of a record as to both parties’ standard essential patents such that the Court could determine in one proceeding what the FRAND

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payment of each party should be, and both parties would agree to be bound by that determination.

The second alternative allows for the possibility that the Court may conclude that the Chi Mei rate is the appropriate FRAND measure for Motorola’s patents because it involves the same patents, the same products, and the same parties, but that a different rate or methodology would be appropriate as a FRAND measure for Apple’s standards-essential patents.

The only conditions that Apple would attach to its commitment under either scenario are: (1) that the license in both directions be worldwide; (2) that both parties preserve their rights to appeal the Court’s ruling, such that both parties’ payment obligations would begin after such appeals are concluded; and (3) that the FRAND royalty obligation apply to both parties only to otherwise unlicensed products (in other words that neither party should have to pay twice for the same product).

Apple believes this proposal addresses the concerns expressed by the Court. The reasons for this are set forth below, and Apple will be prepared to discuss this in more detail on Monday morning as directed.

A. The Court May Issue a Declaratory Judgment Setting the FRAND Rate
Under Apple’s Proposal

The Court can issue a declaratory judgment setting the FRAND rate for Motorola’s patents; and Apple agrees to be bound by the rate set by the Court if Motorola is similarly bound to pay the FRAND rate set for Apple’s patents. As Apple pointed out in its opposition to Motorola’s motion in limine to preclude Apple from seeking specific performance, the case law

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recognizes that it is appropriate to grant declaratory judgment setting a contract price. ¹ See Dkt. No. 377 at 9-10.

The Court has nonetheless suggested it will decline to exercise its discretion to hear Apple’s request for declaratory relief on the basis that it will not fully resolve the dispute between the parties. See Dkt. No. 487 at 5. But if both parties are bound by the FRAND rates set by the Court, this remedy would effectively resolve the dispute between the parties regarding Motorola’s infringement claims on its declared standards-essential patents, because Apple and Motorola would each have a cross-license to the other party’s patents.

Accordingly, declaratory relief here is supported by one of the principal factors courts consider in determining whether to entertain declaratory relief. “[I]f the declaratory judgment will clarify and settle the disputed legal relationships and afford relief from the uncertainty and controversy that created the issues, it is usually resolved rather than dismissed.” NUCOR Corp. v. Aceros Y Maquilas de Occidente, S.A. de C.V., 28 F.3d 572, 578 (7th Cir. 1994). A court order setting the FRAND rate that the parties are bound to accept will resolve infringement claims by Motorola that were filed in 2010 that remain alive on appeal; Apple would have a license to Motorola’s asserted patents. It would further resolve the issue that the parties have been disputing in licensing negotiations since Apple released the iPhone in 2007: what is the FRAND rate for Motorola’s declared standards-essential patent portfolio? And Motorola’s

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commitment to be bound by the Court’s determination of a FRAND rate for Apple’s patents would mean the parties need not return to negotiations over that cross-license. ²

Apple’s request for declaratory relief does not raise the concerns the Court identified in connection with specific performance regarding whether Apple can show irreparable harm or an inadequate remedy at law. The Supreme Court has held that “engrafting upon the Declaratory Judgment Act a requirement that all of the traditional equitable prerequisites to the issuance of an injunction be satisfied before the issuance of a declaratory judgment is considered would defy Congress’ intent to make declaratory relief available in cases where an injunction would be inappropriate.” Steffel v. Thompson, 415 U.S. 452, 471 (1974) (internal citations omitted). Specifically, the Court held that “the Court of Appeals was in error when it ruled that a failure to demonstrate irreparable injury—a traditional prerequisite to injunctive relief, having no equivalent in the law of declaratory judgments precluded the granting of declaratory relief.” Id. at 472 (internal citations omitted); see also Tierney v. Schweiker, 718 F.2d 449, 457 (D.C. Cir. 1983) (“Although a party must demonstrate irreparable injury before obtaining injunctive relief, such a showing is not necessary for the issuance of a declaratory judgment.”). ³

Declaratory relief likewise does not require a showing that there is no adequate remedy at law in monetary damages. “The existence of another adequate remedy does not preclude a

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declaratory judgment that is otherwise appropriate.” Fed. R. Civ. P. 57. In Tierney, the district court had declined to entertain declaratory relief in part based on the conclusion that plaintiffs had available a $1000 damages remedy. The D.C. Circuit reversed, holding that “the district court committed reversible error when it held that the availability of such alternative remedies precluded issuance of a declaratory judgment.” Tierney, 718 F.2d at 457.

The remaining discretionary factors courts consider in deciding to entertain declaratory relief counsel in favor of the Court hearing Apple’s claim here. There is no pending parallel state proceeding that would be affected by the Court’s granting of relief here. See, e.g., Federal Reserve Bank of Atlanta v. Thomas, 220 F.3d 1235, 1247 (11th Cir. 2000) (“It is an abuse of discretion . . . to dismiss a declaratory judgment action in favor of a state court proceeding that does not exist.”). And granting Apple the declaratory relief it seeks here would promote the settlement of (and in fact, would dispense with altogether) Motorola’s appeals of its declared-essential patent infringement claims against Apple. See Capitol Records, Inc. v. Optical Recording Corp., 810 F. Supp. 1350, 1354-55 (S.D.N.Y. 1992). Because Motorola would also be bound to accept a FRAND rate for Apple’s essential patents, the declaration would also dispense with the need for any future licensing negotiations regarding the price of a cross-license.

B. The Court May Also Grant Specific Performance Setting the FRAND Rate
Under Apple’s Proposal

1. If Motorola Is Permitted to Continue Filing Injunctive Relief Suits
Against Apple Rather Than Fulfilling Its Obligation to Offer a
FRAND License, Apple Will Suffer Irreparable Harm Not
Compensable by Money Damages

If the Court declines to set the FRAND license rate for Motorola’s standards-essential patents, Motorola will be free to pursue additional infringement suits against Apple seeking injunctions or exclusion orders. Such actions would irreparably harm Apple.

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The Court’s order identifies two problems with Apple’s allegation that an injunction or exclusion order against its products would cause Apple irreparable harm: (1) that an order setting the FRAND rate would not prevent Motorola from seeking further injunctions unless Apple agreed to pay the rate; and (2) that the harm that such injunctions would cause Apple might be compensable by money damages. See Dkt. No. 487 at 4. At this point, neither problem exists.

a) Because Apple Will Pay the Ordered Rate, Specific Performance
Would Remove the Threat of Further Suits

The Court’s first concern was motivated by the prospect that “if Apple refuses to be bound by the rate determined by the court, Motorola could continue to sue Apple for patent infringement and request injunctive relief.” Id. Apple has removed that prospect by committing to be bound by the license rate set by the Court for Motorola’s standards-essential patents, so long as Motorola is bound by the rate set by the Court for Apple’s patents.

If the Court sets the FRAND rate that Apple is bound to pay for a license to Motorola’s standards-essential patents, then Apple will pay that amount (offset by Motorola’s payments for a license to Apple’s essential patents) and receive a license. As a licensed party, Apple will no longer face the peril of suits for injunctive relief with which Motorola now threatens it.

b) Improper Injunctive and/or Exclusionary Sanctions Are Not
Compensable By Money Damages

The second problem identified by the Court “is that Apple has provided no reason why its injuries would not be remedied by an award of money damages.” Id. The reason that the harm of an improper injunction (or injunctions) against Apple could not be remedied by a money damage award is that such harm is not readily quantifiable. See, e.g., In re Lewis, 212 F.3d 980, 984 (7th Cir. 2000) (“Real but hard-to-quantify loss is a standard form of irreparable injury”).

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The harms caused by injunctive or exclusionary sanctions, specifically, have been held to be non-quantifiable and irreparable. See Tessera, Inc. v. Advanced Micro Devices, Inc., C 05- 4063, 2007 WL 3232441, at *6 (N.D. Cal. Nov. 1, 2007) (“There is a high likelihood that even a temporary ban on imports would disrupt the [] Defendants’ business and damage relations with their customers. These harms cannot readily be quantified, and thus are irreparable.”). The improper injunctive relief threatened by Motorola would cause Apple lost profits, loss of customers and potential customers, loss of goodwill, uncertainty in business planning, and uncertainty among customers and potential customers. These harms are by nature uncertain, not readily quantifiable, and not compensable by money damages. See, e.g., Gateway E. Ry. Co. v. Terminal R.R. Ass’n, 35 F.3d 1134, 1140 (7th Cir. 1994) (“showing injury to goodwill can constitute irreparable harm that is not compensable by an award of money damages”).

Additionally, the Court states that monetary damages would have been an adequate remedy because any determination at the liability stage that Motorola breached its contracts by failing to offer Apple a FRAND rate would effectively preclude Motorola from seeking injunctive relief by providing Apple with a defense to Motorola’s lawsuits. See Dkt. No. 487 at 4-5. As an initial matter, this demonstrates the necessity of trying the merits of Apple’s claim seeking nominal damages. See Section C, infra. Moreover, while a determination that Motorola had breached its FRAND obligations (accompanied only by an award of monetary damages) might supply Apple with a defense to future injunction suits, there is no guarantee that such a court sitting in equity would view that defense as dispositive.

2. The Public Interest Supports Specific Performance

The Court indicated that, in the absence of a commitment from Apple to pay an ordered rate for a license to Motorola’s standards-essential patents, it had particular concerns that the public interest weighed against granting specific performance setting the FRAND rate. The

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Court expressed the concern that “it would not be in the public interest for the court to spend such enormous resources to determine a FRAND rate that may ultimately lead only to additional litigation,” id. at 5, since the practical effect of that relief would not justify the Court’s efforts in determining the rate. The parties’ commitment to be bound by the license rates set by the Court would resolve this concern. The practical effect of a binding determination of the FRAND rate will be to resolve the parties’ dispute and avert the inefficient outcomes of serial suits by Motorola for infringement and countersuits by Apple for breach of FRAND, accompanied by ongoing licensing negotiations. See Dkt. No. 424 at 8.

C. The Court Can Rule on Apple’s Breach of Contract Claims on the Basis that
Apple Seeks Nominal Damages and Equitable Estoppel

Even if the Court declines to entertain Apple’s requests for specific performance and declaratory judgment, the trial should proceed on Apple’s breach of contract claims because Apple is entitled to nominal damages. “The victim of a breach of contract is always entitled to nominal damages if he proves a breach but no damages.” Felton v. Teel Plastics, Inc., 724 F. Supp. 2d 941, 954 (W.D. Wis. 2010) (Crabb, J.) (internal quotations omitted); see also Olympia Hotels Corp. v. Johnson Wax Dev. Corp., 908 F.2d 1363, 1372 (7th Cir. 1990) (same). ⁴

Nor does the Court’s analysis with respect to injunctive relief and specific performance foreclose Apple’s ability to obtain the remedy that Motorola be equitably estopped from seeking

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injunctive relief on its declared standards-essential patents as a remedy for its FRAND violations. See Dkt. No. 110 (Apple’s First Am. Compl.) ¶¶ 134-141, 197(a).

D. Apple’s Failure to Disclose Claims Should be Tried

At the end of its order, the Court posits that its observations regarding the availability of equitable remedies for Apple’s FRAND claims “lead to the question whether a trial should be held regarding Apple’s other claims.” Dkt. No. 487 at 6. Apple respectfully disagrees that the Court’s concerns relating to Apple’s equitable FRAND remedies bear on Apple’s claims based on Motorola’s failure to disclose.

1. The Court’s Concerns Regarding Equitable Remedies Do Not Suggest
That the Merits of Apple’s Failure to Disclose Claims Need Not Be
Tried

In the course of its discussion of the continuing viability of Apple’s failure to disclose claims, the Court questions “why Apple believes that Motorola could obtain an injunction or exclusionary order against it after this court had determined that Motorola had injured Apple by breaching its duty to disclose its patents to ETSI.” Id. 487 at 7. Thus, the Court’s concern assumes that, and would only arise if, the Court rules on the merits of Apple’s failure to disclose claims. As with the FRAND claims, there is no guarantee that a determination of breach would be viewed by every other tribunal as a dispositive defense to an injunction or exclusion order in favor of Motorola.

2. An Order of Unenforceability Is the Only Remedy Available for
Motorola’s Patent Misuse

As the Court notes, Apple seeks an order rendering Motorola’s ’898 patent unenforceable for patent misuse. While this relief is equitable in nature, it is the only remedy that may issue on a finding of patent misuse, which is itself an equitable doctrine. See, e.g., B. Braun Medical, Inc. v. Abbott Labs., 124 F.3d 1419, 1427 (Fed. Cir. 1997) (When a patent holder commits patent

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misuse, the patent is rendered “unenforceable until the misuse is purged.”). As Apple noted in its trial brief, misuse cannot be “purged” when the misuse consists of a failure to disclose essential IPR to a standard-setting organization. Dkt. No. 465 at 52-53. Motorola’s failure to disclose the ’898 patent until years after the standard was set resulted in that patent becoming perceived as a permanent part of the ETSI GPRS standard, allowing Motorola to seek to exclude parties from practicing the entire standard based on patent infringement actions involving only the ’898. Thus, the appropriate remedy here is to render the ’898 patent and any related successor patents unenforceable against all GPRS-compliant products. See Qualcomm Inc. v. Broadcom Corp., 548 F.3d 1004, 1026 (Fed. Cir. 2008).

II. CONCLUSION

For the foregoing reasons, Apple respectfully requests that:

(1) The trial proceed as planned starting tomorrow with the understanding that the Court will set a FRAND rate according to a methodology that both Apple and Motorola will agree to be bound by, thus effectively eliminating the disputes between the parties as to their standard essential patents; or

(2) if Motorola is unwilling to agree to be bound by the methodology adopted by the Court in option one, the Court defer the trial for a limited period (e.g., 6-9 months) to allow the development of a record as to both parties’ standard essential patents such that the Court could determine in one proceeding what the FRAND payment of each party should be, and both parties would agree to be bound by that determination.

Dated: November 4, 2012

Respectfully submitted,

[Samuel F. Ernst, Covington & Burling, Tensegrity Law Group, and Cetra Law Firm]

__________
¹ See, e.g., John Hancock Mut. Life Ins. Co. v. Webcor, Inc., 311 F.2d 701, 705 (7th Cir. 1962) (holding that the court had jurisdiction to grant plaintiff a declaration setting price the of stock in a contract for the purchase of the stock because it would amount to “specific relief through a decree of a conclusive character”); Cain Rest. Co. v. Carrols Corp., 273 F. App’x 430, 436-37 (6th Cir. 2008) (granting plaintiff summary judgment on its declaratory judgment claim by construing a term in a real estate contract that would determine the proper purchase price).

² Apple has repeatedly told Motorola in licensing negotiations that it is willing to grant a cross- license to its own declared standards-essential patents. Trial Ex. 434 (WI-178-002651) (“Apple has identified patents that are essential to one or more of the ETSI standards . . . Apple is willing to license these patents on fair reasonable and non-discriminatory terms as requested.”); see also Dkt. No. 172 (Lutton Tr.) at 71:11-74:9.

³ Apple maintains its position that the relief it originally sought from the Court (declaratory relief and specific performance seeking to compel Motorola to make the FRAND offer its contracts required) is warranted for the reasons stated at the pretrial conference, but makes the alternative proposals herein to address the concerns expressed by the Court.

⁴ If the Court determines that Apple’s prayer for nominal damages is the only relief it will consider, the Court will retain diversity jurisdiction over this case. This is because “[t]he amount in controversy requirement . . . must be determined by the district court at the beginning of the suit, and is not dependent on subsequent dismissal of individual claims used to satisfy the jurisdictional threshold.” Clark v. State Farm Mut. Auto. Ins. Co., 473 F.3d 708, 711 (7th Cir. 2007) (“Whether § 1332 supplies subject-matter jurisdiction must be ascertained at the outset; events after the suit begins do not affect the diversity jurisdiction.”); see also Johnson v. Wattenbarger, 361 F.3d 991, 993 (7th Cir. 2004).

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Perhaps Apple has been listening to the wrong lawyers, and maybe, just maybe, the wrong analysts?

Here's Motorola's response. It's a lot longer than Apple's. Again, I'll leave off headers and footers for speed:

MOTOROLA'S BRIEF REGARDING JURISDICTION AND
AVAILABILITY OF REMEDIES

TABLE OF CONTENTS

INTRODUCTION ............................1

BACKGROUND ..............................3

ARGUMENT ...............................5

I. THE COURT IS CORRECT IN FINDING IT INAPPROPRIATE TO GRANT
APPLE’S CLARIFIED REQUEST FOR SPECIFIC PERFORMANCE. ..............5

A. Apple’s Case Lacks Article III Jurisdiction......................5

B. The Court Is Correct In Finding Apple’s Request For Injunctive Relief
Cannot Satisfy eBay...............................10

C. The Court Is Correct In Declining To “Declare” A FRAND Rate..............12

II. THERE CAN BE NO TRIAL ON FRAND BECAUSE THERE IS NO REMEDY ........12

III. THERE CAN BE NO TRIAL ON THE REMAINING CLAIMS BECAUSE
APPLE CANNOT DEMONSTRATE A RIGHT TO THE EXTRAORDINARY
REMEDY IT SEEKS...........................14

A. Apple’s Remedies For The ‘898 Patent Are Simply Affirmative Defenses
To Patent Infringement That Have Already Been Raised by Apple In
Another Case...........................15

B. The Court Will Not Be Remedying Any Cognizable Harm ..................16

C. Apple Is Not Entitled To Equitable Relief.....................16

D. Without A Remedy There Can Be No Trial .....................17

E. Apple’ s Patent Misuse Claim Also Fails As A Matter of Law .........17

i

TABLE OF AUTHORITIES

[See PDF]

ii

[Table of Authorities continued; statutes, other authorities - see PDF]

iii

Motorola submits this brief in response to the Court’s order of November 2, 2012. Dkt. 487

INTRODUCTION

Since 2007, when Apple introduced the first iPhone, Motorola has always tried to reach agreement with Apple on licensing terms—as it has with other cell phone makers—for the extensive and continuing use of Motorola's valuable intellectual property. Apple has built its profitable business on technology standards that others developed. In this case, Motorola was genuinely surprised when Apple declared on the eve of trial that it wanted the Court to set a FRAND rate. Motorola would welcome a final license agreement with Apple and a process to make that happen. However, the Court is correct that it would be inappropriate to grant Apple's request that the Court set a FRAND rate that would not bind Apple. As a result, there can be no trial because there are no remedies available to Apple in this case. There is no justiciable case or controversy before the Court now that Apple has refused to commit to the terms of the specific performance that it seeks. Importantly, there are scores of companies with essential patents, and many more companies that seek to implement standards and negotiate licenses. Should the Court accept Apple’s request to declare a non-binding fair, reasonable, and non-discriminatory rate that Apple chooses not to pay, it is an open invitation for other companies to file contract-based declaratory judgment actions and burden this Court with similar requests for an advisory rate that would similarly not provide resolution of their disputes.

At the final pretrial conference held November 1, 2012, the Court and the parties “discussed at length questions about the justiciability of the issues raised by Apple and the implications of the court’s picking a specific FRAND rate in view of Apple’s statement that it does not consider itself bound to accept any rate determined by the court.” Dkt. 485. The Court “questioned whether it was appropriate for a court to undertake the complex task of determining

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a FRAND rate if the end result would be simply a suggestion that could be used later as a bargaining chip between the parties.” Dkt. 487 at 2. The Court concluded “it would be inappropriate to grant Apple’s clarified request for specific performance.” Id. The Court is entirely correct. Indeed, given Apple’s position in refusing to be bound by the FRAND rate, jurisdictional limits, as well as principles of equity, support concluding that no trial is possible.

As the Court noted, monetary damages are the “normal” remedy for breach of contract. What Apple now seeks is an extraordinary remedy of specific performance whereby the Court would set the FRAND rate that Apple would treat as non-binding and advisory. Apple will not submit to being bound by that rate and claims the right to escape the Court’s finding if it is not to its liking, a circumstance no U.S. court has abided. Even if Apple “accepts” the Court’s rate, Apple claims the right to bargain down from there—thus prolonging indefinitely the very licensing “case or controversy” this Court planned to resolve. Apple's “have my cake but may not want to eat it” approach is wasteful of resources and incompatible with the established limits of this Court's Article III jurisdiction. To adjudicate FRAND terms that would bind only Motorola while doing nothing more than inform Apple's ensuing next licensing offer (should it wish to make any offer) would amount to rendering an advisory opinion without redressing any actual grievance or resolving a ripe case or controversy.

Jurisdictional limits aside, the Court is also correct that Apple’s request fails the four-factor test of eBay. Apple identifies no harm that is irreparable; nor has it shown that money damages (which it sought then dropped) are inadequate. Also, the licensing negotiations and lawsuits that constitute the supposed injury posed by Motorola’s alleged FRAND breach stand to persist regardless of whether the Court sets a non-binding rate. Likewise, the public interest

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factor favors declining to provide equitable relief. Once Apple’s request for equitable remedies is taken off the table, there is no purpose for an advisory trial on the FRAND question.

The remaining issues in this case are likewise unsuitable for trial because, without damages, there are no appropriate remedies. Apple alleges that Motorola’s ‘898 patent was untimely disclosed to ETSI. This, according to Apple, is a breach of contract and patent misuse even though the ‘898 patent is not asserted in this contract case. Apple seeks only equitable relief: Apple asks this Court to find the ‘898 patent unenforceable and also requests an injunction precluding Motorola from seeking an injunction in other cases in other courts in which Motorola might assert the ‘898 patent. The primary problem with this extraordinary relief is that it is in reality an affirmative defense to an assertion of patent infringement. These issues ought to be tried in the forum where the ‘898 patent is actually asserted. Indeed, Apple raised these exact affirmative defenses to Motorola’s assertion of the ‘898 patent in a recent case before Judge Posner that is currently on appeal. Should the Court accept Apple’s request to find prospectively that the ‘898 patent is unenforceable when it is not asserted in this action, this again would serve as an invitation for other parties to file timeliness lawsuits in this District (or elsewhere) about patents before those patents are ever asserted or raised. In addition, Apple’s remedies are all equitable, discretionary, and require Apple to demonstrate that damages are inadequate to compensate for any alleged harm. This, Apple cannot do.

BACKGROUND

The FRAND contract at issue states:

6.1 When an ESSENTIAL IPR relating to a particular STANDARD is brought to the attention of ETSI, the Director-General of ETSI shall immediately request the owner to give within three months an undertaking in writing that it is prepared to grant irrevocable licenses on fair, reasonable, and non-discriminatory terms and conditions under such IPR

[...]

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The above undertaking may be made subject to the condition that those who seek licenses agree to reciprocate.

Ex. 653, ETSI Rules of Procedure at § 6.1. Apple alleged that Motorola breached this contract, and Apple sought damages. Dkt. 110 (2d Amended Complaint). Apple later withdrew its claim for damages in this case. Dkt. 255. In dropping any claim for damages except nominal damages, Apple acknowledged that all its remaining remedies seek “equitable remedies and declaratory relief for which there is no right to a jury trial.” Id. at 2.

After Apple for the first time (effectively on the eve of trial) asked the Court to set a FRAND rate for Motorola’s portfolio under the guise of specific performance, Motorola filed a motion for guidance. Dkt. 386. In that motion, Motorola disputed that the Court can or should set an actual royalty rate under the circumstances presented in this action. Id.

The Court in its October 29, 2012, order ruled that it may, in the event that it finds a breach, set license terms. According to the Court, it might thus end the impasse between the parties. Dkt. 424 at 8 (“it makes little sense to order the parties to continue negotiating a license when they have been unable to reach agreement through five years of negotiations.”). The Court based its ruling, at least in part, on Judge Robart’s decision in a pending case between Motorola and Microsoft concerning FRAND terms for a different standard. Id. at 9.

Motorola filed a motion on October 30, 2012, seeking clarification and explaining that, in Judge Robart’s case, Microsoft claimed it sought a judicial accounting, agreed it needed a license, submitted to the jurisdiction of the Court, and expressly agreed to be bound by the Court’s decision—none of which Apple has done in this case.¹ Dkt. 444.

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Apple’s response on October 31, 2012 erased any doubt as to Apple’s position: Apple stated that it need not accept the Court’s licensing terms and would voluntarily accept the Court’s ruling if and only if the Court agrees with Apple and determines that the royalty rate would be $1 or less. Dkt. 448. Otherwise, according to Apple, it can essentially walk away, forcing Motorola to sue Apple repeatedly for patent infringement. Id. at 8-9. In other words, Apple wants to have its cake served by the Court, then decide whether it wants to eat it. It wants to enforce a contract, yet not be bound by its terms. Indeed, even if Apple gets what it wants and convinces the Court to set a rate of $1 per phone, and even if Apple “accepts” it (which it says it does not have to do), that would only be the beginning, not the end—for Apple would want to bargain down from there.

ARGUMENT

I. THE COURT IS CORRECT IN FINDING IT INAPPROPRIATE TO GRANT
APPLE’S CLARIFIED REQUEST FOR SPECIFIC PERFORMANCE.

A. Apple’s Case Lacks Article III Jurisdiction

Apple's position exceeds constitutional bounds. This Court lacks jurisdiction to proceed as Apple requests to set a rate that Apple is not bound to accept. “The exercise of judicial power under Art. III of the Constitution depends on the existence of a case or controversy,” and a federal court cannot render an advisory opinion. See Preiser v. Newkirk, 422 U.S. 395, 401 (1975); see also Flast v. Cohen, 392 U.S. 83, 97 (1968). Mindful of these limitations, it has “been the firm and unvarying practice of Constitutional Courts to render no judgments not binding and conclusive on the parties.” Chicago & Southern Air Lines v. Waterman S. S. Corp.,

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333 U.S. 103, 113-14 (1948); see also H&R Block E. Enters., Inc. v. Raskin, 591 F.3d 718, 724 (4th Cir. 2010) (vacating and remanding district court’s judgment, because “the court’s ruling . . . was neither ‘binding’ nor ‘conclusive’ on Block, rendering its opinion advisory.”).

Accordingly, the Supreme Court has cautioned that no federal court should “express an opinion on a case where its judicial power could not be exercised, and where its judgment would not be final and conclusive upon the rights of the parties, and process of execution awarded to carry it into effect.” Gordon v. United States, 69 U.S. 561, 1864 WL 6626, at *5 (1864). In so doing, the Court has emphasized the imperative that a federal court render an enforceable final judgment that definitively resolves rights and redresses grievance:

The award of execution is a part, and an essential part of every judgment passed by a court exercising judicial power. It is no judgment, in the legal sense of the term, without it. Without such an award the judgment would be inoperative and nugatory, leaving the aggrieved party without a remedy. It would be merely an opinion, which would remain a dead letter, and without any operation upon the rights of the parties . . . .

Id.

These principles themselves establish the inappropriateness of what Apple contemplates. Apple would now have this Court set a FRAND rate that may at most serve as a jumping off point for further negotiations. Setting an abstract FRAND rate, as Apple urges, would only prolong the negotiations and ensure that Apple may never have to pay; Apple is using the Court as a strategic piece of its negotiation strategy, not as the source of authoritative redress for a concrete case or controversy. Apple is thus seeking the very sort of advisory opinion that this Court should not enter. To accept Apple’s invitation to render a non-binding opinion on a FRAND rate would open the door for every other patent infringer to seek opinions from the Court that they could use in their FRAND negotiations to seek unfair rates. This is not the Court’s role.

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Federal courts confronting like requests have consistently agreed that Article III powers do no extend so broadly or so loosely for a variety of distinct reasons.

1. Advisory Opinions: For instance, the Fourth Circuit concluded that a district court had issued an improper advisory opinion where one party had reserved rights to continue prosecuting the same case or controversy regardless of how the court ruled: “Had the court ruled against Block on the Preemption Counts by determining that the NBA does not in any respect preempt the CSBA, Block could then proceed to state court—as it reserved the right to do—and further litigate its contention . . . that the CSBA is wholly inapplicable to it.” H&R Block E. Enters., Inc., 591 F.3d at 724. Apple's reservation of rights here is materially indistinguishable, for it means Apple may proceed as it sees fit regardless of what this Court may set as the prevailing FRAND rate between the parties.

2. Redressabilty: In a similar vein, this Court has expressed concern about whether, if Apple were to reject the FRAND rate as too high, the Court would be “just rolling the ball down the road a little bit. It's not deciding the case and ending it.” See Nov. 1, 2012 Hrg. Tr. at 21:9-11; see also id. at 15:17-24 (“But then in the response to Motorola's motion for clarification, you advise the Court and Motorola that you will not accept any rate in excess of a dollar. So if I were to decide that the rate should be $3.10 or 27 cents or whatever, anything -- I'm sorry, I should say $3.10 or $1.20, wouldn't you walk away from the negotiation process and wouldn't we be back at square one?”). The Court thereby echoes sister courts, supra, that have dismissed suits for want of standing simply because they had no secure means of redressing the supposed injury they would be setting out to cure.

To fall within Article III, a plaintiff's injury in fact must be redressable. See, e.g., Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992). “Redressability examines whether the relief

7

sought, assuming that the court chooses to grant it, will likely alleviate the particularized injury alleged by the plaintiff.” Microwave Acquisition Corp. v. FCC, 145 F.3d 1410, 1413 (D.C. Cir. 1998) (internal citation omitted). In keeping with this requirement, courts have found a complete absence of standing where ultimate redress would depend on intervening actions beyond a court's immediate control. See id. at 1413 (plaintiff failed to establish redressability and therefore lacked standing, because court knew of no action it could take to restore the remedy that plaintiff claimed had been lost); Huddy v. F.C.C., 236 F.3d 720, 724 (D.C. Cir. 2001) (where “we have no reason to believe that [the appellant] would even reap his desired [relief], he flunks the redressability criterion”); Cherry v. F.C.C., 641 F.3d 494, 499 (D.C. Cir. 2011) (“[E]ven if causation were properly established, the relief that this court might give Cherry would not remedy the injuries alleged, because this court has no authority over Zwirn’s foreclosure action or the New York court’s appointment of a receiver.”). In this instance, of course, the ultimate redress this Court would be setting out to provide – establishment of an actual FRAND license – would be wholly beyond its control and left to Apple's ensuing whim. All of these precedents indicate that the Court cannot proceed in such a profile.

3. Ripeness: Finally, courts insist that a dispute ripen before it comes to court. This ripeness requirement serves “to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements.” Abbott Labs. v. Gardner, 387 U.S. 136, 148 (1967). As a result, “ripeness is peculiarly a question of timing,” Regional Rail Reorganization Act Cases, 419 U.S. 102, 140 (1974), and a federal court normally ought not resolve issues “involv[ing] contingent future events that may not occur as anticipated, or indeed may not occur at all.” Thomas v. Union Carbide Agric. Prods. Co., 473 U.S. 568, 580-81 (1985) (internal quotation and citation omitted). It follows that a federal court should not weigh in

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about contractual matters unless and until a contractual term has gone live and adjudication of it will bind the parties. See Clinton v. Acequia, Inc., 94 F.3d 568, 572 (9th Cir.1996) (quoting Union Carbide and holding that a breach-of-contract claim presented “no live case or controversy” where the claim hinged on future conduct by one of the parties to the contract); see also Westlands Water Dist. Distribution Dist. v. Natural Resources Defense Council, Inc., 276 F. Supp. 2d 1046, 1050 (E.D. Cal. 2003) (“Short of this real difference of opinion as to the law, however, this case does not present a live, justiciable controversy. The contracts in question have yet to be finalized or executed. . . . The posture of this case thus renders it unfit for judicial resolution at this time.”); Bird v. Penn Central Co., 351 F. Supp. 700, 701-02 (E.D. Pa. 1972) (“They are instead asking us, in effect, to assume that the validity of the insurance contracts has been established and to advise them of their rights as if that particular hypothetical situation were a reality. The validity of the policies is the subject of pending litigation, the outcome of which nobody can know. The Underwriters may succeed in their efforts to have the insurance contracts declared void ab initio, in which case the question of coverage would obviously be moot; or they may fail. Until and unless it is finally determined that there are valid insurance policies, anything we might say about the extent of coverage would be entirely speculative and advisory.”); Oppedahl & Larson v. Network Solutions, Inc., 3 F. Supp. 2d 1147, 1164 (D. Colo. 1998) (“Because the court cannot resolve on summary judgment the status of the parties contractual relationship, it is also not possible to resolve Oppedahl & Larson’s declaratory judgment claim. . . . A court need not supply a missing contract term without a dispute which requires it.”). Again, the same result obtains here, for there is no contract in place and Apple would not be bound by any contractual terms this Court might set.

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B. The Court Is Correct In Finding Apple’s Request For Injunctive Relief Cannot
Satisfy eBay

In the November 2, 2012 order, the Court correctly observed that specific performance is an equitable remedy in the form of a “positive injunction.” Dkt. 487 at 3 (quoting Chicago Unified Indus. v. City of Chicago, 445 F.3d 940, 945 (7th Cir. 2006). Such a request must satisfy the four-factor test set forth in eBay Inc. v. MercExchange, LLC, 547 U.S. 388, 391 (2006). Dkt. 487 at 3. The Court is entirely correct that “Apple’s request for a FRAND rate that may or may not resolve the licensing dispute between the parties and would likely be used simply as a starting point for future negotiations does not satisfy [eBay’s] basic requirements for an injunction.” Id. at 4 (explaining Apple’s lack of irreparable harm).

The only harm identified by Apple in its trial brief is Motorola bringing patent infringement actions against Apple. As the Court observed, the remedy sought by Apple will not correct that harm because Apple may decline to agree to a rate, leaving negotiations to proceed and further lawsuits to ensue.

Likewise, the Court is correct that the public policy favors declining to render equitable relief. See Dkt 487 at 5 (explaining that courts are not in the best position to determine FRAND license terms for complex transactions and courts must consider the practicalities of the request).² Indeed, public policy should weigh dispositively against Apple’s requested relief considering Apple’s refusal to commit to licensing and refusal to commit to the terms the Court might set. As this Court knows, questions surrounding the courts’ appropriate role in adjudicating disputes over FRAND licensing are complex and fraught with controversy. Whereas Apple has loudly complained about perceived FRAND abuse by Motorola, it has never

10

paid a penny for its continuing and extensive infringement of Motorola’s valuable intellectual property. Patent holders ought to be fairly compensated for use of their property and, in order for good-faith FRAND negotiations to unfold between parties as they should, prospective licensees such as Apple must have their own incentives to seek out, negotiate, and pay for licensing. Only thus will judicial intervention be the exception and not the rule. Otherwise, there is every prospect that prospective licensees will infringe standards-essential patents with impunity, never making meaningful attempts at licensing. As worrisome as that prospect is, Apple’s position in this case is more worrisome still. By Apple’s conception, the prospective licensor can not only hold out, but also call upon a court for extraordinary judicial compulsion and setting of a FRAND rate that binds only the patent holder, and that the infringer is free to decline, instead preferring to return to its ongoing infringement. This one-sided approach to judicial intervention in the FRAND context would skew the legal landscape in favor of infringement and against licensing, drastically elevating the interests of infringers over those of patent holders.

Finally, injunctive relief “is an act of equitable discretion.” eBay, 547 U.S. at 391. This Court has already articulated why it should decline to exercise its discretion to award Apple’s requested relief (even assuming arguendo it would have power to do so). Awarding the requested relief would be especially inappropriate given Apple’s gamesmanship: Apple offered the appearance that the Court would be rendering a judgment that would resolve the dispute between the parties; only when pressed did it give up the game and concede it was reserving rights to decline a license. The Court should not wield its discretion in favor of a party that contemplates using the upshot solely as a one-sided negotiating ploy. Original Great Am. Chocolate Chip Cookie Co., Inc. v. River Valley Cookies, Ltd., 970 F.2d 273, 281 (7th Cir. 1992)

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(Posner, J.) (“[E]quitable relief is costly to the judicial system, especially in a case such as this where the relief sought would cast the court in a continuing supervisory role.”).

C. The Court Is Correct In Declining To “Declare” A FRAND Rate

Apple may argue that it seeks a declaratory judgment of a FRAND rate. As this Court held, however, declaring a FRAND rate is inappropriate for the same reasons described above. Dkt. 487 at 5. The decision to render a declaratory judgment is within the discretion of the Court. Id. (citing 28 U.S.C. § 2201(a)). Here, in addition, the declaration would be a nullity and fail the jurisdictional requirement of redressability—it would resolve no dispute and the parties would continue negotiating. Indeed, it seems inconceivable that Apple’s allegations of FRAND breach—in essence, a claim that Motorola failed to offer licensing within a fair and reasonable range—could translate to the relief Apple seeks, declaration of a prescribed FRAND rate, where specification of that rate seems gratuitous. Assuming this Court might otherwise see fit to go as far as imposing a FRAND rate for the sake of ensuring licensing and ending the dispute between the parties, it no longer has reason or occasion to do so in the wake of Apple’s indication that it may decline that rate.

II. THERE CAN BE NO TRIAL ON FRAND BECAUSE THERE IS NO REMEDY

The Court correctly recognized the question that flows logically from the lack of remedy: “what purpose would be served by the court’s declaring that Motorola’s actions constituted a breach of its FRAND contract?” Dkt. 487 at 6. There is no purpose. Without a remedy, there can be no trial. This was exactly the conclusion reached by Judge Posner in a lawsuit between the same parties. Apple, Inc. v. Motorola, Inc., -- F. Supp. 2d ---, 2012 WL 2376664, 13 (N.D. Ill. June 22, 2012) (“But as Motorola points out, if a plaintiff fails to establish any basis for an award of relief, the defendant is entitled to a judgment dismissing the case with prejudice even if

12

a future lawsuit between the parties, continuing their dispute, can be anticipated.”). In the patent-infringement action before Judge Posner (where both parties asserted patents against each other), neither side’s damages theory survived Daubert and summary judgment, and the Court ruled that neither side was entitled to an injunction. Id. Because there was no damages or injunction available, there was no remedy and the case was dismissed.

The same holds true in the FRAND case before this Court. There is no claim for damages and Apple can make out no claim for injunctive or other equitable relief. This case must therefore be dismissed on the FRAND licensing issues.

Apple may argue that its request for nominal damages provides a reason to hold the trial. That is insufficient, especially for a third party beneficiary. Judge Posner recognized that a plaintiff in a breach of contract case may be entitled to nominal damages, and cited a case in which consequential damages were sought but not obtained, and the plaintiff had not requested nominal damages. Id. at *6 (citing MindGames, Inc. v. Western Publishing Co., 218 F.3d 652, 654 (7th Cir. 2000)). But Judge Posner held that seeking only nominal damages is not enough to bring a lawsuit under Article III jurisprudence. Id. Indeed, Judge Posner addressed and rejected an attempt to seek only nominal damages in a contract case:

You can't go into federal court and say you had a contract with X and X broke it and you're really annoyed even though you sustained no injury of any sort (in fact you made money because you re-contracted at a higher price) so please give me a judgment for $1 that I can pin on my wall. No more can Apple be permitted to force a trial in federal court the sole outcome of which would be an award of $1.

Id. Similarly, nominal damages cannot overcome lack of injury. It is well-established that “if there is ... no proof of substantial loss or injury ... there is no purpose for allowing damages, and judgment should be rendered for the defendant.” 22 Am. Jur. 2d, Damages § 9.

Apple voluntarily chose to drop its claim for damages. Apple chose to refuse to accept the Court’s rate, representing that setting the rate would be, at best, only the beginning of the

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negotiation process. Having distanced itself from its own desired remedies, it cannot now complain that it has no case to try.

III. THERE CAN BE NO TRIAL ON THE REMAINING CLAIMS BECAUSE APPLE
CANNOT DEMONSTRATE A RIGHT TO THE EXTRAORDINARY REMEDY
IT SEEKS

The remaining claim in this case is Apple’s allegation that Motorola untimely disclosed U.S. Patent No. 6,359,898 to ETSI, a standards-setting body for cell phones. It is undisputed, however, that Motorola did in fact disclose the ‘898 patent in 2003 and also committed to license the ‘898 patent on FRAND terms as part of its essential patents portfolio— all before Apple ever developed and sold the iPhone.³ At summary judgment, the Court preserved this breach of contract claim for trial, but expressed skepticism that there was any harm to Apple:

At this point, it is not clear how Apple intends to prove that it was damaged by Motorola’s failure to disclose patents to ETSI in a timely manner. Additionally, Apple must prove that any litigation damages it seeks to recover are directly attributable to Motorola’s breach.

Dkt. 194 at 47. At the time of the ruling, Apple theorized that it suffered damages in the form of its litigation costs in defending against lawsuits. Following the summary judgment ruling, however, Apple then dropped its claim for damages. Dkt. 255.

As this Court recognized, the only harm identified by Apple is having to defend itself in litigation against the ‘898 patent. Apple Trial Brief at 52. The extraordinary equitable relief and declaratory judgments Apple seeks is out of all proportion to that and thoroughly unjustified. Id. at 53-54 (declaratory judgment that Motorola is not entitled to seek injunctive relief as to the

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‘898 patent; injunction that Motorola is not entitled to seek injunctive relief as to the ‘898 patent; and declaration that the ‘898 patent is unenforceable).

Apple’s requested remedies are all discretionary and fail for much the same reasons that the FRAND remedy fails: Apple cannot demonstrate the extraordinary circumstances, including a showing of irreparable harm, that would be required. The remaining claims should be dismissed for additional reasons: there is no demonstrable harm to Apple and the remedies are, in any event, affirmative defenses that will not be implicated unless and until Apple faces litigation in which the ‘898 patent is actually asserted.

A. Apple’s Remedies For The ‘898 Patent Are Simply Affirmative Defenses To
Patent Infringement That Have Already Been Raised by Apple In Another Case

Apple is attempting to obtain an injunction to limit how Motorola may assert the ‘898 patent. However, the relief that Apple seeks is an affirmative defense to a charge of patent infringement. This Court should not in this case provide the remedies that would be occasioned, if ever, in other cases where the ‘898 patent would be asserted.

Indeed, Motorola did assert the ‘898 patent against Apple in the case in the Northern District of Illinois before Posner. Apple, Inc. v. Motorola, Inc., 2012 WL 2376664. In that case Apple sought the same relief as it does here: a finding that the ‘898 patent is unenforceable due to untimely disclosure to ETSI. Judge Posner scheduled a trial on the equitable defenses to patent infringement such as untimely disclosure and FRAND violations to follow the trial on liability. Id. at *1 (“my expectation was that the liability trials (one a trial of Apple's claims of infringement, the other of Motorola's claims of infringement) would be followed immediately (if any claims of infringement were upheld in the liability trials) by trials on issues of relief: a jury trial on damages and a bench trial on equitable relief.”). The case was dismissed for lack of

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remedies before the trial, however, and is now on appeal. Thus, the claims that are defenses in that case (still on appeal), are now being raised as affirmative claims in this case. This is inappropriate. If the Northern District of Illinois case proceeds after appeal, or if Motorola files some other patent infringement action for the ‘898 patent, Apple may raise its defenses then and there.

There is no reason, and certainly no compelling reason, for this Court to hold a trial on extraordinary relief that is not only available to Apple in the ordinary course elsewhere, but in fact already being sought elsewhere, in a more fitting posture. See Trippe Mfg. Co. v. Am. Power Conversion, 46 F. 3d 624, 629 (7th Cir. 1995) (holding that district courts should “administer their dockets so as to conserve scarce judicial resources” and that a district court has “‘an ample degree of discretion’ in deferring to another federal proceeding involving the same parties and issues to avoid duplicative litigation.”) (citing Ridge Gold Standard Liquors, Inc. v. Joseph E. Seagram & Sons, Inc., 572 F. Supp. 1210, 1213 (N.D. Ill. 1983) and Kerotest Mfg. Co. v. C-O-Two Fire Equipment Co., 342 U.S. 180, 183 (1952)). If the Court accepts Apple’s request, then every other patent infringer will have the opportunity to come to Court to preview affirmative defenses for patents that are not being asserted or are being asserted in other cases.

B. The Court Will Not Be Remedying Any Cognizable Harm

The only harm alleged by Apple from untimely disclosure is having to defend itself in lawsuits. Such a harm is disconnected from the breach-of-contract allegations and finds no remedy in this Court. Apple could have articulated a claim for money damages, the normal remedy for breach of contract, but it dropped any claim for damages.

C. Apple Is Not Entitled To Equitable Relief

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“Damages are the default remedy for breach of contract; injunctive and other relief... is reserved for extraordinary cases.” Estate of Luster v. Allstate Ins. Co., 598 F.3d 903, 908 (7th Cir. 2010) (internal citations omitted). Furthermore, “[a]n injunction is an equitable remedy that does not issue as a matter of course, but rather a remedy that courts may grant at their discretion in the extraordinary situations where legal remedies such as monetary damages are inadequate.” Bedrossian v. Nw. Memorial Hospital, 409 F.3d 840, 842 (7th Cir. 2005) (citing Weinberger v. Romero-Barcelo, 456 U.S. 305, 311–12 (1982)). Similarly, “[s]pecific performance is an exceptional remedy [typically] available only when damages constitute an inadequate remedy.” TAS Distrib. Co., Inc. v. Cummins Engine Co., Inc., 491 F.3d 625, 637 (7th Cir. 2007).

Equitable remedies such as an injunction and specific performance are not granted as a matter of right; rather, the reward of an equitable relief “must be thoroughly justified.” Polymer Tech., Inc. v. Bridwell, 103 F.3d 970, 977 (Fed. Cir. 1996). Apple has not demonstrated any extraordinary circumstances that would justify a reward of equitable remedies. Rather, any alleged harm suffered by Apple could be remedied by damages. Therefore, Apple is not entitled to the injunctive or declaratory relief it seeks with respect to allegations of untimely disclosure.

D. Without A Remedy There Can Be No Trial

As is true for the FRAND trial, because Apple’s allegations of untimely disclosure do not translate to any available remedy, there can be no trial on these claims. Apple Inc. v. Motorola, Inc., 2012 WL 2376664, at *13.

E. Apple’s Patent Misuse Claim Also Fails As A Matter of Law

Along with asserting breach-of-contract claims for untimely disclosure, Apple also alleges that Motorola engaged in patent misuse without alleging any facts other than those allegedly giving rise to breach of contract. Apple Trial Brief at 52-53. But patent misuse is an

17

affirmative defense to a claim for patent infringement. Donald S. Chisum, CHISUM ON PATENTS § 19.04 (2008); Windsurfing Int'l Inc. v. AMF, Inc., 782 F.2d 995, 1001 (Fed. Cir. 1986) (“The doctrine of patent misuse is an affirmative defense to a suit for patent infringement.”). The defense should be raised in the actual case in which the patent is being asserted. Apple seeks a similar injunctive remedy for patent misuse as it does for breach of contract. Apple Trial Brief at 53. Therefore, the claim for patent misuse fails for the same reason that its claims for breach of contract do— namely, Apple cannot show it is entitled to the extraordinary and discretionary remedies it seeks. This Court can and should exercise its discretion to decline to issue extraordinary, discretionary remedies for a claim that better belongs in the forum where patent infringement is asserted. Because there is no appropriate remedy to be found here, or occasioned here, there should be no trial on patent misuse.

* * *

For each and all of the foregoing reasons, we respectfully submit that the Court should not proceed and should dismiss Apple’s claims in this case.

Respectfully submitted,

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DATED: November 4, 2012

MOTOROLA MOBILITY, LLC

By: /s/ Stephen A. Swedlow
Stephen A. Swedlow

[see PDF for the rest of the lawyer list]

____________
¹ Notably, despite Microsoft's willingness to accept the terms set by the court, Judge Robart has not yet determined whether he will create a RAND license between the parties. (“Insofar as Motorola’s motion asks that the court refrain from creating a license agreement at the November 13, 2012 trial, the court GRANTS Motorola’s Motion. To be clear, the court will not create a license agreement at the November 13, 2012 trial, but does not dismiss the availability of such relief, if appropriate, at a later stage of this litigation.”) October 11, 2012 Amendment to Order.

² In a recent filing, Apple conceded the “complexity” of portfolio patent licenses between sophisticated companies. Dkt. 489 at 5-6 (addressing a Motorola-HTC license).

³ Apple originally alleged two other essential patents were untimely disclosed and Motorola was therefore in breach of ETSI policy. See Dkt 194 at 37. However, Apple now asserts only a claim for breach for the ‘898 patent, Apple Trial Brief at 48-51, and seeks a remedy only with respect to the ‘898 patent. Id. at 53.

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I can't wait until I get to read the judge's decision, although to tell you the truth, I now hope Apple has to go through with what it started. It wanted Motorola to be squeezed by the court. Now that it's a two-way street, it's trying to find an exit. Tomorrow, then. - End Update 2.]

[ Update 3: It occurs to me I should explain something so you will understand why I am oohing and ahing. It's the argument they make about advisory opinions and the Constitution, as well as the speed with which they produced it and the filing in general. Here's a little info from an earlier article I did on declaratory judgments, back in 2004, during the SCO days, to help you understand why it's so powerful an argument:

First, you have to have an actual "controversy" in the constitutional sense. Basically, that means it isn't a hypothetical problem and it isn't moot, meaning the court must be able to settle your problem with a declaratory judgment. And you must have a real controversy, meaning you really have a reasonable apprehension of being sued. Red Hat had to prove it fit within those confines in order to block SCO's attempt to get the court to dismiss. It did, which is why SCO's Motion to Dismiss was denied.

Second, you have to meet jurisdictional requirements, meaning the case is about something that federal courts are authorized to settle. The question is whether a particular court has the power or competence to decide the kind of controversy that is involved. Copyright fits the bill here, being a federal statute, so the Delaware court has authority to hear this case. If you recall, that is at issue in the Novell-SCO dispute, namely, should it be heard in state or federal court.

Here is the definition of "advisory opinion" from Steven H. Gifis' "Law Dictionary", Second Edition:

"ADVISORY OPINION - a formal opinion by a judge, court, or law officer upon a question of law submitted by a legislative body, governmental official, or other interested party, but not actuallly presented in a genuinely adversary proceeding. Such opinion therefore has no binding force as law. Compare declaratory judgment. See also case or controversy."

The judge was just saying that isn't the case here, that there is a real controversy, that SCO's words and behavior qualify as sufficiently menacing that Red Hat has a reasonable anticipation of being sued, something SCO in its attempt to have the matter dismissed fervently denied was the case. The judge found that Red Hat was right and SCO was ... well, you know.

Here is a detailed explanation from a tutorial on declaratory judgments:

"Case or Controversy

"The United States Constitution (Article III, Section 2) limits the exercise of the judicial power to 'cases' and 'controversies.' The Declaratory Judgment Act in its limitation to 'cases of actual controversy,' refers to the constitutional provision and is operative only in respect to controversies which are such in the constitutional sense. A justiciable controversy is thus distinguished from a difference or dispute of a hypothetical or abstract character; from one that is academic or moot. The controversy must be definite and concrete, touching the legal relations of parties having adverse legal interests. It must be a real and substantial controversy admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts. Aetna Life Insurance Co. v. Haworth, 300 U.S. 227, 57 S.Ct. 461, 81 L.Ed. 617 (1937). For adjudication of constitutional issues 'concrete legal issues, presented in actual cases, not abstractions' are requisite. The power of courts to pass upon the constitutionality of acts of Congress arises only when the interests of litigants require the use of the judicial authority for their protection against actual interference. A hypothetical threat is not enough. United Public Workers v. Mitchell, 330 U.S. 75, 67 S.Ct. 556, 91 L.Ed. 754 (1947).

"Jurisdiction

"The operation of the Declaratory Judgment Act is procedural only. Relief under the Act is available only if the requisites of jurisdiction, in the sense of a federal right or diversity, provide foundation for resort to the federal courts. The Declaratory Judgment Act allowed relief to be given by way of recognizing the plaintiff's right even though no immediate enforcement of it was asked. But the requirements of jurisdiction - the limited subject matters which alone Congress had authorized the District Courts to adjudicate - were not impliedly repealed or modified. Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 70 S.Ct. 876, 94 L.Ed. 1194 (1950)."

I'm not in the predictions business, particularly in a case we haven't followed closely, and there may be other factors that are not easily seen in a drive-by, but it's a powerful argument that certainly will be taken seriously, and unless there is a way around it, it could even prevail.

And now that you've taken the time to read all the details of Apple's claims about Motorola's alleged misuse of its patents, do you get it that it's just a strategy? Now think about the FTC leaking info to the world about Google allegedly misusing Motorola's standards-essential patents. You've just read all about it in this case and Microsoft's. See anything there? See how ridiculous it is? It's politics. It's bogus, as far as I'm concerned. The smartphone wars were not started by Google. And they are getting smeared. Look at this headline in the Chicago Tribune, "Royalties at issue in Motorola Mobility, Microsoft trial Google wants proceeding largely closed to public". First, Google is not a named party to this lawsuit, and Reuters should know that. It's misleading, and when people go to PACER trying to find the case, they will not be able to find it. Second, everyone, including Microsoft is asking for evidence to be kept from the public. Here's Microsoft's latest motion to seal [PDF], and there have been many others before that one. Everyone in the case has been sealing and continues to ask for more of it. But the headline says Google. It's not even a party. When you smear someone, some of it sticks, and journalists need to be very, very careful they don't become unwitting tools in the campaign.

I don't think it inappropriate to mention that the FTC folks have bios. You might want to read them to see where they used to work. And after they leave the FTC, they get other jobs, sometimes with companies that they used to investigate and then they start attacking the companies' competitors. You do the math. I can't believe, personally, that anyone would want a job like that, but some do, evidently. - End Update 3.]

Here is the judge's order as text:

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

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN

________________

APPLE, INC.,

Plaintiff,

v.

MOTOROLA MOBILITY, INC.,

Defendant.

_____________

OPINION and ORDER

11-cv-178-bbc

______________

In an order entered October 29, 2012 resolving the parties’ motions in limine, dkt. #424, I denied Motorola’s motion to preclude Apple from seeking specific performance. Id. at 7-11. In its amended complaint, Apple had requested “[a]n order ordering Motorola to specifically perform its contractual commitment to license its essential patents on F/RAND terms.” Dkt. #110 at ¶ 197(h). From this request for relief, I understood Apple to be requesting an order requiring Motorola to offer a license for its standards-essential patents to Apple and to be representing that Apple was ready and willing to accept such a license, or at least that Apple would be bound by the license rate set by the court for Motorola’s standards-essential patents. In denying Motorola’s motion in limine, I stated that “specific performance may be an appropriate remedy under the circumstances of this case” because

[u]nless and until Motorola gives Apple a fair license to its declared-essential patents, Apple will continue to face the threat of patent infringement litigation from Motorola. It would be highly inefficient to require Apple to bring a new lawsuit for monetary damages or declaratory relief each time Motorola sues it for patent infringement. Additionally, it makes little sense to order the parties to continue negotiating a license when they have been unable to reach an agreement

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through five years of negotiations.

Since issuing the October 29 order, it has become clear that Apple’s interest in a license is qualified. In its response to Motorola’s motion for clarification on the specific performance issue, Apple states that it will not commit to be bound by any FRAND rate determined by the court and will not agree to accept any license from Motorola unless the court sets a rate of $1 or less for each Apple phone. Apple’s Resp. Br., dkt. #448 at 8. In other words, if Apple is unsatisfied with the rate chosen by the court, it “reserves the right to refuse and proceed to further infringement litigation.” Id. at 2. Despite its position, Apple maintains that it is entitled to specific performance in the form of the court determining what a FRAND rate is for Motorola’s patents. At the final pretrial conference, I asked Apple to explain why it believed the court should determine a FRAND rate even though the rate may not resolve the parties’ licensing or infringement disputes. I questioned whether it was appropriate for a court to undertake the complex task of determining a FRAND rate if the end result would be simply a suggestion that could be used later as a bargaining chip between the parties. Apple responded that the rate would resolve the dispute in this particular case, namely, whether Motorola’s license offer was FRAND and if not, what the rate should have been.

Apple’s response was not satisfactory and did not assuage my concerns about determining a FRAND rate that may be used solely as a negotiating tool between the parties. After further consideration, I believe it would be inappropriate to grant Apple’s clarified request for specific performance. As I explained in the October 29 order, the normal remedy for a breach of contract is an award of damages, while specific performance is an “exceptional” remedy. Dkt.

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Moreover, because specific performance is a request for equitable relief in the form of a “positive injunction,” Chicago United Industries, Ltd. v. City of Chicago, 445 F.3d 940, 945 (7th Cir. 2006), a party requesting specific performance must satisfy the four-factor test set forth in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006). This test applies to requests for injunctive relief in federal court, regardless whether the underlying claim is premised on patent law, federal statutory law or state law. E.g., Sierra Forest Legacy v. Sherman, 646 F.3d 1161, 1184 (9th Cir. 2011) (stating “[e]ven in [National Environmental Policy Act] cases,[a]n injunction should issue only if the traditional four-factor test is satisfied”) (citation omitted); Kartman v. State Farm Mutual Automobile Insurance Co., 634 F.3d 883, 886, 892 (7th Cir. 2011) (using four-factor eBay test to analyze whether proposed class of plaintiffs might obtain injunction for claims originally brought in state court alleging breach of contract, bad-faith denial of insurance benefits and unjust enrichment); e360 Insight v. Spamhaus Project, 500 F.3d 594, 596, 604 (7th Cir. 2007) (citing eBay in support of “conclu[sion] that a more substantial inquiry . . . was necessary prior to the entry of equitable relief” for various torts). Under ebay, a plaintiff seeking an injunction must show:

(1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.

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Apple’s allegations of “irreparable harm” have at least two problems. The first problem is that Apple’s request for specific performance in the form of court declaration of a FRAND rate without any obligation by Apple to accept the rate would not prevent Motorola from suing Apple for patent infringement and requesting injunctive relief. In other words, if Apple refuses to be bound by the rate determined by the court, Motorola could continue to sue Apple for patent infringement and request injunctive relief.

The second problem is that Apple has provided no reason why its injuries would not be remedied by an award of money damages. It is undisputed that Motorola has failed to obtain any exclusion order or permanent injunction against Apple in the related patent infringement proceedings. Further, although Apple suggests that it will continue to face threats of permanent injunction or exclusionary orders related to Motorola’s standards-essential patents, it is not clear why this would be so if this court had resolved Apple’s claim for money damages in its favor. If Apple had been awarded money damages in this case, the court would have necessarily determined that Motorola breached a contract by failing to offer Apple a FRAND rate. Under

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With respect to the remaining eBay factors, I am particularly convinced that the public interest factor weighs against granting Apple’s request for specific performance in this case. As I explained at the final pretrial conference, courts are not in the best position to determine a FRAND rate for a portfolio consisting of hundreds of patents that would be used later in licensing negotiations between two highly sophisticated parties. Both parties in this case employ licensing experts whose job it is to negotiate these types of licenses and who are in a much better position than the court to determine a FRAND rate. Apple’s request that the court determine the FRAND rate places an enormous and possibly unjustifiable burden on the judiciary’s resources. In light of this reality, it would not be in the public interest for the court to spend such enormous resources to determine a FRAND rate that may ultimately lead only to additional litigation and would set a troubling precedent for future cases involving FRAND commitments. As the Court of Appeals for the Seventh Circuit has said, courts should consider the practicality of a requested injunction and “as a practical matter, . . . what purpose would be served by” a proposed injunction. Kartman, 634 F.3d at 893.

Finally, although Apple suggested at the final pretrial conference that this court could determine a FRAND rate as part of Apple’s request for declaratory relief, regardless of the requirements for seeking specific performance, it would be inappropriate to “declare” a FRAND rate for the same reasons explained above. The decision whether to grant declaratory relief is discretionary, 28 U.S.C. § 2201(a) (courts “may” issue declaratory judgments), and it is inappropriate to issue declaratory judgment if “such a judgment would have no practical effect.” Apple, Inc. v. Motorola, Inc., Case No. 1:11-CV-08540, 2012 WL 2376664, *23 (N.D. Ill. June

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In light of these observations, I am prepared to conclude that the court will not “declare” a specific FRAND rate for Motorola’s standards-essential patents. This would mean that, with respect to Apple’s breach of contract claim arising from Motorola’s FRAND commitments, the trial would resolve only the issue whether Motorola’s 2.25% licensing offer and subsequent negotiations complied with its FRAND obligations. However, this leads to an obvious question: what purpose would be served by the court’s declaring that Motorola’s actions constituted a breach of its FRAND contracts? Such a declaration would lead to the same situation as a declaration of a particular FRAND rate; the parties would be sent back to the negotiation table to hammer out the details of a license. Further, although a declaration might be useful for Apple as a defense to a future patent infringement suit brought by Motorola, Apple has not shown at this point that future patent infringement suits are likely or that it would be appropriate to declare that Motorola breached its contracts simply to provide Apple a defense in hypothetical future infringement actions. This leads to the question whether any trial should be held on Apple’s breach of contract claim relating to the FRAND contracts.

Additionally, these observations lead to the question whether a trial should be held regarding Apple’s other claims. Along with its claim that Motorola breached its FRAND commitments, Apple is asserting claims that Motorola violated disclosure obligations to ETSI and engaged in patent misuse. Apple is seeking extraordinary equitable and declaratory remedies on these claims, including an order rendering Motorola’s patents unenforceable against Apple. However, its allegations of irreparable harm and its arguments about the insufficiency of monetary damages focus on the possibility that Motorola may sue Apple for infringement and

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Before making any final decisions on these issues, I will give the parties an opportunity to respond to the concerns raised in this order. I understand that the parties are working hard to prepare for the trial at this point and it is unfortunate that these issues were not raised earlier in this case so that they could have been resolved before the eve of trial. However, they need resolution and I am confident the parties will be able to respond promptly. Therefore, the parties may have until Sunday, November 4, 2012 at 12:00 p.m. to respond to this order. The parties should be prepared to discuss these issues on Monday morning at 9:00 a.m.

At this point I cannot say that I will be able to make a final decision on Monday morning so the parties should be prepared to commence the trial at 1:00 after discussion of these issues.

Entered this 2d day of November, 2012.

BY THE COURT:
/s/
BARBARA B. CRABB
District Judge

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