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Motorola and Microsoft Debate the Scope of Google's MPEG-LA License (Seattle) ~pj
Wednesday, January 02 2013 @ 04:45 AM EST

The last time we looked in on the Microsoft v. Motorola litigation in Seattle, the judge, the Honorable James L. Robart, had just ruled that Motorola would have no right to injunctive relief in the US and Germany for its H.264 and 802.11 standard essential patent portfolios, at least not in the current set of facts, although he allowed that facts could change in the future.

The judge has asked [PDF] the parties to give him more information about Google's license agreement with the MPEG-LA patent pool, and he set a hearing for oral argument for January 28 at 1:30 PM in Seattle on that issue and on a Microsoft motion for summary judgment on invalidity. If any of you can attend, that'd be wonderful.

We now can have a much clearer picture of the parties' positions, now that we have both parties' post-trial briefs on the subject of Google's license agreement with MPEG-LA regarding H.264/AVC patent pool.

The crux of the debate is how to interpret one clause in the agreement, Section 8.3. Does it require Google to grant Microsoft a license to Motorola’s H.264-essential patents? Microsoft says it does, and Google says it does not. Google says it chose a license whereby it would have to list all affiliates it wished to be covered by the agreement, and to date it has not listed Motorola. It didn't close on the Motorola deal until after it entered the license agreement with MPEG-LA anyway. And Motorola never on its own put any of its relevant patents into the MPEG-LA patent pool. So either way, Microsoft has no rights to a license via the MPEG-LA patent pool, Google argues, only by negotiated agreement under normal RAND terms, obviously at a higher rate.

Jump To Comments

I have no idea if any of Google's arguments will move this judge, but they should at least give him pause. It will depend on how he reads that clause, and for sure he is right to want to have all the precise details before him and to hear oral argument.

The Judge's Order:

Here's what the judge's order, memorialized in writing by the clerk of the court, asks the parties to brief, and for convenience, I've inserted urls to the PDFs referenced which are not in the order itself, and in the case of Google's it's to the redacted version:

The court is in receipt of the parties’ respective post-trial briefing regarding the license agreement between Google Inc. and MPEG LA related to the H.264/AVC patent pool. (Motorola Br. (Dkt. # 614); Microsoft Br. ( Dkt. # 615).) The court is also in receipt of Microsoft Corporation’s motion for summary judgment of invalidity ( Dkt. # 205). To address both the Google-MPEG LA license agreement and Microsoft’s motion for summary judgment of invalidity, the court hereby schedules oral argument for January 28, 2013, at 1:30 p.m.

At argument, with respect to the Google-MPEG LA license agreement, the parties shall address (1) the proper interpretation of the Google-MPEG LA license agreement under the law of the State of New York; and (2) the import of the Google-MPEG LA license agreement as it relates to H.264 standard essential patents held by Motorola Mobility LLC and General Instrument Corporation, as wholly-owned subsidiaries of Google. The parties may submit, no later than January 23, 2013, (1) relevant extrinsic evidence to the Google-MPEG LA license agreement, such as affidavits from MPEG LA regarding the purpose and intent of the grant-back provision (Section 8.3) of the Google-MPEG LA agreement; and (2) additional briefing, limited to 12 pages, addressing any proffered extrinsic evidence.

I read that as indicating that at that point the judge was leaning toward Microsoft, but he has questions. Since he mentions Microsoft's summary judgment motion [PDF], filed some time ago, I suspect he was intending to rule on it, but doesn't want to do so until his questions are answered, and he was wondering about how the law of New York, which governs the Google-MPEG agreement, might conceivably tip things the other way.

And he's wanting a bit more detail so he can be sure -- is Microsoft covered by this license so that Motorola, as a subsidiary of Google, must license its patents at the low MPEG-LA patent pool rate that Microsoft wants and as the judge seems to be leaning to believing, or does it have to be a separate, negotiated market rate under RAND terms, as Google argues? The briefs are designed to answer those questions.

And he mentions that both sides can offer extrinsic evidence of how MPEG-LA views the interpretation of the license. That request from the judge seems a bit worrisome, and it makes me suspect that he's thinking that the patent pool will back Microsoft. Microsoft is a licensor, after all. Google is just a licensee. So it struck me as odd that the judge suggests to the parties what evidence to gather in such a context. But I could be off on that.

Microsoft's Arguments:

Let's start with Microsoft's arguments, and then I'll show you Google's, and you can be the judge of whose arguments make more sense to you.

Here's the Microsoft brief [PDF], as text:

HONORABLE JAMES L. ROBART

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

_______________

MICROSOFT CORPORATION,

Plaintiff,

v.

MOTOROLA INC., et al.,

Defendant.

________________

MOTOROLA MOBILITY, LLC., et al.,

Plaintiffs,

v.

MICROSOFT CORPORATION,

Defendant.

______________

No. C10-1823-JLR

PLAINTIFF MICROSOFT
CORPORATION’S POST-TRIAL
BRIEF CONCERNING GOOGLE’S
AVC PATENT PORTFOLIO LICENSE

Pursuant to the Court’s request, Microsoft Corporation (“Microsoft”) respectfully submits this brief regarding Google’s license to the H.264 patent pool administered by MPEG LA (Google’s “AVC Patent Portfolio License” or “the Google License”).

I. INTRODUCTION

The Google License is a separate contract that ultimately derails Motorola’s excessive H.264 demands. It includes a “grant-back” provision that entitles Microsoft to a worldwide, nonexclusive license to all H.264 essential patents owned by Google and its “Affiliates.” Defendants Motorola Mobility LLC and General Instrument Corp. (“Defendants”) are Google’s Affiliates because they are wholly-owned subsidiaries. The “grant-back” provision in the Google License includes a specified per-patent royalty rate that is, by its terms, “presumed” to be fair and reasonable. Google agreed to these terms on behalf of itself and its Affiliates. Microsoft is therefore entitled to a license of Defendants’ H.264 essential patents at the royalty rate specified in the Google License.

Apart from this contract right, the royalty specified in the Google License is compelling evidence of the proper RAND royalty for H.264 essential patents required under Motorola’s contract with the ITU. The grant-back royalty terms apply to every licensee of the MPEG LA H.264 patent pool. More than 1100 licensees and 25 licensors have agreed to license the H.264 essential patents in the pool at these royalties. The royalty that Defendants’ parent Google has accepted as fair and reasonable has been generally accepted as fair and reasonable within the industry.

II. FACTUAL BACKGROUND

A. The MPEG LA AVC/H.264 Patent Pool.

MPEG LA, LLC (“MPEG LA”) forms and administers patent pools for standard essential patents. See 11/13/12 Tr. Trans. 61:16-62:6, 62:12-20, 123:20-124:11 (Glanz). In the 2003 to 2004 timeframe, MPEG LA and a group of companies owning patents essential to the

1

H.264 standard formed a patent pool to license H.264 essential patents (the “H.264 Patent Pool”). See 11/13/12 Tr. Trans. 61:16-62:9, 64:11-66:23, 69:3-21, 93:3-94:19; 94:21-95:24 (Glanz); Exs. 1584, 1625, 1626, 1141, 1636, 103. The H.264 Patent Pool currently includes 275 U.S. patents and over 2400 patents worldwide that an independent expert has determined are essential to the H.264 standard. See 11/14/12 Tr. Trans. 112:11-18 (Orchard); Ex. 589; 11/14/12 Tr. Trans. 87:9-16 (Lynde); Ex. 1152; 11/13/12 Tr. Trans 124:12-17 (Glanz). Twenty-six licensors, including leading technology firms such as Apple, Cisco, Sony, Microsoft, LG, Panasonic, and Siemens AG, have contributed patents to the pool. Exs. 589, 1152; 11/16/12 Tr. Trans. 85:18-20, 90:24-91:20 (Lynde).

B. The Google License and its “Grant-Back” License Obligation.

A company seeking a license to the patents in the H.264 Patent Pool must execute MPEG LA’s standard “AVC Patent Portfolio License” agreement (of which the Google License is a representative example1) to become a “Licensee.” 11/13/12 Tr. Trans 95:14-24 (Glanz); Ex. 103 at 1. Google is among more than 1100 such Licensees. 11/16/12 Tr. Trans. 85:18-21 (Lynde).

The Google License identifies the Licensors of the pool, each of which has committed “to make available individual licenses . . . under any and all AVC [H.264] essential patents” and has empowered the “Licensing Administrator” (i.e., MPEG LA) to grant such licenses to the Licensee. Ex. 103 at 1-2. Microsoft is a “Licensor” (id. at 1, 6 (§1.31)), and as a consequence is an express third-party beneficiary of the agreement. Id. at 1, 31(§ 8.17).

The grant-back provision on which this brief focuses requires the Licensee to grant a license to any H.264 essential patents of “Licensee and its Affiliates” to the Licensors:

8.3 Licensee Grant. Upon full execution of this Agreement, Licensee agrees to grant a worldwide, nonexclusive license and/or sublicense (commensurate to

2

the scope of the licenses which Licensee has selected hereunder) under any and all AVC Essential Patent(s) that Licensee and its Affiliates, if any, have the right to license and/or sublicense, to any Licensor or any sublicensee of the Licensing Administrator desiring such a license and/or sublicense on fair and reasonable terms and conditions. For purposes of this Section 8.3 only, the Licensors’ per patent share of royalties which are payable pursuant to Section 3 of this Agreement shall be presumed to be a fair and reasonable royalty rate for the aforementioned license and/or sublicense to be granted by the Licensee.
Id. at 26–27 (§ 8.3).2

The “scope of the license” to which the grant-back license is to be “commensurate” (id. at 26–27 (§ 8.3)) is defined in Section 2.10 of the agreement:

Scope of the License Grant. Notwithstanding anything to the contrary herein, all licenses granted under this Agreement are limited to a field of use to comply with the AVC Standard. No other licenses for any other purpose or use are granted herein nor are any licenses granted to any portion or segment of any product or thing except those portions or segments of such product or thing that comply with the AVC Standard.
Id. at 10 (§ 2.10). Failure to grant a license in accordance with Section 8 is a material breach, and the Section 8.3 obligations survive termination of the agreement. Id. at 23 (§ 6.2.3), 24 (§ 6.6.4). The Google License is governed by the law of the State of New York. Id. at 30 (§ 8.16).

C. Google Is a Licensee of the MPEG LA AVC Patent Pool and Defendants
Are its Affiliates.

Google became a Licensee of the H.264 Patent Pool in 2005 and remains a Licensee under the Google License today. See Ex. 103; Lo. Dep. 30:22-25, 31:4-13, 33:8-22; 11/16/12 Tr. Trans. 94:22-95:13 (Lynde). Defendants are Google’s “Affiliates.”

The Google License defines “Affiliate” to include any “Legal Entity which now or hereinafter, directly or indirectly, controls, is controlled by or is under common control with Licensee,” where “control” includes “ownership of at least 50% of the outstanding shares” of

3

or “more that 50% of the ownership interest” in the Legal Entity, or “a relationship similar to that.” Id. at 3, 5 (§§ 1.1, 1.29). Effective May 22, 2012, Motorola Mobility Holdings, Inc. (“MMHI”) became a wholly-owned subsidiary of Google. Suppl. Rule 7.1 Discl. Stmnt. of Motorola Mobility, Inc. and General Instrument Corp. [Dkt. 331] at 2; Lo Dep. 48:2-15. Defendant Motorola Mobility, Inc. (“MMI”) is a wholly-owned subsidiary of MMHI, and defendant General Instrument Corp. is a wholly-owned subsidiary of MMI. Id. Accordingly, Defendants are Google’s “Affiliates” under the terms of the Google License.

III. DISCUSSION

Under Section 8.3 of the Google License, Microsoft is entitled to a license to all of the H.264 essential patents that Google and Defendants (as its Affiliates) have a right to license, and is entitled to such a license at the royalty rate specified in the agreement. Google is not a party to this action, and joining Google at the time Microsoft’s right ripened could have created procedural impediments to the prompt resolution of the critical issues in the pending case. But the result is inevitable.

However, apart from the contractual right, the presumed fair and reasonable per-patent royalty that Google and other similarly situated licensees have agreed to accept pursuant to Section 8.3 is powerful evidence of the RAND royalty rate for Defendants’ H.264 essential patents.

A. Microsoft’s Contractual Right To License Defendants’ H.264 Essential
Patents Pursuant to the Terms of the Google License.

Section 8.3 of the Google License unambiguously requires Google and its Affiliates (including Defendants) to grant to Microsoft (and any other interested Licensors3) “a

4

worldwide, nonexclusive license and/or sublicense . . . under any and all AVC Essential Patent(s) that [Google] and its Affiliates, if any, have the right to license and/or sublicense.” Ex. 103 at 26–27, § 8.3. Google must provide this grant-back license “on fair and reasonable terms and conditions,” where specifically “the Licensors’ per patent share of royalties which are payable pursuant to Section 3 of this Agreement shall be presumed to be a fair and reasonable royalty rate for the aforementioned license and/or sublicense to be granted by the Licensee.” Id. (emphasis added). The presumed royalty rate is a mandatory, not permissive, aspect of the fair and reasonable terms of the grant-back license.4

In the face of Google’s unambiguous obligation under Section 8.3 to provide a grant-back license, Google’s head of IP licensing, Mr. Dailey, was unable to provide any explanation for his contrary “understanding that [the Google License] does not apply to the Motorola patents.” 11/20/12 Tr. Trans. (Dailey) 122:18-23. In the parallel litigation before the International Trade Commission, however, Defendants have questioned whether Google’s grant-back license obligations apply to Microsoft. But none of these arguments change Google’s contractual obligation of which Microsoft is a third party beneficiary. Google must license Defendants’ H.264 essential patents to Microsoft at the precise royalty “presumed to be fair and reasonable” under Section 8.3.

For example, Defendants have previously argued that Google’s Section 8.3 obligation to license its Affiliates’ H.264 essential patents is limited by other provisions of the agreement. In particular, Defendants have claimed that Sections 2.9 and 3.3 somehow limit the Affiliates whose patents are subject to the grant-back provision. Section 2.9 simply prohibits Google

5

from sublicensing the rights granted to it under the Google License, while noting that “[t]he Licensing Administrator is willing to offer an AVC Patent Portfolio License to any Affiliate of Licensee.” Id. at 9-10 (§ 2.9). Section 3.3 provides Google with the option to pay for an “Enterprise License”5 and include any Affiliates under that license by providing the required notice. Id. at 15 (§ 3.3). However, neither section purports to change the definition of “Affiliates” or otherwise to excuse any Google Affiliates from the grant-back requirements of Section 8.3.

Defendants’ arguments defy the plain language of the agreement. See Elmira Teachers’ Ass’n v. Elmira City School Dist., 53 A.D.3d 757, 759, 861 N.Y.S.2d 195, 197 (N.Y. App. Div. 2008) (a contract is to be interpreted in accordance with the plain and ordinary meaning of its terms and intent is determined within the four corners of the agreement). The definition of Affiliate is not limited either to only those Affiliates of a Licensee that execute their own AVC patent Portfolio License (as offered in Section 2.9) or to only those Affiliates of an Enterprise Licensee that the Licensee elects to include under its Enterprise License pursuant to Section 3.3. Instead, the definition of Affiliate includes any and all legal entities under the Licensee’s control. Ex. 103 at 9-10 (§ 2.8), 15 (§ 3.3).

Defendants’ argument is not even consistent with the language of Section 8.3. If one were to accept Defendants’ argument that only an Affiliate that executes its own patent pool license agreement is to be included, then the words “and its Affiliates” within the phrase “Licensee and its Affiliates” in Section 8.3 would be superfluous. Once an Affiliate executes its own patent pool license agreement, it would also become a Licensee in its own right. Licensors could therefore request a grant-back license from the Affiliate directly as a Licensee, thereby rendering the “and its Affiliates” language meaningless.

6

Defendants’ argument in reliance upon Section 3.3 is likewise flawed. To accept Defendants’ argument, one would need to insert an additional limitation in Section 8.3 similar to the language bracketed in the following: “Licensee agrees to grant a worldwide, nonexclusive license . . . under any and all AVC Essential Patent(s) that Licensee and its Affiliates [that are designated to be included in the Licensee’s Enterprise License pursuant to Section 3.3], if any, have the right to license and/or sublicense, to any Licensor . . . .” See id. at 26-27 (§ 8.3). The contract contains no such limitation. Moreover, to accept Defendants’ argument would write out of the contract altogether a Licensee’s obligation to include its Affiliate’s H.264 essential patents in the grant-back license unless that Licensee has elected to be an Enterprise Licensee. Thus, the Affiliates of any Licensee that takes a license under either Section 2.1 (for AVC Product(s)), Section 2.7 (for OEM Licensees), or any other specific license grant (Sections 2.2, 2.3, 2.4, or 2.5) (or any combination of the foregoing licenses) would be excluded from that Licensee’s Section 8.3 obligations simply because the Licensee is not an Enterprise Licensee eligible to include its Affiliates in its Enterprise License under Section 3.3. That cannot be the meaning of “Licensee and its Affiliates.”

Section 8.3 requires that the H.264 essential patents of all of Google’s “Affiliates” be included in the grant-back license. The reason is obvious: if a licensee like Google could evade its grant-back obligation by placing its patents in a separate IP holding company that has no need to be covered by a pool license, it would render the grant-back obligation a nullity. Defendants have also previously argued, with little explanation, that the parenthetical in Section 8.3 – “(commensurate to the scope of the licenses which Licensee has selected hereunder)” – precludes Microsoft from obtaining a license to Defendants’ H.264 essential patents or limits the type of license available to Microsoft. In making this argument, Defendants have implied that the parenthetical in Section 8.3 should be read to limit the grant-back license to the specific category (or categories) of license(s) actually exercised by Google

7

under Section 2 of the contract. The presumptive implication of this argument is, for example, that if Google takes an “AVC Product(s)” license under Section 2.1 (a license that, in general, covers the sale of products containing an H.264 encoder, decoder, or codec that is not incorporated into a computer operating system), but not an “OEM Licensee” license under Section 2.6 (a license that, in general, covers the sale of products containing an H.264 encoder, decoder, or codec that is incorporated into a computer operating system), then any grant-back license obligation Google has under Section 8.3 is limited to providing a license covering rights similar to those granted under Section 2.1, and does not extend to a grant of rights similar to those provided under Section 2.6.

This argument is inconsistent with other provisions of the agreement. It ignores the contract’s definition of “scope of the license,” which has nothing to do with the limitation Defendants attempt to impose on Google’s Section 8.3 grant-back obligations. Specifically, Section 2.10 of the Google License states:

Scope of the License Grant. Notwithstanding anything to the contrary herein, all licenses granted under this Agreement are limited to a field of use to comply with the AVC Standard. No other licenses for any other purpose or use are granted herein nor are any licenses granted to any portion of segment of any product or thing except those portions or segments of such product or thing that comply with the AVC Standard.
Thus, in accordance with the definition of “scope of the license,” “commensurate to the scope of the licenses which Licensee has selected hereunder” means that the grant-back license is to be of similar “scope” as the license(s) provided to Google – in other words “limited to a field of use to comply with the AVC Standard.”

Nevertheless, even if Defendants’ interpretation of the parenthetical in Section 8.3 were correct, Microsoft would still be entitled to a grant-back license from Google. Google is licensed both under Section 2.1 (covering “AVC Product(s)”) and under Section 2.6 (the “OEM License”). Ex. 107 (“Addressing Chrome OS [operating system] . . . . As you

8

confirmed . . . Google is licensed . . . as a: 1. AVC licensor of codec . . . per Section 2.1 of the agreement and 2. OEM licensor of codec for consumer per Section 2.6 of the agreement.”); Lo Dep. 118:4-119:3, 121:10-122:17. These licenses are commensurate to the types of license grants Microsoft would take from Google, covering hardware products with an H.264 codec (e.g., the Xbox gaming console) and operating system software like Windows. Thus, even if Section 8.3 were to be read to limit Microsoft to the general categories of licenses actually elected by Google under Section 2 of the agreement, Google would still be obligated to provide Microsoft with the grant-back license that it seeks.

B. The Grant-Back License In All Events Provides Compelling Evidence of
the Appropriate RAND Royalty.

For procedural reasons and in light of the importance of a timely resolution of the issues pending in this case, Microsoft has not yet sought to take the steps necessary to enforce against Google its rights to a grant-back license, which would at a minimum have created a distraction from the key issue for trial in November and could potentially have delayed that trial. But, wholly apart from Microsoft’s contract right to license Defendants’ H.264 Essential Patents under the Google License, that license is compelling, if not conclusive, evidence of the appropriate RAND royalty to be applied to Defendants’ H.264 essential patents. In accordance with Section 8.3, the parties agreed that “the Licensors’ per patent share of royalties which are payable pursuant to Section 3 of this Agreement shall be presumed to be a fair and reasonable royalty rate.” Ex. 103 at 26–27 (§ 8.3) (emphasis added). This is the royalty accepted as fair and reasonable by not only Defendants’ parent company, Google, but also over 1100 other licensees of the H.264 Patent Pool, each a market participant in its own voluntary transaction specifically concerning H.264 essential patents (and only H.264 essential patents). Moreover, it is the royalty accepted as fair and reasonable by the more than 25 Licensors, each of which is an independently verified owner of H.264 essential patents. Thus, the presumed fair and reasonable royalty mandated by Section 8.3 has received wide acceptance by numerous and

9

varied market participants. Calculations using that royalty were provided by Dr. Lynde at trial and can be readily calculated each year as provided under the governing agreement. 11/16/12 Tr. Trans. 103:19-104:4 (Lynde).

DATED this 14th day of December, 2012.

CALFO HARRIGAN LEYH & EAKES LLP

By s/Arthur W. Harrigan, Jr.
Arthur W. Harrigan, Jr., WSBA #1751
By s/Christopher Wion
Christopher Wion, WSBA #33207
By s/Shane P. Cramer
Shane P. Cramer, WSBA #35099
[address, phone, fax]

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

David T. Pritikin
Richard A. Cederoth
Constantine L. Trela, Jr.
William H. Baumgartner, Jr.
Ellen S. Robbins
Douglas I. Lewis
David C. Giardina
John W. McBride
Nathaniel C. Love

SIDLEY AUSTIN LLP
[address, phone, fax]

10

Carter G. Phillips
Brian R. Nester

SIDLEY AUSTIN LLP
[address, phone, fax]

Counsel for Microsoft Corp.

11

CERTIFICATE OF SERVICE

[Ed: see PDF]

12

[Ed: certificate continued, see PDF]

___________
1 The agreement in the same format is executed by each of the licensees of the MPEG AVC Patent Pool. See 11/13/12 Tr. Trans. 95:14-20 (Glanz).

2 As an alternative to providing a grant-back license pursuant to Section 8.3, a Licensee can instead join the pool as a Licensor, thereby making their H.264 essential patents available to all Licensees at pool rates. Ex. 103 at 27 (§ 8.4).

3 Section 8.3 not only obligates the Licensee to provide a grant-back license to Licensors, but it also provides substantial rights to the Licensee to obtain its own grant-back license from any other licensee of the H.264 Patent Pool. This same Section 8.3 is in the license of every licensee to the pool, and Section 8.3 provides not only that “any Licensor” is entitled to the grant-back license, but also that “any sublicensee of the Licensing Administrator” (i.e., any other licensee of the H.264 Patent Pool) is entitled to a grant-back license. Ex. 103 at 27 (§ 8.3). Moreover, the Google License makes any licensee in full compliance with its contractual obligations an express “third party beneficiary of the obligations under Section 8.3 of any other licensee.” Id. at 31 (§ 8.17). Thus, Section 8.3 not only imposes obligations on the Licensee; it provides the Licensee with valuable additional rights.

4 Under New York law, a presumption may only be overcome by clear and convincing evidence. See Defiance Milk Products Co. v. DuMond ̧ 309 N.Y. 537, 546, 132 N.E.2d 829, 833 (N.Y. 1956); Stein v. Doukas ̧ 98 A.D.3d 1026, 1029, 950 N.Y.S.2d 773, 776 (N.Y. App. Div. 2012); Currie v. McTague, 83 A.D.3d 1184, 1185, 921 N.Y.S.2d 364, 366 (N.Y. App. Div. 2011).

5 An “Enterprise License” grants to the Licensee all of the licenses provide under Sections 2.2 (for “Title-by- Title AVC Video”), 2.3 (for “Subscription AVC Video”), 2.4 (for “Free Television AVC Video”), and 2.5 (for “Internet Broadcast AVC Video Use”) of the AVC Patent Portfolio License in return for a set yearly royalty payment. See Ex. 103 at 5 (§§ 1.24-1.25), 9 (§ 2.7), 14 (§ 3.1.7), 15 (§ 3.3).

13

I read this, but I didn't have Google's side of the story yet, and I couldn't make heads nor tails of some of Microsoft's arguments, because the argument is that Microsoft is entitled to a license from *Google* to Motorola's standards patents because of both Microsoft and Google being in the MPEG patent pool. But Google isn't a party to this lawsuit. Microsoft admits that but says it's "inevitable" that this must be the outcome. Law doesn't normally work like that. There is no extrapolation in law. It has to be explicit and proven. Why *wouldn't* Microsoft have to bring Google into the litigation officially, I wondered as a I read it, if it wants to license patents from Google?

I found some articles on patent pools that you can read, if you are interested in how patent pools work in general on the Standards Blog here and and here.

But I still couldn't figure out Microsoft's position in full. So I did what I usually do when I reach such a point and asked a lawyer friend to explain it to me so I could explain it to you. Rather than paraphrase his explanation, here's what he said:

As you probably know, the way a patent pool works is those that agree to take part put all their patents on the table that they claim hold essential claims. They also agree on a formula to determine what each valid claim should be worth, based on criteria such as how many years are left on the patent, how important the feature it relates to may be, and so on. A mutually agreed upon independent expert then determines two things:
1. Is the patent claim essential or not?

2. What percentage of the total royalty on a compliant product should that claim be worth?

The parties also agree on the forms of licenses to be granted to implementers (which can include grant back licenses) and on their own agreements with the pool (which is what this brief is focusing on).

A patent pool can be set up however you want it to. For example, there are lots of SIGs set up in the semiconductor industry where the founders sign "promoter" agreements which grant each other a cross license to each others' essential claims, and give each Promoter the right to license the collection of claims to third parties who sign "adopter" agreements, which grant back licenses to each Adopters SEPS. No money changes hands between the Promoters, and this light weight arrangement is the most common form of patent pool out there, although you don't usually hear of it referred to as a pool.

In the type of patent pool we have here, the goal is to avoid so many people charging so much that no one wants to implement the technology. It only works when you can get enough people to participate that the aggregate cost of implementation becomes acceptable. In other words, if one entity that wasn't under a RAND obligation to begin with to a standards organization (like a troll) wanted to charge an extortionate amount, they could kill the whole effort. Being a troll, though, that would be against their interest, so instead they'd be likely to just hold out and see if they could get a bit more before joining.

In this type of pool, an administrator handles all of the licensing, which provides a service to implementers, since they need only enter into a single license and pay a single fee, which can help enormously to get a new standard accepted, since it cuts down not only on the aggregate license fees that might need to be paid, but also on negotiating so many licenses with so many patent owners.

Note that in this case, it seems like there are different types of licenses. One claim that Google and Microsoft are arguing over has to do with whether the type of license you enter into affects which of your patents are subject to the grantback license.

So here's what appears to be going on:

  • Google and Microsoft each either joined the pool, or became licensees of the pool, but in either case, they became subject to the grantback

  • The pool, as is typical (and for the reason Microsoft mentions in the brief) captures the SEPs of any pool member affiliates

  • Google bought the Motorola entities, rendering them its affiliates

  • Microsoft contends that Microsoft should therefore be able to have access to the Motorola SEPS

  • It also points to the Motorola-Google license terms as indications of what RAND should be in dollar terms.

What I don't understand is how or why Microsoft is saying that it should get a direct license from Google. Presumably what it should be saying is that Google should be causing the Motorola entities to make their SEPs available to the pool, so that Microsoft can get them directly from the pool. Perhaps the pool documents for some reason say that pool members are supposed to get their licenses directly from each other, rather than from the pool, although this sounds odd to me, especially given how many patents and patent owners are said in the brief to be involved. Perhaps that's because some pool members would already have patent cross licenses, entitling them to pay less to each other than would otherwise be the case, but I'm guessing here, and to the contrary the brief mentions that the same price was paid by 25 other licensees as Google is paying to the Motorola entities.

Without having seen any of the other documentation I can't be definitive, but on a quick reading of this brief, it sounds like Microsoft is probably right in what it is contending Google is bound to.

Ultimately, it comes down to whether the claims are subject to the pool documents or not, and whether Microsoft's license rights in relation to the pool entitle it to have access to these particular claims under the pool documentation and its intended use.

So, as usual in legal things, it depends on the actual contractual terms. God is in the details, as they say. And he didn't have Google's filing at the time to add to his understanding and neither did I.

But for sure, whichever Microsoft lawyer cooked this theory up gets a bonus this year. This argument is very clever, in the creepy way we've come to expect from Microsoft. But still, you have to give the devil his due. This is clever. And I began to grasp the big picture, even if not completely in all respects.

Microsoft quotes from the license terms it thinks are applicable, and even if we accepted Microsoft's position for the sake of argument, I've marked in red for emphasis the part that stands out to me:

8.3 Licensee Grant. Upon full execution of this Agreement, Licensee agrees to grant a worldwide, nonexclusive license and/or sublicense (commensurate to the scope of the licenses which Licensee has selected hereunder) under any and all AVC Essential Patent(s) that Licensee and its Affiliates, if any, have the right to license and/or sublicense, to any Licensor or any sublicensee of the Licensing Administrator desiring such a license and/or sublicense on fair and reasonable terms and conditions. For purposes of this Section 8.3 only, the Licensors’ per patent share of royalties which are payable pursuant to Section 3 of this Agreement shall be presumed to be a fair and reasonable royalty rate for the aforementioned license and/or sublicense to be granted by the Licensee.
So that tells me there is more than one license and the issue is, are the two patents in this case MPEG-LA pool patents, or is Microsoft trying to sweep in diamonds with the dust?

Microsoft claims they are covered. But I notice that their attached exhibit [PDF] to the exhibitDeclaration of Kevin J. Post [PDF] in support of its brief, on page 3, in a letter from Google to the licensor, Google writes that it was "still in negotiations with Mr. Harkness concerning a side letter explicitly listing the Google affiliates covered under our 2009 and 2010 AVC Enterprise Licenses." Should that not have tipped Microsoft off that arguably not all affiliates are necessarily covered, that they have to be explicitly listed as Google asserts? And when I then read Google's brief, so it came to be that this is Google's position.

Google's Arguments:

Now let's take a look at Google's brief. Here's a summary, first. Google says, Motorola has not joined the MPEG-LA AVC patent pool, not as a licensee or a licensor. Its H.264-essential patents are not in that pool that way. Of course, Microsoft argues they are, by force, but importantly to Google, when it took out the license in 2005, Motorola was not an affiliate of Google, as defined in the agreement or otherwise, and so neither had any obligation under that agreement to license any Motorola patents to MPEG LA.

Google renewed the agreement in January of 2011 for another 5-year term, and again that renewal happened *prior* to Google acquiring Motorola, the closing for that being in May of 2012.

The agreement does have a grant-back provision regarding affiliates of the licensee, Google. But there are different licenses for different pool products that a licensee can select. "The scope of the licenses granted by MPEG-LA to Google under the AVC Agreement does not extend to Google's Affiliates, except under limited circumstances," Google writes, in that its license doesn't grant any rights as a sublicensee to Motorola. Thus there is no automatic inclusion of Affiliates, under the Enterprise License Google chose:

Under Section 3.1.7 of the AVC Agreement, the Enterprise License fee may be paid in lieu of royalties by “a Licensee and its Affiliates which are licensees under the AVC Patent Portfolio License and are identified in writing to the Licensing Administrator by Licensee.” Id. at 14. Thus, an Affiliate like Motorola is not automatically included under Google’s license and if a licensee like Google wants to include an Affiliate under the terms of its existing AVC Agreement, that licensee must select an Enterprise License under Section 2.7 and specifically identify the Affiliate in writing as a covered Affiliate. See Id. at 9 (§ 2.7), 14 (§ 3.1.7), 15 (§ 3.3).
Google to date has not identified Motorola as a covered Affiliate, with the following resultant argument:
Google’s AVC Agreement requires that the grant-back be “commensurate to the scope” of Google’s license. Because Motorola is not presently a covered Affiliate and the scope of the rights under Google’s AVC Agreement does not extend to Motorola, Motorola’s patents are not commensurately subject to the grant-back clause....

Moreover, given that Google did not acquire Motorola until eighteen months after Motorola made its offer to Microsoft, and considering the date of the hypothetical bilateral negotiation that would have had taken place between Motorola and Microsoft had Microsoft negotiated, Google’s AVC Agreement would have little to no relevance to the rate ultimately agreed to. Thus, the AVC Agreement does not provide Microsoft with a license to Motorola’s H.264-essential patents and should not be considered a comparable for purposes of the Court’s determination of a RAND range and/or rate.

There are two footnotes that explain the significance of New York law from Google's perspective:
7 As an initial matter, under the language of this provision, the grant back requirement only extends to those entities that were Affiliates at the time of "full execution" of the Agreement. At the time of the execution of the AVC Agreement in 2005, Motorola had not yet been acquired by Google and was not subject to its control. Thus, it was not an "Affiliate" at the time of "full execution" of the agreement and Section 8.3, therefore, has no applicability to Motorola and its patents. "It is well settled, under New York law, that one who is not a party to an agreement cannot be bound by it," Valisa Mfg., LLC v. The 54 Group, Ltd., 19 Misc. 3d 1136, 2008 N.Y. Slip Op. 51017 (N.Y. Sup. Ct 2008). To the extent there is any doubt as to its interpretation of the language of the grant-back provision, that ambiguity should be resolved in favor of Google and Motorola....

10 The Google-MPEG LA AVC License Agreement is construed under New York law. See Ex.103 at 30 (§8.16). Under NY law, to the extent there is any ambiguity in the grant-back provision, such ambiguity must be resolved in favor of the non-drafter -- here, Google. See SOS Oil Corp. v. Norstar Bank of Long Island, 76 N.Y. 2d 561, 568 (1990) ("As in the interpretation of any document, we look for the parties' intent within the four corners of the instrument, reading any ambiguity against the drafter."); Loblaw, Inc. v. Employers' Liab. Assurance Corp., 57 N.Y.2d 872, 877 (1982).

In contrast, here's what Microsoft found significant about New York law:
The presumed royalty rate is a mandatory, not permissive, aspect of the fair and reasonable terms of the grant-back license.4

_______
4Under New York law, a presumption may only be overcome by clear and convincing evidence. See Defiance Milk Products Co. v. DuMond ̧ 309 N.Y. 537, 546, 132 N.E.2d 829, 833 (N.Y. 1956); Stein v. Doukas ̧ 98 A.D.3d 1026, 1029, 950 N.Y.S.2d 773, 776 (N.Y. App. Div. 2012); Currie v. McTague, 83 A.D.3d 1184, 1185, 921 N.Y.S.2d 364, 366 (N.Y. App. Div. 2011).

Microsoft argues that at a bare minimum, the MPEG-LA patent pool rates indicate what a fair rate it should pay Motorola should be. But I note Google argues that even if the judge accepts that going forward, it would be wildly off for past damages:
And even if the Court views the go-forward rate for Motorola’s patents to be influenced by the Google acquisition, Motorola’s release for past damages, which would compensate Motorola for years of Microsoft’s unlicensed use, must necessarily be based on the value of those patents before that acquisition date and remains unaffected by the AVC Agreement.
Here, then, is Google's post-trial brief in full, as text, about the MPEG LA license, listing all the reasons, including some fine points I didn't mention in my brief summary, why it doesn't think it applies to Microsoft:

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

____________

MICROSOFT CORPORATION, a Washington
corporation,

Plaintiff,

v.

MOTOROLA, INC., MOTOROLA MOBILITY LLC,
and GENERAL INSTRUMENT CORPORATION,

Defendants.

_____________

CASE No. C10-1823-JLR

MOTOROLA’S POST-TRIAL BRIEF
REGARDING THE GOOGLE-MPEG LA
AVC LICENSE AGREEMENT

REDACTED

Table of Contents

Page

I. INTRODUCTION.................1

II. THE GOOGLE-MPEG LA LICENSE AGREEMENT ............2

III. MICROSOFT IS NOT ENTITLED TO A GRANT-BACK LICENSE TO
MOTOROLA'S H.264-ESSENTIAL PATENTS UNDER THE AVC LICENSE
AGREEMENT .....................4

A. Any Grant-Back Obligation Must Be Commensurate in Scope with the
License Grant Selected by Google..............4

B. Redacted.................6

IV. THE GOOGLE-MPEG-LA AVC AGREEMENT IS NOT A COMPARABLE FOR
PURPOSES OF THE COURT'S DETERMINATION OF A RAND RATE OR
RANGE FOR MOTOROLA'S H.264-ESSENTIAL PATENTS...............8
A. Motorola's Patents Are Not Licensed Under Google's MPEG LA AVC
Agreement....................8

B. The Rate in the MPEG LA AVC Agreement is Merely "Presumed" to be a
Reasonable Rate for Any Grant-Back License..............9

V. CONCLUSION..............10

i

Table of Authorities

CASES

Page(s)

Loblaw, Inc. v. Employers' Liab. Assurance Corp.,
57 N.Y.2d 872 (1982).................6

SOS Oil Corp. v. Norstar Bank of Long Island,
76 N.Y.2d 561 (1990)..................6

Valisa Mfg., LLC v. The 54 Group, Ltd.,
19 Misc. 3d 1136, 2008 N.Y. Slip Op. 51017 (N.Y. Sup. Ct 2008).......4

ii

I. INTRODUCTION

On November 20, 2012, after hearing testimony in the above-captioned case, the Court requested briefing regarding the 2005 Google-MPEG LA AVC License Agreement (the “AVC Agreement”). G1 Specifically, the Court stated:

I need to know what it is and what impact it has. The language would appear to pick up Motorola as a subsidiary or affiliate. But if I’m wrong on that, someone needs to tell me why and the significance of it. 11/20 Tr. 169:16-19. G2
In response to the Court’s questions, Motorola Mobility LLC (“Motorola”) G3 submits this brief to provide background on the AVC Agreement, including the parties’ dispute regarding the scope of its “grant-back” provision, and a discussion of the relevance of the AVC Agreement to the Court’s determination of a RAND range and rate for Motorola’s H.264-essential patents.

The Parties’ Dispute Regarding the AVC Agreement. Google’s AVC Agreement is an agreement between Google Inc. and MPEG LA that was executed in 2005, granting Google a license to the patents in MPEG LA’s H.264/AVC patent pool. Microsoft and Google presently dispute G4 the scope of Section 8.3 of that Agreement, which at the most fundamental level, relates to whether Google is required to grant Microsoft a license to Motorola’s H.264-essential patents. Assuming, arguendo, that Microsoft’s contract interpretation is correct, the parties further dispute the terms upon which Google is required to grant a license, as well as whether Google [redacted]

In the discussion that follows, Motorola provides a summary of Google’s position as to why Section 8.3 of the AVC Agreement does not require Google to grant Microsoft a license to

Motorola’s H.264-essential patents. If it would be helpful to the Court, Motorola would welcome the opportunity to provide complete briefing that articulates completely the respective legal positions of the parties.

The Relevance of Google’s AVC Agreement to the Court’s Determination of a RAND Range and Rate. Motorola further understands that the Court wants to understand the relevance of the AVC Agreement to its determination of the RAND rate and range for Motorola’s H.264- essential patents. Motorola respectfully submits that the AVC Agreement itself is no more relevant than any other MPEG LA H.264/AVC License Agreement currently in the record. Indeed, as the trial record demonstrates, patent pools and their downward-biased, patent-counting- based royalty rates, reflect the unique circumstances of a given pool and are not representative of the rates in bilaterally negotiated patent license agreements, especially cross-license agreements. Moreover, Motorola contends that the dispute regarding the applicability of Section 8.3 of the AVC Agreement is not relevant to the Court’s determination of a RAND range and rate. As described below, Google’s acquisition of Motorola did not close until more than eighteen months after MML made its October 2010 offer to Microsoft. Therefore, the current dispute regarding the scope and applicability of Section 8.3 has no relevance to the RAND range and rate for Motorola’s H.264-essential patents.

II. THE GOOGLE-MPEG LA LICENSE AGREEMENT

As the Court learned during trial, MPEG LA is a patent pool administrator. One of the pools that it administers is for patents essential to the AVC or H.264 standard (“the AVC patent pool”). Microsoft Corporation is a licensor in this pool.G5 Microsoft and the other pool licensors have entered into an “Agreement Among Licensors” which provides for the licensing of each licensor’s AVC/H.264 essential patents to MPEG LA, who then sublicenses those patents to willing licensees at non-negotiable rates that are lower than what would be found in bilaterally

2

negotiated licenses between two parties. Motorola has not joined the MPEG LA AVC patent pool as either a licensor or as a licensee, choosing instead to remain outside the pool and to license its H.264-essential patents bilaterally in appropriate circumstances.

On January 25, 2005, non-parties Google and MPEG LA entered into their AVC License Agreement, which provided a license to Google for all patents contained in the MPEG LA AVC patent pool. Ex. 103. The Google-MPEG LA AVC Agreement contains many material provisions, including definitions, license grants, royalty and payment provisions, term and termination, etc. The Agreement also includes a “Licensee Grant” provision (referred to as the “grant-back provision” by the parties), which requires in relevant part that:

Upon full execution of this Agreement, Licensee agrees to grant a worldwide, nonexclusive license and/or sublicense (commensurate to the scope of the licenses which Licensee has selected hereunder) under any and all AVC Essential Patent(s) that Licensee and its Affiliates, if any, have the right to license and/or sublicense, to any Licensor or any sublicensee of the Licensing Administrator desiring such a license and/or sublicense on fair and reasonable terms and conditions. Id. at 26-27 (§ 8.3).
“Affiliates,” as used in § 8.3, is defined in relevant part as:
[A] Legal Entity which now or hereinafter, directly or indirectly, controls, is controlled by or is under common control with Licensee. ... The term “control” as used in this Section 1.1 shall mean (a) ownership of more than 50% of the outstanding shares representing the right to vote for directors or other managing officers of Licensee or such Legal Entity .... An entity shall be deemed an Affiliate only so long as such “control” exists. Id. at 3 (§ 1.1).
Since execution in 2005, Google has been licensed to the AVC pool patents and has paid royalties for its license. Specifically, Google’s AVC Agreement provides different licenses that can be selected by a licensee. These include a license for “AVC Product(s),” “Title-by-Title AVC Video,” “Subscription AVC Video,” “Free Television AVC Video,” “Internet Broadcast AVC Video Use,” “OEM Licensee,” or an “Enterprise License,” which permits a licensee to receive multiple licenses upon payment of a single lump sum. Id. at 8-9 (§§ 2.1 – 2.7).

Importantly, in 2005, at the time of full execution of the Agreement, Motorola was not an Affiliate of Google and, therefore, neither Google nor Motorola had any obligation to license Motorola patents to the Licensor (MPEG LA). Google’s agreement renewed for another 5-year

3

term on January 1, 2011. Id. at GGMM-00000325-28. On [redacted]ugust 15, 2011, more than six and a half years after first entering into the original Google-MPEG LA AVC License Agreement, Google announced its acquisition of Motorola. That acquisition closed on May 22, 2012. G6

III. MICROSOFT IS NOT ENTITLED TO A GRANT-BACK LICENSE TO
MOTOROLA'S H.264-ESSENTIAL PATENTS UNDER THE AVC LICENSE
AGREEMENT

A. Any Grant-Back Obligation Must Be Commensurate in Scope with the License Grant Selected by Google

Section 8.3 of the Google-MPEG LA AVC Agreement provides that "Upon full execution of this Agreement, Licensee [i.e., Google] agrees to grant a ... license and/or sublicense ( commensurate to the scope of the licenses which Licensee has selected hereunder) under any and all AVC Essential Patent(s) that Licensee and its Affiliates, if any, have the right to license ..." Ex. 103 at 26-27.G7 This "scope" language is an important limitation on any grant-back rights claimed by Microsoft. No testimony was elicited during trial regarding this provision.

The scope of the licenses granted by MPEG LA to Google under the AVC Agreement does not extend to Google's Affiliates, except under limited circumstances. See id at 9-10 ("Subject to

4

Article 3.1.7, the sublicenses granted in Sections 2.1 through 2.7 of this Agreement do not include the right of the Licensee [i.e., Google] to grant any further sublicenses [i.e., to Motorola]. The Licensing Administrator is willing to offer an AVC Patent Portfolio License to any Affiliate of Licensee.”). Under Section 3.1.7 of the AVC Agreement, the Enterprise License fee may be paid in lieu of royalties by “a Licensee and its Affiliates which are licensees under the AVC Patent Portfolio License and are identified in writing to the Licensing Administrator by Licensee.” Id. at 14. Thus, an Affiliate like Motorola is not automatically included under Google’s license and if a licensee like Google wants to include an Affiliate under the terms of its existing AVC Agreement, that licensee must select an Enterprise License under Section 2.7 and specifically identify the Affiliate in writing as a covered Affiliate. See Id. at 9 (§ 2.7), 14 (§ 3.1.7), 15 (§ 3.3).

Google did, indeed, elect to take an AVC Enterprise License. See Post Decl. Ex. A (email from Laura Majerus of Google to “Royalty Statements” at MPEG LA regarding Google’s election to take an “AVC Enterprise License for both 2009 and 2010”).G8 Further, as correspondence between Google and MPEG LA makes clear, both parties understood that only affiliates identified by Google would be covered by that Enterprise License grant. But to date, Google has not identified Motorola as a covered Affiliate and therefore no license extends from MPEG LA to Motorola under the pool patents. Thus, Motorola is not a licensed Affiliate and the scope of the rights granted under the AVC Agreement does not extend to Motorola.

Google’s AVC Agreement requires that the grant-back be “commensurate to the scope” of Google’s license. Because Motorola is not presently a covered Affiliate and the scope of the rights under Google’s AVC Agreement does not extend to Motorola, Motorola’s patents are not commensurately subject to the grant-back clause. Any contrary reading would lead to the inequitable result that an unlicensed entity (like Motorola), who is not a licensee and does not receive the benefits of Google’s AVC Agreement, is still forced to grant back a license without

5

receiving any reciprocal rights.G9 This cannot be. The grant-back provision cannot bind unlicensed Motorola and, thus, Microsoft is not entitled to a grant-back license under Motorola's patents.G10

B. [redacted]

[redacted]

6

[redacted] But Section 6.6.4 says no such thing. See Ex. 103 at 24 (indicating only that "[t]he obligation of Licensee pursuant to Sections 8.3 and 8.4" "shall survice expiration or termination of this Agreement.").

[redacted]

7

[redacted]

IV. THE GOOGLE-MPEG LA AVC AGREEMENT IS NOT A COMPARABLE FOR
PURPOSES OF THE COURT’S DETERMINATION OF A RAND RATE OR
RANGE FOR MOTOROLA’S H.264-ESSENTIAL PATENTS

A. Motorola’s Patents Are Not Licensed Under Google’s MPEG LA AVC
Agreement

During the November 2012 trial, Microsoft’s witnesses testified regarding the purported applicability of the “grant-back” provision of the Google-MPEG LA AVC Agreement to the determination of a RAND rate. See, e.g., 11/16 Tr. 94-97, 101-03, 171. Specifically, Microsoft’s Dr. Lynde, who is not a lawyer, testified that “[t]here is a condition in that Google license where the licensee, Google, agrees to grant back rights to the pool for its H.264-specific standard-essential patents.” 11/16 Tr. 103:7-9. Dr. Lynde acknowledged that his analysis was not based on legal principles, but was simply him “[s]peaking as an economist.” Id. 103:22. Indeed, Dr. Lynde’s interpretation of the Google-MPEG LA AVC Agreement is not based on any principle of contract interpretation and is, in fact, incorrect. As discussed above, this provision, by its own terms and as confirmed by the conduct of Google and MPEG LA under those terms, does not extend to unlicensed Affiliates of Google, including Motorola. Thus, it is not related in any way to Motorola’s patents and cannot be a comparable for purposes of determining a RAND royalty rate for those patents. The Google AVC Agreement is no different than any other MPEG LA pool agreement and should carry no additional significance. Indeed, as Motorola’s Post-Trial Brief makes clear, the MPEG LA pool rates have little to no relevance to the determination of the RAND range and rate.

Moreover, consistent with the AVC Agreement’s recognition that parties may elect to license their H.264 patents bilaterally outside the pool (see Ex. 103 at 21 (§ 4.3)), reliance upon the terms of the AVC Agreement in the hypothetical bilateral negotiation being simulated here would similarly be inappropriate. In a hypothetical negotiation taking place after Motorola made its October 2010 offer to Microsoft, the Google-MPEG LA AVC Agreement would have had no impact – Google did not announce its acquisition of Motorola until August of the following year.

8

For that reason alone, the rates accepted by Google in the form of a pool license agreement are simply not informative of the rate for Motorola’s H.264-essential patents.G12 And even if the Court views the go-forward rate for Motorola’s patents to be influenced by the Google acquisition, Motorola’s release for past damages, which would compensate Motorola for years of Microsoft’s unlicensed use, must necessarily be based on the value of those patents before that acquisition date and remains unaffected by the AVC Agreement.

Thus, the best evidence of the value for Motorola’s H.264-essential patents remains Motorola’s own bilateral licenses, informed by the value of the patents as practiced by Microsoft’s products. These agreements, which relate directly to the patents at issue, were reached through arms’-length negotiations and remain the most reliable benchmark for the Court’s analysis.

B. The Rate in the MPEG LA AVC Agreement is Merely “Presumed” to be a
Reasonable Rate for Any Grant-Back License

If the Court nevertheless determines that Google’s AVC Agreement is relevant to the Motorola/Microsoft RAND rate, it is important to recognize that the terms in Google’s agreement are merely presumptive, and must be considered further in the context of other material terms that require negotiation. According to the Google-MPEG LA AVC Agreement, the rate contained shall merely “be presumed to be a fair and reasonable royalty rate for the aforementioned license and/or sublicense to be granted by the Licensee.” Ex. 103 at 27 (§ 8.3). It is not, therefore, the only rate at which a grant-back license must be granted for Motorola’s patents. Rather, it is a rate that, if selected by the parties, might be considered fair and reasonable in light of the other terms in the ultimate agreement that would have been negotiated.

Here, if Microsoft were to receive a license under Motorola’s H.264-essential patents, while at the same time Motorola itself was not benefiting from a license from MPEG LA (because Motorola is not a covered Affiliate), the “presum[ptive]” MPEG LA rate would be unfair to

9

Motorola (and to Google), given the imbalance in license rights. See id. at 27 (§ 8.3). The more likely result would be that Google and Microsoft, were they to negotiate over a grant-back license, would either negotiate using the MPEG LA rates as a starting point, and craft the remaining material terms (such as scope and field of use, geography, term, assignability, defensive suspension, etc.) in a manner consistent with the value of one another’s patent portfolios, or they would revert to different rates that are more consistent with bilaterally negotiated rates. See id. at 21 (§ 4.3: “Licensee represents and warrants that (a) it is entering into this Agreement for its own convenience in acquiring patent rights necessary for compliance with the AVC Standard from multiple Licensors in a single transaction rather than electing its option to negotiate separate license agreements with individual Licensors.... The Licensing Administrator and Licensee recognize that Licensee has the right to separately negotiate a license with any or all of the Licensors under any and all of the AVC Patent Portfolio Patents under terms and conditions to be independently negotiated by each Licensor....”).

V. CONCLUSION

The grant-back provision of Google’s AVC Agreement does not reach Motorola’s H.264-essential patents. Google entered into this Agreement years in advance of its acquisition of Motorola and Motorola is not a covered Affiliate whose patents could be granted back to Microsoft. Moreover, given that Google did not acquire Motorola until eighteen months after Motorola made its offer to Microsoft, and considering the date of the hypothetical bilateral negotiation that would have had taken place between Motorola and Microsoft had Microsoft negotiated, Google’s AVC Agreement would have little to no relevance to the rate ultimately agreed to. Thus, the AVC Agreement does not provide Microsoft with a license to Motorola’s H.264-essential patents and should not be considered a comparable for purposes of the Court’s determination of a RAND range and/or rate.

10

DATED this 14th day of December, 2012.

RESPECTFULLY SUBMITTED:

SUMMIT LAW GROUP PLLC

By /s/ Ralph H. Palumbo
Ralph H. Palumbo, WSBA #04751
Philip S. McCune, WSBA #21081
Lynn M. Engel, WSBA #21934
[email addresses]

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

And by

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

James R. Batchelder (pro hac vice)
Norman H. Beamer (pro hac vice)
Ropes & Gray LLP
[address, phone, email addresses]

11

Paul M. Schoenhard (pro hac vice
Ropes & Gray LLP
[address, phone, email]

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

__________
G1 MPEG LA’s pool agreement is entitled “AVC Patent Portfolio License.” Ex. 103. “AVC” and “H.264” are used interchangeably in this brief. Throughout this brief, all emphasis is added unless otherwise indicated.

G2 “_____ Tr.” refers to the transcript from the parties’ bench trial in the above-captioned action, as recorded on the indicated date. “Ex. ___” refers to the stated Trial Exhibit number, as admitted during the November 2012 trial.

G3 Motorola Solutions, Inc., who remains a separate corporate entity, takes no position on this brief.

G4 Certain aspects of the parties' dispute have been briefed in cases pending Germany and in the U.S.I.T.C., but no decisions have been rendered or any contractual language construed in any case.

G5 Microsoft Corp.’s various subsidiaries are not identified as licensors. See, e.g., http://www mpegla.com/main/programs/AVC/Pages/Licensors.aspx (last visited Dec. 10, 2012).

G6 The AVC Agreement does not include language that addresses after-acquired Affiliates. In contrast to the AVC Agreement, MPEG La's Agreement Among Licensors, which establishes the righ and obligations as between MPEG LA and the Licensors of the pool patents (such as Microsoft), does [redacted] There is no such language in the Google-MPEG LA AVC Agreement. This, in the absence of any corresponding language, inclusion of later-acquired patents in the pool is not automatic and the only way to determine how to treat later-acquired patents is by the language of the AVC Agreement itself.

G7 As an initial matter, under the language of this provision, the grant back requirement only extends to those entities that were Affiliates at the time of "full execution" of the Agreement. At the time of the execution of the AVC Agreement in 2005, Motorola had not yet been acquired by Google and was not subject to its control. Thus, it was not an "Affiliate" at the time of "full execution" of the agreement and Section 8.3, therefore, has no applicability to Motorola and its patents. "It is well settled, under New York law, that one who is not a party to an agreement cannot be bound by it," Valisa Mfg., LLC v. The 54 Group, Ltd., 19 Misc. 3d 1136, 2008 N.Y. Slip Op. 51017 (N.Y. Sup. Ct 2008). To the extent there is any doubt as to its interpretation of the language of the grant-back provision, that ambiguity should be resolved in favor of Google and Motorola.

G8 “Post Decl. Ex. ___” refers to the stated exhibit to the Declaration of Kevin J. Post, submitted concurrently herewith.

G9 Given this language, if this Section is interpreted to require Google, who has taken a license that does not cover unidentified Affiliates like Motorola, to grant a license to Microsoft under Motorola's patents, that license should similarly not cover unidentified Microsoft Affiliates. Thus, any uncovered Microsoft subsidiaries would need to license Motorola's H.264-essential patents separately and bilaterally.

G10 The Google-MPEG LA AVC License Agreement is construed under New York law. See Ex.103 at 30 (§8.16). Under NY law, to the extent there is any ambiguity in the grant-back provision, such ambiguity must be resolved in favor of the non-drafter -- here, Google. See SOS Oil Corp. v. Norstar Bank of Long Island, 76 N.Y. 2d 561, 568 (1990) ("As in the interpretation of any document, we look for the parties' intent within the four corners of the instrument, reading any ambiguity against the drafter."); Loblaw, Inc. v. Employers' Liab. Assurance Corp., 57 N.Y.2d 872, 877 (1982).

G11 [redacted]

G12 In fact, this is true whether the date of the hypothetical negotiation is deemed to be November 2010 (as Motorola has proposed), or some otherwise unidentified “ex ante” date advocated by Microsoft, which would presumably be even earlier.

12

[Ed: Certificate of Service, see PDF]

13

Old timers at Groklaw will recognize the Summit Law Group attorney Ralph Palumbo from an earlier fight against Microsoft, the Caldera v. Microsoft case, which ended with Microsoft settling and paying Caldera tens of millions, so he has some measure of experience in dealing with Microsoft successfully in litigation.

Finally, here is the summary of Microsoft's argument about why Motorola's patent are invalid:

The asserted apparatus claims of the patents in suit are invalid as indefinite because the patents do not adequately describe structure corresponding to the “means for decoding” and “means for using” elements. Instead, the patents disclose only general purpose computing devices for implementing the functions claimed in these means plus function claim elements. A general purpose computing device, however, does not qualify as structure corresponding to a means plus function claim element. Disclosing such a general purpose computing device requires also disclosing an algorithm for performing the claimed function. Here, the patents disclose no algorithm for performing the functions claimed in the “means for decoding” and “means for using” elements. Indeed, MMI has never identified an algorithm that allegedly performs these functions. The asserted apparatus claims are therefore invalid under 35 U.S.C. § 112, ¶ 2 for indefiniteness.
Would that all patents were held to this standard. Or how about getting rid of all software patents that only run on general purpose computers? Or go the whole hog and recognize that software is algorithms, which means they are mathematics, and that isn't supposed to be patentable subject matter. The algorithms manipulate data, which is also not patentable subject matter. So let's get rid of these stupid patent wars, and get back to innovation without patents forming heavy chains around all tech companies' legs.

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