We had a volunteer in the courtroom for the hearing in Seattle between Microsoft and Motorola, and we have his first report.
The hearing was in two parts. The first part had to do with the validity of Motorola's patents, which Microsoft is challenging. The second part was on whether Google's 2005 license agreement with MPEG LA sweeps Motorola's FRAND patents at issue in this litigation into MPEG LA's clutches and control. It's all about how much Microsoft has to pay Motorola, if anything. For background, go here and here for lots more details and context on the license agreement issue.
To understand the report from the courtroom on the summary judgment issue, which we haven't been following until now, you'll need some documents:
Here's Microsoft's motion [PDF], Motion for Summary Judgment of Invalidity, and the supporting Declaration [PDF] in support with attached exhibits 1, 2 and 4, all PDFs. Exhibit 3 is under seal.
This litigation in Microsoft's back yard is its best shot at trying to get its FRAND strategy to work, and they are fighting hard, as you can see. I also have a
transcript [PDF] from a much earlier hearing, held on May 7, 2012, so you can get a feel for the judge and the parties.
On the other side, here's Motorola's opposition [PDF] and declaration in support [PDF], with
Exhibit 1 [PDF].
You know motions, by now, if you read Groklaw regularly, so you know the party that has brought the motion gets to reply, and here's Microsoft's [PDF], along with
another declaration [PDF] with
Exhibit 1 [PDF], a segment from the Markman hearing, Exhibit 2, and 3 [PDFs].
Wait, you may be saying, I thought you aren't supposed to present new materials in a reply. Correct, and if you do, the other side gets to file a sur-reply, and here's Motorola's [PDF].
So then Microsoft filed
a sur-reply [PDF] of its own.
Note that all of the PDFs are about patents, so forewarned is forearmed, if you are supposed to avoid reading about such things.
With that introduction, here's our report, with his notes to follow when our volunteer gets home:
It was in two parts, the first part with 20 minutes a side was on a long
standing motion for summary judgement on bits of the 374,375,376 patents
What. You are surprised the judge is leaning toward Microsoft on the validity issue? On the affiliates issue, if you read the materials here, you will see that the Enterprise License that Google took allowed them to pick and choose which affiliates were covered. That's Google's position, anyway.
Microsoft's argument is basically: um you don't have an algorithm in here you seem to
be claiming any and all electronic devices that do this poorly described
stuff with no information on how to implement it. References to Control
Means cases. Examples of devices/covered things: codecs, Processors, FPGAs,
ASICs. Look these are all programmable (he needed a better analogy for
ASICs basically being programmed at the factory)
Motorola's argument for this was: the patent is totally specific to
one with a knowledge of the state of the art and it clearly refers to the
algorithm needed in the AVC standard. ASIC's aren't programmable (perhaps he
meant FPGAs). 374 talks about stuff that is intracoding, 375 intercoding,
376 is clearly PICAFF and Dr. Draebik's declaration supports this. The
entire function is included with the wherein clauses. Mentions lines of
cases related to HW circuitry (which the judge characterized as old cases,
though apparently Teleguardia is from 2010). These HW cases don't say how
things are wired but describe classes of circuit such as "Frame Grabber",
"computer video decoder" and this was sufficient. Favorite quote from
lawyer approximately: "Can find all the algorithms you want in the patents", to which Judge Robart said,
"Could you repeat that last sentence?" And the lawyer said, "I don't remember what I said".
(She seemed stressed through this entire 20 minutes).
The judge told Motorola near the beginning of their time that basically Dr.
Draebik's declaration is the only thing that could really save these claims.
Then after that it was on to the "ticking timebomb" of the MPEG-LA stuff.
It sounded like there's likely to end up being a trial on breach of
contract down the road.
It turns out that the only (and I mean the only)
part of the contract in dispute is that parenthetical with a lower case
scope. This bit was to be 30, 40, 10 but didn't last that long. Google has
an AVC Products and AVC OEM license and an enterprise license. The debate
is really just does the "commensurate" with the lower case "scope of the
license" which describes the grant-back license include Motorola and what
Motorola's argument is that its meaning is unclear, there's
no extrinsic evidence about this parenthetical (as opposed to the stuff
about affiliates), and Motorola didn't help in the drafting of this bit so
it should be construed against MPEG-LA under New York law, and that bit in
the contract saying we're both smart parties doesn't count against us
because we didn't sign the contract -- it was Google. And we're an operating
company so that giant problem of hiding patents in holding companies
doesn't matter for us so it's clearly inequitable that we'd be covered by
the grant back. And MPEG-LA is totally not comparable and most certainly
not for past damages before we got acquired. Also stuff about regardless of
what MPEG-LA *wanted* it to say, parties get to rely on what it *actually said*.
Microsoft got asked why they didn't bring Google in so as to deal with this thing earlier.
"Because we wanted to keep our trial date" was basically the sum of it (and
we only kind of introduced it at trial ).
My impression of this bit of yesterday's article
That tells me that, at
a minimum, there was a difference between the language of the regular AVC
license and the Enterprise License prior to any change to the language of
the former. That supports what Google is saying, that its license was an
Enterprise License, so whatever the other license said, it had its own
terms that it paid for, and those terms were different.
In fact, Horn had
pushed for the change because he wanted the change to be "like the
grant-back in other licenses." That's if the change went the way Mr. Horn
claims, which we can't know for sure without deposing him. And that means
at one time, prior to this revision, assuming it happened, the grant-back
provisions were not the same. Which is what Google is saying."
... is that only
the enterprise agreement (which just seems to let you take advantage of
some sort of license cap for affiliates) covers affiliates.
Regardless of how well or poorly the MPEG-LA contract is written, it's
pretty clear that Microsoft's logical argument is that if one were to write a patent pool agreement, one would
really want to make sure that all affiliates were included by the grant-back provision because otherwise what Microsoft and Horn are describing is all you
would need to do to neuter the grantback provision entirely, and even if
Motorola were specifically listed you'd just stick Motorola's patents in a
subsidiary prior to acquisition.
I want to say thank you to our volunteer for taking time off from work to do this for us, and a big thank you to his boss for letting him.
Update: And here, as promised (although a little delayed) are his full notes:
MS v Motorola 1/28/2013 1:21 pm
Looks like some extensions to the lawyers' tables are gone, only space for about
six at each table.
13 in audience area, more people who look like students/public. Reuters woman
here again, found courtroom with MS PR woman 2 wrong tries [wrong floor].
For some reason someone is on speakerphone to entire courtroom. Don't know who.
Person in front of me is @SwiftStories on Twitter apparently. Only 6 a side on
lawyers at bench. Last one on Motorola side looks new (might be paralegal? was moving
docs). One who got threatened with contempt is not there (looks like the main
Microsoft guy [the Motorola lawyer who looks like Mr. Harrigan of the Microsoft side]).
4 audience members in jeans, one with a pierced upper ear.
Ralph Columbo is guy on phone from Motorola.
"Delighted to see you again, it's been so long." [Robart]
Two matters finalized, Microsoft's summary judgement of invalidity, Markman hearing.
Inclusiveness of languages.
Relevant to know what was in and what was not. MPEG-LA stuff left as
"ticking timebomb" and it matters if they're impacted. No hidden agenda in this
despite some of the commentators [Robart].
Argument first on invalidity. 20 minutes each.
Spend time highlighting important (Jenner can tell war stories [joke])
Short break -> 2:25 for Google license 30 minutes Microsoft, 40 Motorola, 10 Microsoft.
Richard A. Cederoth for Microsoft.
Handout that can be tossed, the claim language.
Robart: "What would the day be without a handout from both sides."
Microsoft: No one has yet to identify algorithm within '374, '375, '376 patents on doing
this stuff. Disclosure, specificity. It's important to disclose how a device
does things. Motorola proposes "decoder" as sum of disclosure, refers to all
electronic devices that decode stream of pictures. ASICs, FPGAs, processors,
[also Codec as the 4th], no description how to program one to do things.
112 p. 6 [Section of US code] claim elements. "Means for decoding." Means plus
function stuff. Basically.
"What's best case?" - Robart [meaning best legal precedent, not best-case-scenario as I thought at the time]. Microsoft: Control means cases. Biomedino? Any
device that is programmed to decode. Law says it can't be every box that does
this function; i.e. this is just doing function claiming. [There was language here
about how the diagram would just be an empty box saying decoder].
Robart: Motorola's response is Draebik knows what a decoder is. [Dr. Draebik is one of
Motorola's expert witneses from before].
Microsoft: Couldn't just plug them in, would need to program them. [This sounded a bit
like that Samsung foreman, but it's not really]. How would you program them? No
describtion how to make a decoder, so no one would know if they infringed or not.
Nothing in patent to tell us. Different from Rembrandt where there was a known
algorithm, i.e. Trellis decoding [a case where it didn't have the algorithm in the
patent, but the patent said Trellis encoding and there was a known specific
algorithm for one knowledgeable in the art]. Patent says decoder is "any device".
(Argument seems likely to be 20 minutes of the same stuff).
Rather than being algorithm, he [Draebik] just dealt with part of it.
Federal Circuit says ignore it like Noah case. 2nd half
of declaration where he purports to have an algorithm none of the examples do
Robart: Is algorithm required if term decoder is used?
Current argument decoder + computer synonymous.
Microsoft: Position is that in patent decoder means any electronic device, CPU can
be programmed, ASIC is configured once and then does things [he's a lawyer and
knows he needs better wording/analogy on ASICs]. "Examples are 4 different
blank slates." All four need to be configured before they will decode and how to
configure is not disclosed. Motorola trying to create issue of fact. Noah case.
Robart: "Where in your declaration is there an explanation of ASIC?" --
lawyer can't remember what ASIC stands for,
until Lewis, Douglas I. Lewis, different Microsoft lawyer is first with page reference and finds it.
Motorola's time: it's the female Motorola lawyer from last time with the red
Motorola: '374, '375, '376
Ben [not sure what this is in my notes] para 6 - ASIC -> hardwired physical.
Trying to claim ASICs aren't programmable and that MS lawyer was wrong and means
FPGAs. [You give the factory a full description of the ASIC as a VHDL file and
a giant pile of money and then you get chips, looks like
It's a fair enough explanation, but it's just programming with gates or
transistors and apparently a gate array (FPGA - FP) is an option]
Motorola includes entire function with wherein clauses and 3 elements.
Robart: Dont' identify how to decode. Encoding has one passing reference. Unless
Draebik saves you, it's fatal.
[I think this was him
asking her to focus her time on this aspect of it].
Slide 8 -- "aging judiciary" [Robart's comment as he was trying to find it in his
booklet, the page number was in the bottom center of the page]
Lots of info on the structure of decoder. [yeah right]
It's video decoders, should look at them in the context of standards, and (she sounds stressed here).
Slide 11. Line of cases directed to hardware circuitry. When hardware circuit patent doesn't
say how things are wired, but describes classes of circuit. Frame grabber,
computer video decoder and this was sufficient [this was some sort of medical
hardware case]. Microsoft Windows can use a hardware decoder.
Sufficient disclosure is
enough [I think she meant to create an issue of fact, thereby avoiding summary judgement on
these claims]. All the other cases apply to a general purpose computer.
Intel case -- core logic hardware and generic core logic adapted to perform fast write.
The DV decoder hardware gets past 112.
Robart: Old cases (Motorola) vs new cases.
Motorola: Dealer track referred to Computer aid. Aristocat case.
"Great name" [Robart] Teleguardia 2010 case.
Tying algorithm to patent. Page 17 map claim 13 as pictures. [the audience video
screen wasn't on, and the lawyer was standing in front of her screen]
Function is about decoding in intracoding mode, next is inter, third is special
PAFF [i.e. '374 is intra, then '375, '376] scanning in pairs. Directed to decoding
the modes. Can find all the algorithms you want in the patents.
Robart: Can you repeat that last sentence?
... doesn't remember what she said.
Robart: Column 5 decoder will be used expansively to refer to everything.
Having a hard time getting around your own language. [column 5 is some chart
possibly of claim language, provided by Motorola].
Google license agreement:
Excerpts from various exhibits with tabbed docs. 8.3 - grant back. Who grants it,
what it includes, end of discussion but for the parenthetical. Scope normally
refers to what the licenses do.
Quote from letter to MPEG-LA. AVC products, OEM, AVC, enterprise licenses. Need
to look at all of these, and Motorola ignores those two. Enterprise license section
has nothing to do with the case.
Tab 7. Lists series of license types. 2.6 OEM, 2.7 Enterprise. AVC product license
is a decoder, but not one in an OS, which is OEM license. And Enterprise not
Page 10 sec 3, 3.1.1 sets out a cap, combines for all affiliates no provision for
3.16 - Royalties caps, affiliates.
3.17 - Enterprise license. 3rd line coverage purpose is royalties, the structure
and cap doesn't apply to OEM or products.
3.17 - says you can get this cap, doesn't address license scope.
This says they are under the cap, have to be licensees already to get the cap.
Notion that designation is fallacious because have to [be] designated and already
be a licensee. [Basically this was saying that an Enterpise license just gets
you a royalty cap for your entire enterprise with affiliates that are licensees
as under one of the actual licenses such as products or OEM].
AVC products and OEM [what Google had].
Motorola makes equitable argument that we shouldn't have grant back if we don't get
benefit. Page 4 of excerpts [that binder with tabs].
Horn declaration - page 5,6. Were discussions including Motorola, similar discussions for
MPEG-4, and Motorola signed that one. Applying to affiliates avoids the avoidance of
grant backs via affiliates. Could park patents in non-practicing entity [aka troll].
And without it, the evil could be accomplished.
All that's needed to get the license is the stroke of a pen, and Google's already
paying the cap [so it's a free stroke of the pen].
Section 2.3 page 4 - each licensor ... has to do all SEPs now or in the future.
Don't think there's any inequity.
Google selected AVC products, OEM, and Enterprise so doesn't cover the scope
Argument should be construed against drafter, don't mention 8.13.
construed without favor to either party. Motorola
part of drafting process and aware. The NY cases show construction against last
resort. [There was also something in here about it not applying in NY when
contract is between sophisticated parties (such as people who can field 6 lawyers
each side for months on end)].
Mid-2012 - acquisition. [I think Robart asked when the acquisition was].
Robart: Why wasn't it brought up sooner?
Microsoft: Getting google into the case would be complicated and wanted to avoid
continuance. In case argued clear comparable and a legal issue [as to why they
brought it up in the case, saying well we only kind of did]. Didn't want to lose
trial date. Sorry it didn't bother Google soon enough.
They believe same rate applies to past rates as presumption applies forward and
And Microsoft finished,
still had 3-4 minutes [of their 30].
Motorola [Jesse J. Jenner, of Ropes & Gray]:
Overview of Tab 2 [another binder]. What issues. Needed to know what if any
impact is needed.
November trial, the Google agreement is/should not be comparable. Different kind of
critter. Insofar as trial ... just another pool agreement.
Claim grants back doesn't extend to Motorola because of parenthetical clause, not
affiliate language. Claims it's ambiguous because Google's licenses don't cover
Motorola in the first place, and since never covered, no grant back. If it's ambiguous,
doesn't touch on the scope language.
"Motorola is an affiliate, no question" - Motorola's Jenner [in response to Robart question].
"Anything else is just a diversion" .
Licensees have chosen different licenses in different years. 3.1.7 license fees
can cover affiliates if they chose to do so.
"Took you almost 4 minutes to get wound up" [Robart jokiness, Jenner was being
told to slow down for the court reporter].
Product license in 2012 is what would
cover Motorola. No affiliate is licensed unless it gets its own license. Affiliates
don't get benefit unless ... so didn't become a licensed affiliate [Jenner says
of course we're an affiliate but we're not a *licensed* one].
January 2005 - 2009,10 then 2011 renewed, 2012 AVC product license. No affiliate licensed.
May 2012. Google didn't tell MPEG-LA and Motorola never became licensed affiliate.
Parenthetical is the important bit. Scope can cover the kinds of licenses,
whether it includes affiliates, could cover the terms such as duration. Claim
affiliate only grants back if it's included.
Motorola is an operating company, not holding company, re claim it's inequitable.
Tab 1 - agreement - 2.10 scope of licensee grants, 8.3 scope of licenses selected
hereunder. Article 1 has definitions, when used with capitals. Scope in
parenthetical *not* capitalized. Zilo says this has to do with AVC standard and
parenthetical is much broader.
Motorola didn't sign agreement so the 'against the drafter' bit isn't outweighed [that
term that says ignore that part of NY law].
Horn declaration and emails had to do with 8.3, not the commensurate parenthetical.
Language is there and needs to have meaning. If they wanted it to mean something
else or ignore it, they could have gotten rid of it.
Robart: Were told to ignore parenthetical, figure out what it means, and then
stick it in and see how it changes (before Scalia wrote some book). If that's the
language would Google [something to the effect of be granting back Motorola's AVC SEP patents]?
Jenner: Would be telling war stories instead. [He made clear it was a hypothetical]
Robart: Now adding parenthetical...
Jenner: Includes lots of things like grant-back term duration. Basically the
parenthetical is clear and there's no extrinsic evidence, and it's MPEG-LA's fault
not Google's for any ambiguity.
Side letters - about license grant.
Motorola shouldn't need to...
If they wanted parenthetical [not certain what this was].
Robart: Has Google acquired a company (not Motorola) with H.264 [SEPs]?
If they have a licencse then license back.
Jenner: Don't know if anything in record about this. [There was a mention of
YouTube being covered as a licensee but don't know if they have H.264 patents
to grant back, and there was a little discussion in glances at Motorola table before
the 'we don't think so', and there was also a question that was an open-ended one
for anything else relevant to that in the record].
Microsoft [Arthur W. Harrigan, Jr., of Danielson, Harrigan, Leyh & Tollefson]:
It's down to parenthetical. [Robart?]
Microsoft needs grant-back for AVC products and OEM.
Says Horn says this when Robart asked why it [Horn declaration] didn't say this.
Pages 5, 6 and page 18 of declaration.
MT wants scope to change definition of capital A - Affiliate.
[Apparently this is all I have for MS's 10 minute allowance, they didn't use
much of it. Their argument was basically that Microsoft needs a product and OEM
license and that's what Google is granting back for the pool to be able to grant.
I.e., if Google didn't have an OEM license, Microsoft might still be in trouble on that
front, and this is really all that 'scope' with a lower case covers.]
Robart: Looking down the road - next monument will be potential breach of
contract case (presumably on this). [He said stuff about figure out when it will
be and have one guy from each side on a call with me to set a date so we can
get it on the court's schedule and your vacation schedules.]
[There was the start of some Motorola question, but Robart responded, "No, I'm not going to
tell you." I think about when November decision was going to come back.]
Have some internal goals. ['Not the end of this month' (i.e., 3 days from when Robart
said this)] Likely not end of February but start checking your mail then].
Update 2: Here's a quick and dirty text version of the May 2012 hearing (and you've already read his resulting order). You don't want to miss the judge's closing words at the hearing:
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON AT SEATTLE
MOTOROLA INC., et al,
May 7, 2012
VERBATIM REPORT OF PROCEEDINGS
BEFORE THE HONORABLE JAMES L. ROBART
UNITED STATES DISTRICT JUDGE
For the Plaintiff:
Arthur Harrigan, Christopher
Wion, David Pritikin, Richard
Cederoth, Andy Culbert, David
Killough, David Howard and Shane
For the Defendants:
Jesse Jenner, Ralph Palumbo,
Norman Beamer, Philip McCune,
Kevin Post and Neill Taylor
THE COURT: The clerk will please call this matter.
THE CLERK: C-10-1823, Microsoft versus Motorola.
Counsel, please make your appearance.
MR. HARRIGAN: Good morning, Your Honor. Art
Harrigan from Danielson Harrigan, representing Microsoft; and
to the left here my partner Mr. Chris Wion; and David
Pritikin from the Sidley firm; Rick Cederoth from the Sidley
firm; Andy Culbert from Microsoft. And in the bleachers,
David Killough from Microsoft; David Howard from Microsoft;
and Shane Cramer from our firm.
MR. PALUMBO: Good morning, Your Honor. Ralph
Palumbo, Summit Law Group for Motorola. Jesse Jenner who you
know from Ropes & Gray.
THE COURT: Good morning.
MR. PALUMBO: And then starting at the end, Norm
Beamer from Ropes & Gray; David LaComb from Ropes & Gray;
Phil McCune from Summit Law Group; Neill Taylor from
Motorola; and Kevin Post from Ropes & Gray.
THE COURT: Counsel, as usual we tried to give you
some direction as to questions that we had that we thought
were important. And we will follow more or less the schedule
that we sent you in terms of who is speaking when.
It made more sense to me that each side address what --
not cross motions for summary judgment, but which go to
somewhat the same area at the same time. And then we set
aside, at the very end, the question of the injunction. So,
if that doesn't work you can blame me. But it seemed to me
that was the most expedient way.
We are going to be issuing a written order on all of this,
but if I feel it's appropriate, at the conclusion of today's
hearing I will give you some preliminary observations, which
would give you a chance to continue to work on your various
matters in a manner with some greater guidance from the
court. So, know that that is the situation that we're in
And I guess the last thing I would say is, in getting
ready for today's hearing, I think my principal frustration
had to do with the fact that you are well into the law. I'm
not sure you have done as helpful a job as I would have hoped
on the facts. So don't be surprised if I interrupt you and
take you back to the facts on some of these matters, because
it would be helpful for us to get a better understanding of
So, that having been said, Mr. Jenner, are you carrying
the flag today?
MR. JENNER: I'm carrying two-thirds of the flag,
Your Honor, and Mr. Palumbo will carry the rest of the flag.
THE COURT: All right. Then I'll hear from you
MR. JENNER: Your Honor, let me begin by saying a
couple of things. First of all, we're as usual providing
bench books of the graphics that we will use. I do want to
point out that because of the nature of what's in these
motions, the bench books contain some company business
confidential information. What we have attempted to do, in
order to try to protect that, is to redact confidential
information from what will show up on the screen, but to
include it in the bench books that Your Honor and counsel
have, so that if I can hopefully adequately refer to things
like "company X" and on the date you see with bullet 4, we'll
call to your attention what I would like you to see without
inadvertently putting confidential business information on
THE COURT: That's fine, thank you.
MR. JENNER: The other thing that I would mention is
that we have attempted to work into our presentation what we
think would be helpful on the court's questions from Friday
afternoon. I want to say in advance there's at least one
question where I suspect, in the nature of what I think
you're looking for or might be looking for, we could not get
all of the information that you might want, over the weekend.
I'll deal with that when we come to it, but I just want to
let Your Honor know that we will attempt to address all the
court's questions in going through the material.
So we are addressing the first two motions, what I would
call the March 30th cross motions. On Motorola's side, did
Microsoft repudiate its claim to a RAND license for the
reasons that we will discuss? And on Microsoft's side, the
two aspects that remain from Your Honor's order. First of
all, did the opening offer need to be RAND as a requirement?
And if it did, was Motorola's opening offer consistent with
RAND? So those are the motions that I'm going to address,
and Mr. Palumbo will take up the injunctive issues later.
THE COURT: All right.
MR. JENNER: Topically here's what I would like to do
is to give Your Honor a little background in brief in terms
of summarizing what we think is important about Motorola's
licensing program. I will go from that into the contracts
discussing the relevant standards body's documents, what we
think the contract is, and some things that flow from what
the contract is or may not be. And then following on that
I'll talk about Motorola's motion first and how we think the
facts play into that. And then finally Microsoft's motion.
I will, since Your Honor received an extra present on like
Friday, I guess it was, of the determination in the ITC, it
has some information which appears to be on the general
subject matter of RAND licensing. And I would like to take a
little bit of time to talk about two or three things that we
think are salient there.
THE COURT: All right. Of that agenda, the one you
should probably spend the least amount of time on is
Motorola's licensing program. I'm not sure that's as germane
to me right now as some of the other topics, particularly
your second one, which is the language.
MR. JENNER: Okay. So I will probably go into my
accelerated voice mode and try to get that a little faster.
So first of all the program -- I think what I want you to
know about this, because it plays into the expectations
certainly of Motorola, and we think others in the industry,
is that this is a well-established program that people know
about. It's got at least a 20-year history. It's based on
substantial investments by Motorola in the technology. It's
resulted in over 60 standard essential licenses that involve
the various standards you see on the slide, including 802.11
What's important here, because I think it relates to the
expectation of parties in the industry, that should be
considered along with the contracts, they've all been the
product of bilateral negotiations. Nobody ever presents a
license agreement and says, "Sign here." Nobody would do
that. These are all situations in which the information is
discussed in bilateral negotiations and the parties, after a
period of time in which they essentially knock out what all
the terms should be, result in a license agreement.
THE COURT: Well, let me read you a line out of a
letter that -- "Motorola will leave this offer open for 20
days. Please confirm whether Microsoft accepts the
offer." That's the last line in your letter. You're telling
me that that's an invitation to negotiation? Sounds to me
like it's an ultimatum.
MR. JENNER: Well, Your Honor, I can see that. But
it is really in an entreaty for a party to respond. Motorola
has done that in other situations. It's extended it when
parties have come back and said, we're not ready to talk yet,
we'd like another few weeks. And the deadline gets extended.
It's really an entreaty to the party to come back and engage
THE COURT: So what you're telling me is you said
that but it didn't really -- that's not what you meant?
MR. JENNER: Well, I'm a little constrained here. I
guess something else I probably ought to tell you, Your
Honor, is that -- I think you've probably gleaned by the
papers so far that there have, in fact, been continued
meetings and negotiations between the parties. The parties
did, in fact, engage. I'm limited in what I can say about
that, because of an agreement between the parties. Things
that did not make it into the record, we're not now anyway in
a position to talk about. Things that did make it into the
public record you can see in the briefs and you've seen some
of it. This is something that parties routinely do. And
routinely parties either come back and have a first meeting,
or they say, we're not ready yet, we want another three
weeks. And three weeks get granted.
So, parties in the business understand that deadlines get
set, the deadlines are flexible. They always have been.
THE COURT: I rather enjoy watching you argue with
one hand tied behind your back. So I appreciate the dilemma
that puts you in.
MR. JENNER: Well, maybe we'll get to a point some
day that the parties will agree that we ought to lay out for
Your Honor all the discussions that have actually happened,
waive whatever agreements regarding 408 and
non-confidentiality there are, and we can just all let our
hair down. But, we're stuck. Again, there are things I
would like to discuss, I can't discuss.
So, these are products of negotiation. There have always
been a variety of terms introduced. Motorola is flexible
that way. The licensing negotiating parties themselves are
flexible that way. We would expect Microsoft to be flexible
that way. You talk. You negotiate. New terms get brought
up, they get changed. And ultimately it results in
And we've tried to point out to Your Honor by way of one
example in the papers that these are not trivial one-page
October 20th offering letters. That's not a complete offer.
This is a complete offer, which was signed by RIM after the
parties had these negotiations and arrived at an 80-page
document fully setting out the agreement between the parties.
So the October letters may have offered certain terms for
discussion, but by no means was that a complete offer that
anybody would ever have contemplated signing as an agreement.
THE COURT: In your slide that you have up, you make
the statement, "Over 60 standard essential licenses involving
MR. JENNER: Yes.
THE COURT: Cellular standards for 2G / 3G / 4G.
Wireless communications. The 802.11, and the ITU H.264.
MR. JENNER: Yes.
THE COURT: We've had a terrible problem trying to
understand what patents are covered, because going back to
the letter that we were just talking about, "Enclosed is
Motorola's 802.11 annex, which includes a non-exhaustive list
of patents included in the license."
MR. JENNER: What does that mean?
THE COURT: Well, you know, when we talk about
document language, contract language, don't I need to know
what patent is covered by what -- I'll call them a
convention, or an industry-standard agreement.
MR. JENNER: I think that's another one of the quirks
-- the term of art at the last hearing was "murky". Today
it's going to be quirky or opaque, I suppose. But one of the
quirks of this is, Your Honor, is in the position that the
licensees are ordinarily agreeing, here are a set number of
patents that Motorola believes are essential patents. There
may be others. You may come to us and you may tell us that
we have got a patent that you think you have to have a right
to use to be able to practice wireless technology. And if
you do, and the parties agree that it's an essential patent,
you will be licensed, even though it's not in the annex.
So the annex can't cover or anticipate every patent that
might come along, which the parties may agree that a licensee
like Microsoft needs to have a right to use. If it becomes
essential they will get it, even though it's not listed.
THE COURT: But how do I ascertain, then, the
language that governs the procedure to get that license? You
can see there are multiple versions of the language.
MR. JENNER: Yes.
THE COURT: You love the ones that say "negotiate,"
Microsoft loves the one that says, "grant." That's not the
exclusive terms and the language wanders all over the
countryside. So what I'm trying to find out is, I mean, do I
assume that whatever started in 1996 was replaced by multiple
versions along the way, and it's the last one that now is the
controlling language for everything going back to 1996?
MR. JENNER: No. The best way I can explain that,
which we'll come to, is in the case of the ITU and the
Letters of Assurance, the LOA's that are in exhibit, I think
it's 16 -- 15 for ITU. Those show patents. For each of the
letters, attached to the letter there is normally a list of
patents for which that LOA is being submitted. So you can
correlate the ITU LOAs with patents for which those LOAs were
THE COURT: All right. Well, you unfortunately
wandered into something I want to know more about.
MR. JENNER: Yes.
THE COURT: I'm looking at the Letter of Assurance
for essential patents signed by Jonathan Meyer, senior vice
president, dated April 21st. I've come to the conclusion
that it's 2005. His handwriting is worse than yours and
mine. And it says, "Patent Holder is prepared to grant a
license." There is no attachment to it.
MR. JENNER: That's probably an IEEE version.
THE COURT: It is.
MR. JENNER: For the ITU there are patents, for the
IEEE there are not.
THE COURT: But for the ITU you describe them as
non-exclusive lists. Help me with that.
MR. JENNER: The parties would negotiate and agree on
a need for additional -- that's the problem with judicial
resolution of a term like this. I understand Your Honor's
difficulty in trying to understand what precise set of
patents are we talking about. The parties know that they're
not talking about a precise set of patents, they are talking
about the ones that are listed. That's on the table. But
the parties appreciate that other patents may come along
which are essential for the benefit of the licensee, and they
become included because they are essential. There's no way
for you to know that.
THE COURT: Let me ask you this question, then. Is
there any patent which is in dispute in this matter before me
that is not covered by either the ITU or the IEEE?
MR. JENNER: Let me answer that one this way: To the
extent that --
THE COURT: I think yes or no would be a great
MR. JENNER: Then the answer has to be yes. And I'll
give you a concrete example, because I think we've alluded to
it in our briefs. One of the patents under the IEEE, the
802.11 standard, is a patent that we call Finkelstein.
Finkelstein, the '712 patent. It's one of the patents
litigated in the International Trade Commission case. The
record on Finkelstein is a little bit different, because the
IEEE expects you to submit continuing Letters of Assurance as
additional portions of the standard get added, your letter is
applicable to the new standard and the new portion. And
you've seen that.
One of the portions is 802.11-I, had to do with new
security techniques. Finkelstein relates to new security
techniques. Finkelstein would relate to 802.11-I. Motorola
did not submit a Letter of Assurance for 802.11-I. There is
no LOA covering Finkelstein, even though Finkelstein would be
considered in the 802.11 patent. So that's a wrinkle. There
may be other patents like that that we're not litigating at
this point that fall into a similar wrinkle.
And I just don't know, because when we saw your order on
Friday and thought about what it might mean, one of the
things I thought it might mean is that you're, in fact,
wanting to know how can we correlate at least the 802.11
patents with the individual Letters of Assurance. And Friday
afternoon at 5 o'clock I can't get Motorola engineers to help
me with that. If Your Honor wants that information, we will
get it for you. But it's going to take time to get engineers
to dive into the standard, which is about 1400 pages long of
technology, and to figure out how to correlate the individual
listed patents with the adds to the standard, which patents
go with 802.11-I, which ones go with N, which goes with E.
That's not a trivial exercise to go through, and I just can't
do that today.
THE COURT: Well, I think what would be helpful for
us and you've already answered this, you've said it's a
non-exclusive listing, so there may be additional ones. Some
of them may be in the wrinkle-free zone, and some may be in
MR. JENNER: Or others, yes.
THE COURT: But I can look to IEEE or ITU as the
mechanism that's being employed for those patents which are
MR. JENNER: Yes. And as I will get to, we don't
think it makes a difference. Microsoft may disagree with
that. We don't think the analysis that the court should go
through will cause that to make a difference, and I'm
prepared to explain why.
THE COURT: All right.
MR. JENNER: So just to kind of wrap up with a little
bit on the standard. I've mentioned aspects of the program
that many companies have joined in, large substantial
companies, all of whom negotiated with Motorola the way we
think is required in a sensible industry like way. They
arrived at agreements.
We're dealing with what that offer is. And the reason I
include slide 6 is because we're in part dealing with the
reasonableness of Motorola offering to Microsoft, as a
starting point, what it offered to all these other companies.
It's, "2.25 percent of the net selling price of the end
product, subject to a grant-back of licensee's essential
patents." That's by no means a license agreement. It's some
fundamental terms to consider. There were issues. Microsoft
apparently thought that 2.25 percent for each license meant
4.5 percent total. We call that stacking. Motorola has
never stacked any of the licenses. That's something you find
out by negotiating. If Microsoft had asked, they would have
"Subject to the grant-back license" means logically if
you've got patents to grant back to me, I'm going to value
them. My demand from you is going to go down. And that's
also what happens in all Motorola licenses. There are lower
resulting royalty rates. There are some royalty rates with
substantial companies -- that I could whisper in your ear,
but I won't say out loud -- where, in fact, it's a zero/zero
cross license, because they had a lot to come back with. So
the idea that it's a royalty-free license that Motorola was
asking for is just wrong, as shown by history.
THE COURT: Let me take you down another rabbit hole,
then. You just used a phrase that appears frequently in your
pleadings, but is inconsistent with your position, which is
you said, "I'm going to value them," referring to Microsoft's
patents. Your position in the litigation is, you don't value
the patents, you value the product. I've run into this
MR. JENNER: We value both. We value both. One of
the things that would be given credit is the patent portfolio
that Microsoft would be willing to license back. If they
have valuable patents to license back, that's enormously
important to Motorola. It would decrease what it asks for.
You also value the products in terms of what the resulting
royalty cost will be that the licensee has to pay. And if
the licensee comes in and says in a negotiation, here is what
you're asking from me, it's too much, it's too much, you need
to decrease your royalty, then to use the words of Judge
Posner, that I'm going to show you later, "Tell them that
they're asking too much, and negotiate." And the price for
the products comes down. People put in place caps, for
THE COURT: We've done a fairly exhaustive literature
search, and there's this fellow who is a law school
professor, he's at Berkeley but seems to be on leave to
Stanford right now, and his writing is as close as I can find
to addressing the issue of valuing royalties. And what he
says is, "You don't look to the value of the end product, you
look to the contribution of the patent and determine its
value in the context of the value of the product."
I need you to pick which argument you want to make.
MR. JENNER: Your Honor, it has to be both. The man
said what he said in his article, and I'm happy that he said
it. I don't think he's right. I think that when you
negotiate licenses you look at the licensee's portfolio in
terms of value going back to them, and the impact on the
product line, which will dictate the value coming to you.
And you start to negotiate trade-offs. You negotiate both.
And I respectfully say to that author, if he thinks it's one
and not the other, he doesn't know what he's talking about,
Your Honor. That's my position. I don't know how many
licenses he's negotiated. Maybe he's an Ivy Tower guy, I
But when you license portfolios, you look at the value of
the adversary's portfolio as a benefit to them. You look at
the royalty that will relate by applying royalties to their
products, which will either be cash payment, they could be
lump sum, they could be percentage royalty rates, they could
be cap numbers, all of this gets negotiated as to what's
coming back to you. And you have to factor both in. It's
both not one or the other.
THE COURT: Well, then how can you tell me, then,
that you have this 2.25 standard royalty rate that you
offered everyone at the start? I mean, that seems to me to
be intellectually inconsistent with what you've just said.
MR. JENNER: I don't see why, Your Honor. We say
this is a rate that we've offered to others, we're offering
it to you. The probable first thing that's going to happen,
in a typical negotiation, is that the potential licensee is
going to come to a first meeting and say, here's why that
doesn't work for us. It's going to result in too high a
payment. We have certain enduser products you shouldn't be
able to reach. There could be a panoply of things that
people come back and say as to why we've got to get off your
opening number and go on and negotiate different terms.
That's why these things have to be negotiated.
THE COURT: But help me here. Let's assume two
situations: One, a company that has an extremely valuable
library of patents.
MR. JENNER: Like Motorola.
THE COURT: All right, Motorola. Well, actually
since you're going to get the money, I'll pick Microsoft. I
have no idea if they do or not.
MR. JENNER: They do.
THE COURT: Okay. They've got valuable patents and
you ask 2.25 percent of the end value of the product.
MR. JENNER: Right.
THE COURT: If we had a company that had one patent
and it was worthless, but it's an industry-essential patent
that's easily duplicated technology from other sources, you
would still say, cross license that worthless patent, but by
the way pay us 2.25 percent.
MR. JENNER: No, it may get some value back.
Motorola would like the cross license, because one of the
things you're trying to do is get what we call freedom of
action. You don't want to find yourself a year later being
sued by that patent. So, it will be assessed as to having
some value. And it could result in a cross payment or a
reduction of the royalty rate. If it's one patent that's a
crummy patent, as you say, it's not going to get a lot of
value. And the likelihood is that a company like Microsoft
or Motorola is not going to make a huge diminution of the
But if you take a completely different situation where you
have a company, and I won't get into details, but think in
terms of the Ericssons, the Nokias, the IBMs of the world,
that show substantial patent portfolios, those are going to
be valued very highly, and they can result in incredible
diminution of the royalty rate from 2.25 percent all the way
to zero, or maybe money going to the other company.
THE COURT: So logically, then, what I hear you
saying is 2.25 is a ceiling. You would never ask above it
and you go down from there.
MR. JENNER: As a practical matter, that's right.
THE COURT: You're making this offer knowing nothing
about the other side's patent.
MR. JENNER: As a practical matter 2.is the
starting point, show me what you've got. That's the
"subject to the grant-back." Show me what you've got and it
will go down. There have been a couple of higher numbers.
We mentioned in our papers the agreement with Simple
Technologies, for example, where there was a six percent jury
award. There was another number that was higher. But
typically Motorola starts with this number as a starting
point, because it's where the starting point has been, and
says, show me what you've got and I'll work with you. And
the number goes down. It doesn't go up.
THE COURT: All right. Why don't you go to slide 10,
because I've used up a bunch of your time here.
MR. JENNER: I'll breeze quickly by slide 7, because
I want you to see there are these substantial companies, they
provide grant-back rights, and that's been important.
So breezing through to slide 10, this is the first slide
of the section on the contract. We wanted to hit quickly
some principles of contract interpretation. The only one
I'll linger on, Your Honor, is the one at the bottom,
"Washington courts follow the context rule which permits you
to look at extrinsic evidence, whether or not there is
ambiguity." So you can, and we submit you should, look at
information outside the contract.
Slide 11 is simply to show you the typical operative
language of the Letters of Assurance. The Patent Holder will
grant or is prepared to grant a license to applicants, an
unrestricted number of applicants. And that, as you know,
leads to some of our arguments. This is typical language,
it's not the only language, and I'll show you some more
On slide 12, here I want to stick my neck out, Your Honor,
and tell you as of today what I think the operative contract
is. And the reason I'm sticking my neck out is that I admit
in advance this is a little bit different from the conclusion
you came to in February. But I'm going to tell you I don't
think it leads to a different result.
We believe at this point that the Letters of Assurance are
unilateral offers made by Motorola that it will grant
licenses on reasonable terms, and that offerees, like
Microsoft, if they satisfy the conditions to apply for a
license in some form and negotiate, are entitled to the
So the offer is -- there's never a signed piece of paper
constituting the contract. The offer is unilaterally made by
Motorola. It's like, I'll give a reward of $500 to somebody
who brings my cat. Show up with the cat, then you've
accepted and you get the reward. You didn't have to sign a
piece of paper. If you apply for a license and negotiate
with me, then you have formed a contract under the Letter of
THE COURT: Just a minute. I may not understand your
entire argument, but I think you've changed the entire
footing of your case.
MR. JENNER: I think it gets to the same result.
Give me one more slide to explain it.
THE COURT: All right.
MR. JENNER: I think what happens here is that you
have a contract where Microsoft is obliged to be an applicant
for a license, as you've heard endlessly from us in some form
or another, and they are required to negotiate in good faith
towards a contract.
If you look at slide 13, there are two other ways that
we've seen this formulated, but I believe they come back to
the same point. Your Honor has -- I think Your Honor has
concluded, I'm always worried about putting words in your
mouth, but I think Your Honor has concluded that the LOA is
in agreement with the SSO. Microsoft is therefore a
third-party beneficiary. And we agreed to that back in
February. But that still gets you to the implementation of
an agreement. That still requires Microsoft to comply with
the Letter of Assurance on its part. It's still going to
call upon Microsoft to do the same things. I don't think it
leads to a different result.
The other implementation is from the Apple case. I don't
know if you've seen this, but in the Apple case, Apple took
the position that it's a flip. It's the SSOs who make the
offer through their policies. And a company like Motorola,
by joining into the SSO and participating, accepts the SSO
policies. And that makes the LOA just something submitted
pursuant to the policies. And Microsoft can be a third-party
beneficiary of that.
Judge Crabb essentially didn't rule on that, but for
purposes of a motion to dismiss, she acknowledged Apple's
position and discussed it in her order.
I submit to the court that no matter which of these three
ways you look at it, there is ultimately an arrangement
between Motorola, as the submitter of the LOA, and Microsoft
as the intended beneficiary of the LOA, where if Microsoft
applies for the license and negotiates in good faith, it's
entitled to the grant of a RAND license. I don't think
there's any difference in result.
THE COURT: Didn't you just read the industry
essential patents out of your argument, then? I mean, what
you're telling me is that everyone is going to do this
unilaterally. Motorola on one side, Microsoft on the other.
I'm missing something. You just took away the whole concept
of industry essential.
MR. JENNER: No, it doesn't, Your Honor, because the
LOA is still submitted to the standards organization in
relation to a portion of the standard that invokes the
standards essential patent. So the LOAs all relate to
standards essential patents. The patents are still there.
For example, Motorola submits an LOA for 802.11-N.
802.11-N has certain patents that relate to it. Microsoft
wants the license. Microsoft simply applies for a license
and negotiates in good faith with Motorola. It is entitled
to the grant of a license negotiated by the parties that will
apply to those standards essential patents.
So they are basically there by virtue of the Letters of
Assurance. They relate to standards essential patents. It
doesn't read them out at all.
THE COURT: All right. I mean, it seems to me that
you're missing what the court is inclined to see as the way
that this works, which is that you have, in effect, a hybrid
situation. You have -- at this point Microsoft has a license
to use these industry essential patents that you have given
to the licensing organization. They, however, in their
bylaws disclaim any involvement in the negotiation of the
terms. That's why I say, you know, we basically have got a
dual situation. And I'm not quite sure why they did this,
but the IEEE and the ITU both say, we don't have a dog in
that fight. You, and in this instance Motorola and
Microsoft, you sort that out.
However, you have already conceded that they have the
right to use this patent.
MR. JENNER: No.
THE COURT: I think you need to let me finish.
MR. JENNER: Oh, I'm sorry.
THE COURT: You have conceded that they have the
right to use this patent. What you're fighting about is the
terms for it. Otherwise, the whole industry-essential patent
system collapses. Why go through this? Why list them in the
first place, if I accept your analysis?
MR. JENNER: Let me first jump ahead to slide 17 and
point out some of the language in the LOA. If you look at
the bottom box, there is explicit language --
THE COURT: Hold on a minute. Let me get to slide
MR. JENNER: There is explicit language in all the
LOAs that says, "No license is implied simply by submission
of the letter." And it has to be that way. The parties have
to negotiate in order to create a license. It is disavowed
that simply submitting LOAs creates a license. There is no
license until the parties negotiate and sign one.
So, I think there is a misimpression if merely submitting
LOAs is thought to create licenses. They do not. And that's
well understood by everybody in the business. You need to
negotiate a license. I think we have some quotes in the
briefs from people, even at Microsoft, that acknowledge that.
And that every license will be different.
Every license is going to be different after you negotiate
it, because the circumstances of the parties in any bilateral
situation are always different. Somebody may wind up paying
a lot of money, somebody may not. Somebody may have a lot to
cross license, somebody may not. Somebody may want different
terms in China, somebody else may not care about China.
Somebody may want a defensive suspension clause in order to
protect themselves in future litigation, somebody else might
not care about it. There is no license implied by a
submission of a Letter of Assurance. There is no license
until one is negotiated and executed.
THE COURT: What is a defensive suspension clause?
Either that or tell me that it doesn't matter.
MR. JENNER: It matters only because it's another
important term. In brief what it does is it allows a
licensing party to suspend a license as to customers of a
licensee. If the customer of the licensee turns around and
sues me, it gives me the ability to get my patents back. It
doesn't negate your license as to all the rest of your
customers. But if customer X sues me, I can defensively
suspend my license to you, so that X is no longer licensed, I
can fight back with them, I can defend myself. And parties
negotiate for this. There was extensive testimony by
Jennifer Oakes in the ITC about defensive suspension clauses.
THE COURT: Counsel, I want to make sure I choose my
words carefully here. I understand and accept your argument
that -- and you don't like my phrase, "they have a license."
I'm using that in a slightly different sense than you are.
They have a right to a license. What you are arguing about
are the terms for that license.
However, the fact that you all are here and asking the
court to ultimately determine the terms of that license,
seems to me to imply that there is an obligation on the part
of Motorola by having sent in this Letter of Assurance.
MR. JENNER: Well, the thrust of our motion, leaving
aside Microsoft's, is that if Microsoft had responded to our
letters by effectively becoming an applicant, if they had
engaged, put it that way, and sat down to negotiate with us
in good faith, they would have satisfied the only conditions
of these licenses that apply to them. And they would be
entitled to proceed.
They chose not to do that for strategic reasons. They
chose not to do it. And we submit by doing that they
preferred litigation for strategic reasons over engaging with
Motorola pursuant to these policies and Letters of Assurance
to lead to a license. Now they cry foul because they find
themselves in situations where courts are saying, "Microsoft,
And, Your Honor, we've submitted extensive statements by
people in the industry, showing the knowledge of the
industry, that say that the licensor, until such time as
there's a license, the licensor retains all the benefits of
the patents, as they must, so that the licensee will have an
incentive to negotiate.
In the absence of a threat of an injunction, even as to
essentials, until there's a license, Microsoft has no
incentive to do anything. They can sit back and litigate for
years. They can decline to engage. They have no incentive,
because the usual incentive in licensing negotiations is
stripped away. That's been noted -- I anticipate
knowledgeably that Mr. Palumbo may have something to say
about that. But that is basically part of the negotiation
process. And I submit that, Your Honor, we would all be
better off if you left that out there so that they would have
an incentive to come to the table and negotiate.
THE COURT: Well, the pleadings in this case, both
sides now say that you have an offer out there, and they have
unambiguously accepted that offer, which is why we're on
point 3, and not on point 1, of our analysis.
MR. JENNER: No, we said that they're a third-party
beneficiary. We didn't say they accepted anything. Point 2
of the motion is are they a third-party beneficiary? And
under one formulation or another, they are. They have the
right to accept the offer. They never accepted it. We never
said they accepted it. We say quite clearly they rejected
it. They could accept it. They could have done that by
being a third-party beneficiary. They simply didn't do it.
THE COURT: You've got about 20 minutes left. So I'm
going to stop asking you questions unless you provoke another
MR. JENNER: I'm happy to have them, because I want
to know what you're interested in. I appreciate that. So
let me go back to the extent that this is something else on
Your Honor's mind.
These are the various iterations of the IEEE, the 802.11
LOAs. And I suspected that Your Honor was caught up on all
of this. This was the one where we simply could not, over
the weekend, deal with engineers in a way that would enable
us to tie individual patents to individual letters. We
submit that it doesn't make any difference, because all of
these say the Patent Holder is prepared to grant a license,
and will grant a license to somebody who comes in and asks
The thing that flows from that is it's granting a license.
There's nothing in the LOAs that says the initial offer must
somehow be a precise set of RAND terms. Nobody knows what
RAND is going in, in a particular case.
THE COURT: Well, here is what is troubling me,
Mr. Jenner. I'm looking at the ITU what I think is
Exhibit 4, Document 79. The operative language signed by a
representative of General Instrument Corporation, looks like
a Mr. Bawel, B-A-W-E-L. He checks the box that says, "The
Patent Holder will grant a license," then the language
continues. "Will grant." In that context, it's mandatory.
It says, "You will grant."
Then I look at the IEEE, the same Letter of Assurance, or
same form Letter of Assurance signed in this case by
Mr. Meyer, and it says, "The Patent Holder is prepared to
grant a license." Now, you make a big, big thing out of the
difference in the language here. And now when it serves both
sides, they kind of sweep that whole argument away and say,
this is what it means. And that's what's troubling me, the
MR. JENNER: Your Honor, I submit to you that the
important aspect of the language doesn't differ. Because I
think all of these formulations say that the patent owner is
prepared to or will grant a license. The patent owner will
grant a license to applicants who request a license and
negotiate in good faith. And there is an intention to do
this. That doesn't mean, as we see here, that the parties
are going to be able to get through negotiations.
You can have good-faith negotiations by parties on both
sides and not get there. Just as a matter of logic, these
things are so complicated, it is quite possible for each
party to get hung up on the other end of various terms and
simply not be able to figure out where the middle is.
So the fact that you agree to negotiate in good faith does
not guarantee that you can get to a license. And these
organizations acknowledge that. They don't tell you what the
terms should be. They don't tell you what any of the terms
are. They don't tell you how to negotiate an agreement.
Totally ambiguous on that. They leave it silent. They just
say it's left to the parties to figure out how to do it.
So, there's no formulation anywhere in the world on what a
RAND license is in a particular circumstance or how to get
there. And the only way that anybody has been able to try to
steer you there is to say, "We want you to negotiate -- we
want you to agree to negotiate in good faith. We want you to
negotiate towards granting a license on RAND terms." Then
it's left to the parties to do that.
The parties ordinarily are able to do that. The parties
ordinarily negotiate. The parties here, at least prior to
the filing of the complaint, did not negotiate. And I hasten
to say to you in my footnote, in fact, there have been
THE COURT: Counsel, the good faith argument doesn't
get very far with me, because I'm troubled by the fact that
Microsoft's position in this litigation is, your initial
offer -- not you personally -- but Motorola's initial offer
was not in good faith. And, judge, on that basis you should
find they breached the contract.
You say, their rejection of your offer was not in good
faith in their decision to pursue a court resolution. And,
you know, they have obligation of good faith, and therefore
they've, in effect, repudiated the contract.
It strikes me that I'm back to my dilemma. It is nearly
impossible for me to evaluate either of those until I know
what RAND terms are. And I'm not going to know what RAND
terms are until November 19th when you start your trial.
MR. JENNER: That's a problem. It is a fundamental
flaw that everybody acknowledges in the SSO policies and
procedures. It's what led some people, and we've alluded to
this in the past, it's what's led some people to say that
these are nothing more than agreements to agree, that don't
mean anything, because they've got no substance to them, that
tell you anything about what it is you're agreeing on.
That's the problem with these policies. And as a result of
that, no other adjudicator has ever adjudicated what RAND is,
or RAND should be, from one of these 80-page agreements.
THE COURT: Well, let me stop you there. And I
apologize, because I'm using up your time here still. It
strikes me that we have been unable to find a legal authority
for the proposition that a failure to agree on RAND terms
then goes to a court, and the court sets up RAND terms.
Mostly because every time that nightmare scenario has arisen,
the parties have retreated to being reasonable.
MR. JENNER: Right.
THE COURT: And entered into, many times, some
industry-wide resolution of this.
However, there is abundant case law, Black Letter
authority for the proposition that the parties can have a
contract and the court can impose terms which are not
determined in the contract. Do you disagree that that's the
status of the law?
MR. JENNER: I think I've seen one case, maybe, where
a court declined to enforce an obligation to negotiate in
good faith, went on to say what a substitute damages remedy
might look like, and said, I can deal with that by figuring
out what the parties would have agreed to. Of course, the
court never went on to do it. I don't know of any other case
-- well, there was the earlier RIM litigation in Texas, where
the court on a motion to dismiss reserved the ability to do
this, but never went forward and did anything or said how to
I don't know of any court that's ever said how you would
go about trying to do this. I know of one agency that tried
to do it. And after a year or two's worth of proceedings and
a multi-hundred page report, it was vacated by the district
I don't know of anyone who has ever said anything more
than courts have various powers to do various things. Nobody
has ever suggested how to do this, much less done it. Ever.
THE COURT: Okay. And I'm going to put words in your
mouth now. You're agreeing that you don't know a court
that's done it in this context. But you don't disagree that
that's a fairly common procedure in courts supplying missing
terms in contracts.
MR. JENNER: In relatively simple -- yes, in
certainly non-standard settings, in ordinary garden-variety
non-patent contract cases, courts are asked to look at
disagreements between the parties about whether or not a
contract has been made, so as to enforce the contract. And
they specify missing terms if they can determine the intent
of the parties. I think that's light years away from what
we've got here.
THE COURT: Because I don't want you to run out of
time here, another issue that's troublesome to us is both
sides interchangeably drop in the bylaws periodically when
they help their particular position. What is the
relationship of the bylaws to the Letters of Assurance?
MR. JENNER: Your Honor, I submit that -- if I could
help myself here a little bit -- the bylaws are incorporated
by reference. And there's even a Washington case that tends
to support that. If you look at slide 12.
THE COURT: Well, let's take the Letter of Assurance
in the IEEE. It has some language that says, "In accordance
with clause 6 of the IEEE standards review bylaws."
MR. JENNER: That's the patent policy.
THE COURT: Should I assume that those are then
incorporated into the Letters of Assurance?
MR. JENNER: Absolutely. If you look at the footnote
at the bottom of slide 12 there's a Washington court case
that construed the term "in accordance with" to result in
incorporation by reference of the reference document. We
believe and we submit, and consistent with this case, that
the patent policies are, indeed, incorporated with --
incorporated by the Letters of Assurance.
THE COURT: All right.
MR. JENNER: And you consider them together.
THE COURT: Thank you.
MR. JENNER: Your Honor, I'm never going to get
through all of this. Let me just hit some highlights.
THE COURT: Please do.
MR. JENNER: We've made a number of references to the
understanding of people in the industry, notably Microsoft,
I'd like to just stop briefly on slide 19, where there are
several statements that have been made by Microsoft which
demonstrate that before they had litigation motives they
repeatedly recognized the obligation to negotiate in good
faith. That includes the redacted second item.
Similarly, on slide 20, there are three additional
statements made by Microsoft that explain that the RAND
framework is a framework to allow people to negotiate. And
that's what you have to get to, is to negotiate. It's a
mistake to focus unduly on an opening offer, especially where
it's consistent with what Motorola has ever done. I've posed
the question, Your Honor, in terms of thinking of a starting
point, which would not be just a giveaway, what more logical
place would there be to start than where you did it in the
Surely Motorola can come in and say, we'll come up with
some low-ball offer and just give Microsoft what they want,
bid against ourselves. I'm sure Microsoft would be happy to
have that. We'll give you everything you want for a penny a
pop. That's not rational. No licensor is going to do that.
The rational starting place has to be where you did it
before. And other people negotiated with you. They arrived
at licenses. That shows that it's reasonable.
The argument that Microsoft ultimately makes as the
supervening argument, is when you run the numbers the way
they ran the numbers, you come up with $4 billion. And
that's got to be unreasonable. First of all, put aside the
fact that Microsoft is a very big company, so that any
royalty rate you apply to their products is going to look a
lot larger than anybody else. But get into the context of
negotiations, and what is going to happen here is Microsoft
is going to say, okay, that's your "ask," here's what I don't
like about your "ask," including the fact that it's large.
Here is my "ask." I've got a lot of patents I want back from
you, I want so much money for phones, I want so much money
for set-top boxes. I would say to Your Honor, even though
this is not what is going to happen, when you have a
fully-formed negotiated contract, you could have as much as
$4 billion going one way, and $3.96 billion going the other
way, so that the net is a cross license with not much money
following at all.
So, if you were to ask me the question, I'll put it with
apologies in the court's mouth, is this an offer that
Microsoft could have accepted? Because that came up in the
ITC. The answer is, there was no offer that could be
accepted, because the letters of October 2010 were not
offers. Fully-formed license agreements with all the terms
negotiated might or might not have had this kind of a
2.25 percent royalty. Maybe yes, maybe no. But in the
context of a fully-formed offer, sure it could have been
accepted. Now, I would like --
THE COURT: At the risk -- it is the philosophy of
this court that we're here to resolve disputes. But I think
for the fourth time today I've heard you say, if they would
just talk. And you've also said, outside the four corners of
the docket those discussions are underway. Are you
implicitly asking me to order you to go somewhere, or are you
doing that on your own?
MR. JENNER: I wouldn't put it in terms of an order.
I think Your Honor can recognize, if you don't grant our
repudiation motion, which would end the whole thing for now,
but Your Honor could simply recognize that there's a duty to
negotiate in good faith, and advise the parties, for example,
that if we don't have a result based on good faith by
negotiations by November 26th, that I'm --
THE COURT: 19th.
MR. JENNER: The 19th? November 19th.
THE COURT: It moved to the 19th. We wanted you to
have Thanksgiving in Seattle.
MR. JENNER: We appreciate that. If it's like it is
today, we'll stay for weeks.
Your Honor, you could say, I'm going to do whatever it is,
I the court, figure out that I need to do, if you the parties
don't do it first. And by the way, maybe one of the things
that I will look at is how you negotiated to see whether I
think somebody didn't negotiate in good faith, because that
could lead to results, too.
But basically what you could say if you choose to do it is
you've got whatever the time is, six months, eight months to
continue to process this. And if you succeed, God bless you.
If you don't succeed, I the court, am going to figure out
exactly what it is I think I should be deciding, have the
authority to decide, and then you're all going to be sorry
because I'm going to do what I think is right.
THE COURT: To open the door to the skeleton in that
closet is you all have asked for a jury. I'm just going to
sit up here and watch six good citizens of the Pacific
Northwest decide what the royalty is. So, if you don't want
that to happen, you want to start discussing that question,
because that's where you're headed right now.
MR. JENNER: Your Honor, let me take you quickly to
slide 48. Because I anticipate Microsoft feels that they got
some good things out of Judge Shaw and the ITC. And I don't
want you to think that we agree necessarily with that. I've
quoted three of the judge's conclusions from pages 300 to 303
where the judge focused on RAND.
THE COURT: Before do you that, Judge Shaw is an
administrative law judge?
MR. JENNER: Yes.
THE COURT: And there's an appeal process?
MR. JENNER: There's a petition for review by the
full commission. The petitions are actually getting filed
today. I think they are getting filed today. That will
result in a determination by the commission of what it wishes
to review, probably further briefing. And they will issue a
final determination sometime in late August.
THE COURT: So, would it be correct to characterize
Judge Shaw's comments, then, as informed opinion but not
legally binding precedent?
MR. JENNER: Certainly not res judicata. Nothing
that you are bound to follow. You can take it for what it's
worth because it's not a final determination. In fact, it's
called an initial determination.
THE COURT: I just wanted to make sure I understood
MR. JENNER: So the first thing he said, quoted on
slide 48, is that the offer, "Could not possibly have been
accepted by Microsoft." And I think I've spoken to that a
little bit. Nobody contends that anybody would simply accept
what was in the October 20th letter. It was not a
fully-formed offer that could be accepted. And again it
requires negotiation. Providing a rate was not providing a
complete offer. There was nothing to accept. The terms had
to be acknowledged.
And very significantly, the last bullet on that page, Your
Honor, that I call your attention to was Judge Shaw's
conclusions. He says on page 302, "Motorola's offers may not
be the same as the terms that might eventually be contained
in a RAND license." To the extent that what Judge Shaw says
you find persuasive, he's actually answered from his
perspective the first part of Microsoft's motion by saying,
it doesn't have to be a RAND offer, it needs to get to RAND
And I end with that statement by Judge Posner, "If you
think it's too high, just tell them they're charging too
The second slide, 49, Judge Shaw said, "The offers made to
Microsoft show that although Motorola assured the standards
organizations and the public that it would provide reasonable
non-discriminatory licenses, those communications were
misleading." That sounds bad. It's in the context of
deciding legal estoppel. Estoppel requires a determination
of whether the statements to the SSOs were misleading when
made. We're not talking October 2010. We're talking the
original Letters of Assurance. Those were made over a period
of 15 years. And what we do know that happened in those
15 years is that Motorola has signed dozens of agreements
with licensees, none of them contend the agreement was not
So, given that Judge Shaw found the opening offer doesn't
have to be RAND, and that Motorola has repeatedly negotiated
RAND licenses, how could the Letters of Assurance have been
misleading when they were made? I submit the judge did not
have an evidentiary basis to say that. Just the fact that
there's an unresolved dispute with Microsoft doesn't make the
Letters of Assurance themselves misleading.
And finally on slide 50, Judge Shaw said, "The evidence
supports Microsoft's conclusion that Motorola was not
interested in good-faith negotiations in extending a RAND
license to it."
Well, the evidence here is quite different and includes
things Judge Shaw didn't have. The evidence here includes
Mr. Taylor's deposition where he explained, at length, how
Motorola intended and expected to have negotiations with
Microsoft. And Microsoft's Gutierrez testified, far from
saying, we didn't think they had any interest in negotiating,
he testified he had no idea what Motorola would do if
Microsoft countered, he simply turned it over to the
litigators, and the litigators proceeded with what they
characterized as "litigation tactics."
So, there's no support in this case for Judge Shaw's
belief that Motorola had no intention to negotiate in good
faith. And all the slides between 20 and 50 that I haven't
had a chance to show you, but they're in our briefs, lay out
all the factual basis on which negotiations have always
proceeded, terms have always been arrived at, cross licenses
have been agreed to, caps have been put in place for parties
like Microsoft that think they're going to have to pay too
much, termination and term clauses have been determined.
Some cases -- some licenses have different rates in different
countries, which is something else you may have to think
about some day. All of these different things wind up in
these 80-page agreements. And that's why you have to do it,
and everybody always does it, the way that Motorola submits
was required here.
THE COURT: We got started about ten after nine, so
you technically have about two minutes left.
MR. JENNER: That's kind of why I'm into my windup.
THE COURT: Well, tell me what happened in Germany.
I will tell you, we have not had the opportunity to analyze
that in the care that I would like.
MR. JENNER: I will tell you in brief. It may be
that Mr. Taylor, who had been there, can elaborate. But
basically in Germany, as everybody expected, the German court
came down with a decision in which it concluded that
Microsoft had infringed Motorola H.264 patent. Two patents,
sorry, two patents. And the court found Microsoft had not
complied with the German Orange Book, that its offer of one
cent and two cents per unit, it was not unreasonable for
Motorola to reject that offer.
So as the matter sits right now, were it not for your TRO
which of course I'd love to ask you to vacate, but were it
not for Your Honor's TRO, there would be the normal pressures
of an adjudicated court decision that would be giving impetus
from the bottom to Microsoft to up it's offer, just as
Motorola has impetuses in Germany to bring down an offer.
There would be offers made of additional rates. That isn't
going to happen, because everything in Germany is now on dead
hold because of the preliminary injunction.
THE COURT: Help me with one aspect of this, because
I want to make sure I have the chronology right. Microsoft
files the pending lawsuit, and eight months later you file an
action in Germany. Is that basically the chronology?
MR. JENNER: Roughly, right. Eight months, yeah.
I'd say so.
THE COURT: I mean, didn't you put yourself in the
crosshairs of inconsistent rulings? I mean, it sounds to me
like you were attempting to manufacture, for negotiating
leverage, which is an honorable trait, the potential of a
conflicting resolution of this.
MR. JENNER: Let me not be cute in answer to that.
Number one, we were certainly looking for additional ways to
defend ourself. Don't forget, they started this. We didn't
start this. They filed the initial lawsuits on October 1st.
THE COURT: Spare me that argument. There's already
way too much --
MR. JENNER: Okay. Just so you don't think that we
were out there in the woods with rifles, the remedies in
Germany are certainly additional remedies that can be brought
to bear in order to try to get this to a resolution. They're
not inconsistent results. If you litigate the U.S.
counterparts of those two German patents, you could find the
U.S. counterparts invalid not infringed, at the same time
they're found valid and infringed, because they're different
instruments being interpreted differently in two different
THE COURT: All right.
MR. JENNER: So, it's not circumventing this court.
And I have to tell you, Your Honor, we filed that German
action before they ever actually asked Your Honor to make a
rate determination. They did not do that in the complaint.
They didn't do it until September, two months after we filed
in Germany. We did not jump the gun.
THE COURT: Why don't you take one minute further and
then we'll take our morning break.
MR. JENNER: All right, Your Honor. I will eschew
any further slides. I appreciate that there are some aspects
of these agreements, which to use my anticipated word, are a
little opaque. But the fact of the matter is all of these
agreements, properly interpreted, require that Microsoft have
been an applicant and have negotiated in good faith with
Motorola. There's nothing to their argument that we usurped
their ability to be an applicant by sending the letters
first. All they had to do is respond and they're an
applicant. So that's silly. They needed to respond to the
letter to engage and negotiate. They didn't do that. That's
all over the LOAs and the patent policies. You really ought
to end this inquiry by saying, if the words of the contract
mean what they say, and we enforce the words of the contract
for what say, there was repudiation because they did not
fulfill either of the conditions precedent in order to come
in and get the RAND license.
If you don't go there, then the fact of the matter is,
number one, there is no rational requirement to make a RAND
offer. Nobody has any idea what a RAND offer is in any
particular case. Judge Shaw found that, for the sake that it
is of interest to Your Honor. You need to come in with
something that's reasonable.
I know Microsoft now loves "blatantly unreasonable."
Well, the counterpart of that is "reasonable." And once you
get rid of the patent pools they love to run to, which have a
completely different purpose, and one of their own people
admitted it is a non-revenue generating purpose, it has
nothing to do with bilateral association, the only reasonable
starting point is where Motorola started. The 2.25 percent
of end products that it has offered everybody for 15 years,
in which everybody prior to this has come in and engaged.
There have been a couple of litigations. One of them got
settled, because they engaged. There is another one going on
with Apple. We'll see what happens with that one. Everybody
over 15 years have engaged. They've negotiated. And it has
resulted in the RAND license, that's required, not the RAND
If Your Honor were to find that a RAND offer is required,
I therefore submit to Your Honor that Motorola's offer was
consistent with RAND. It was as consistent as it could be,
without Motorola knowing what all the impacts are on
Microsoft, that it can only learn in negotiation.
The thing that is being eliminated from this process by
Microsoft that I urge Your Honor to put back into this, is
commercial reality in the commercial real world. People
negotiate, whether you're buying a car, whether you're buying
a house, whether you want an 802.1patent portfolio. People
negotiate. They have to engage. They've got to talk to each
other. The standards organizations know it. They tell you
that. They don't have anything to do with it. They don't
tell you how to go about it. The parties have to engage to
do it, and Microsoft simply refused to go there.
So if there's an opportunity for that to happen, that
would be great. But we submit there's been repudiation. If
there hasn't been, Motorola sure hasn't breached any
contract. It has acted in good faith and it stood ready to
engage with a company that would not engage back.
THE COURT: All right. We will be in recess for ten
minutes. I'll be back out at 10:25 and we'll hear from
THE COURT: Mr. Harrigan, who is carrying the flag on
MR. HARRIGAN: That will be me, Your Honor.
THE COURT: All right.
MR. HARRIGAN: Your Honor, I'd like to pick up on
some of the questions the court was asking a few minutes ago
initially, even though it's out of sequence. But I think
Mr. Jenner was out of sequence, too. So I think that seems
to be the order of the day, which is good.
One point the court made was that under the RAND system
Microsoft has a license that is essentially subject to
arriving at the terms, or alternatively the court said at
least Microsoft has a right to a license under that contract
subject to arriving at the terms. We concur with that and we
believe that that is why here, in order to avoid having that
contract be illusory, if necessary the court has to figure
out what the terms are.
And I would refer the court to the authority that's
probably getting a little worn in this case, but there is a
case at least that says that the court can do that. In fact,
Motorola argued that the court could do that in the RIM case.
That's RIM v. Motorola, 64F.Sup., Texas 2008.
"Motorola's second argument in support of dismissing the
contract claim is that RIM has not suffered any damages,
contending that even if it has breached eventually RIM will
receive a FRAND license. Either this court will determine
FRAND terms, or the parties will settle on FRAND terms.
Either way Motorola contends RIM will incur no injuries."
So that's pretty good authority, from Motorola, that the
court can, in fact, determine what the RAND terms are. And
we agree with the court's characterization of the general
contract principle that once it's determined that the parties
have a binding agreement, if the agreement doesn't provide
specifically, with respect to certain terms, and especially
where the agreement provides a standard, which in this case
is commercially reasonableness, it's quite common for the
courts to supply the terms in order to carry out the parties'
intent of having a binding agreement. The court has already
ruled there's a binding agreement here and that Microsoft is
a third-party beneficiary of it. And so those cases seem to
apply here, as they were apparently thought to apply by
Motorola in the RIM case.
THE COURT: Let me stop you there. My friend,
Mr. Jenner, was struggling with the fact that it's not a
license that Microsoft holds, it's the right to a license.
And that that right to a license becomes a license when the
terms are agreed to -- putting words in his mouth. What
difference does that make in my analysis of this case?
MR. HARRIGAN: Your Honor, I'm not sure that it makes
any difference under the facts of this case, because under
the facts of this case Microsoft has unequivocally stated
that it will take the license on RAND terms. And if the
court has to determine them, it will take them on those
terms. So the offer has been accepted, regardless of whether
you characterize it as Microsoft already having a license, or
Microsoft having a right to a license. Once Microsoft says,
"and we'll take it," there's no longer an issue with regard
to the obligation or the, frankly, existence of the license.
The license exists, it's just a matter of having the court,
if necessary, decide what the terms are.
THE COURT: Both sides, in their briefing, make that
statement that Microsoft has unambiguously stated that it
will take a license. Where is that in the record?
MR. HARRIGAN: Your Honor, we've handed up a notebook
to you, and I'm going to be referring to it periodically.
And in tab 3 we have a list of the many statements by
Microsoft to this effect, starting with the complaint, which
is less than crystal clear. But as of September 30, 2011,
"Microsoft is seeking and remains ready and willing to take a
And then more recently -- there are numerous statements
along those lines -- but in the preliminary injunction motion
March 28, 2012, this is over on the second page at the top,
"A license that Microsoft is eager to obtain. A ruling that
Motorola is contractually bound to grant a RAND license,
coupled with Microsoft's express commitment to accept the
RAND license, necessarily means that Motorola cannot seek to
enjoin," et cetera. And there are a number of other
statements in the intervening period. So that statement is
unequivocal, and if it needs to be any more unequivocal I'll
make it more unequivocal.
THE COURT: Well, I guess what I'm finding
interesting is -- I mean, your evolving litigation position
seems to be now that you're unequivocally going to take the
license. You also have a motion that they breached the
contract, and that would be the contract between Motorola and
the IEEE, for one of the two licensing bodies. If they
breached that contract, then that contract doesn't exist. So
how can you take a license under a contract that doesn't
MR. HARRIGAN: Well, Your Honor, I don't think their
breach destroys the contract, it just creates a claim for
whatever damages flow from the breach.
That isn't something that we've spent a lot of time
figuring out, because as far as we're concerned what this
case is now primarily about is getting the RAND license
defined, because that's how it's going to end. And whether
Microsoft has any current or past damages arising from the
breach is not the main issue. But I'm not saying there
aren't any. It could be that all the legal fees expended in
Germany and the ITC would be part of that. But that's a
separate issue. And obviously a party can sue for damages
and still get the benefit of the contract, because otherwise
then their damages are even worse.
THE COURT: All right.
MR. HARRIGAN: So a second point, Your Honor, relates
to the language of the standards which, you know, I think
it's clear that it would be an enormously complex task to
figure out what the standards said on different subjects at
But at tab 2, here's what we have done, hoping that it
might be of some use. We have taken the excerpts from the
two standards that each party has quoted. The ones with
yellow highlighting, the yellow highlighting is where
Motorola likes it, and the underlining is where Microsoft
likes it. So the parts that were quoted in the briefs by the
two parties are distinguished in that way. And the court
noted a few minutes ago the mandatory language from the ITU
standard, "will grant a license," and contrasted it with the
IEEE language that the court referred to is, "Prepared to
The first section of this is the IEEE. And I would just
like to call the court's attention to a few items that help
to clarify what the IEEE thinks the rule -- the requirement
is, and it's really very parallel to the ITU language.
The court noted the statement in the middle of the page,
"Is prepared to grant." That was in 2005. In 2006 it was
changed to, "The Patent Holder will grant a license under
reasonable terms." In 1994 when Motorola submitted an early
LOA it said that it, "Agrees to license these patents on a
non-discriminatory basis offering fair and commercially
reasonable terms," which I think sheds some light on whether
the offer is supposed to be RAND, or if it's something that
is not RAND, then you bargain toward RAND, because that would
not be offering fair and commercially reasonable terms.
By the way, in answer to the court's question about the
bylaws, we concur with Mr. Jenner's characterization of the
situation regarding the bylaws.
On the next page, in 2005 the IEEE bylaws said that there
has to be a statement that a license will be made available
without compensation, or under reasonable rates. And another
point worth noting, Your Honor, is that the commitment as
we've highlighted here is irrevocable. And that runs through
these standards, which I believe relates to the question of,
you know, can you accept this? It's an irrevocable
commitment. Do you call it a license or an offer? The
obligation to provide a RAND rate is irrevocable. And I'm
not going to read the rest of it. But whatever use it is,
Your Honor, we've got a collection there of the various
phrases used throughout the period, which we think the gist
of all of them is that the Patent Holder is committing to
offer and make a license available on RAND terms. And there
is no exception for the first offer.
THE COURT: Is Microsoft in agreement with the
position taken in this matter that all of the patents that
are before the court are standard essential patents, and
therefore the fact that I do not have any definitive chart
listing those patents should not be a concern to me?
MR. HARRIGAN: Your Honor, if I understand what
you're asking, I think the answer is, yes. All of the
patents that are before the court on this breach claim are
the ones that are attached to the two letters. And whether
they're standard essential patents or not -- and I take it
from Mr. Jenner's comment that he thinks there was one where
Motorola didn't submit an LOA, but it was still a standard
essential patent, the letters state that they are providing a
RAND rate for all of them. So we believe that they are --
even if there are some in there that are not standards
essential, and I can't tell you for sure whether that's the
case, Motorola was representing in the letter that it was
providing a RAND rate for every patent that's attached to
either of those two letters. And, therefore, for purposes of
this case we believe that they are all included within the
Now, I'd like to address the comment by Mr. Jenner, a
number of times, that the offers or the letters, or demands
for offers, were just a starting point. And the royalty
might very well have gone much below 2.25 percent. This is
contradicted by Motorola's own briefing and by statements in
its declarations that it always gets 2.25 percent at the end
of the day. The only question is how do they get there? If
they get some technology coming back the other way, then they
value it in a certain way, then perhaps the royalty rate goes
down, but they're still getting 2.25 percent.
In other words, this was a "take it or leave it." Maybe
you get to talk about how you're going to pay the
2.25 percent. But Motorola's response to our summary
judgment motion at page 6 says, "Because each licensing
situation is unique, negotiated license terms often reflect
the 2.25 percent overall value in different ways." For
example, three, a grant-back of license rates. So the
grant-back -- and this is according to Motorola's revisionist
version of its own letter, because in fact the letter says,
you pay us 2.25 percent, and you grant us back your
technology. And there's no indication that the 2.25 percent
is coming down for that reason. That was the demand in the
letter, which I'll get to in a minute.
But the fact is in their own brief Motorola says, we're
sticking to 2.25 percent, no matter what, the only question
is how are we going to get there.
So the suggestion the court made that, tell us whether you
accept within 20 days, sounds like an ultimatum, is
consistent with the fact that Motorola wasn't going to back
off its 2.25 percent, no matter what counteroffers Microsoft
THE COURT: How do you know that?
MR. HARRIGAN: Because they say so, in their brief.
They say they always get 2.25 percent.
THE COURT: You didn't know that at the time.
MR. HARRIGAN: Well, what Microsoft knew at the time,
Your Honor, was the demand was 2.25 percent for the standard
essential patents on the price of a laptop, among other
things -- which is kind of important, which I'll also get to
in a second -- and you give us your standard essential
patents also. That was what Microsoft knew.
And what Microsoft didn't know, I presume they didn't know
this, was that Motorola was never backing off the
2.25 percent. But what matters for this case is, was the
letter a breach? Because the breach has to be measured based
upon what Motorola was saying when it said it, not what it
says now about what it really meant.
THE COURT: Well, this takes me to one of my favorite
aspects of this case, which is how am I going to determine if
it was unreasonable until I know what RAND terms are? And
I'm not going to know what RAND terms are until November 26th
when the jury comes back.
MR. HARRIGAN: Well, Your Honor, I think that -- if
we take the example of the laptop, I believe that as a matter
of law it's unreasonable. And that's apart from some of the
other evidence with regard to the total amount of royalties
and how they relate to essentially being 20 percent of
Microsoft's annual profits for a tiny little piece of the
The fact is that Motorola's technology that contributes to
the operating system is a tiny little part of Microsoft's
operating system. And as a matter of law, the only way that
Motorola could get a percentage of the price of the operating
system, would be to demonstrate that its little contribution
to that operating system is the basis for customer demand for
the operating system. But it's not asking for a percentage
of the operating system, it's asking for a percentage of the
There is no way that Motorola's standards essential
patents on this, for the operating system, are on the basis
of customer demand for it, much less the customer demand for
the laptop, which is the requirement under the entire Market
Value Rule, if you are going to get a royalty based on a
percent of the product price. And under those cases the
burden is on the Patent Holder to demonstrate that its
technology is the basis of customer demand.
And failure to do that, there are a lot of Daubert motions
granted on the basis of excluding evidence using that royalty
approach, because as a matter of law first the Patent Holder
has to sustain the burden of showing that its technology is
the basis for customer demand. There has been absolutely no
effort made by Motorola to even try to do that here. And it
obviously can't, as to the laptop.
And so, Your Honor, on that basis we believe as a matter
of law, it is clear that at least with respect to the laptop,
which is kind of an important piece of this case, the demand
was unreasonable as a matter of law. And the other thing is,
Your Honor, these letters don't invite anybody to negotiate
about individual products. It lists the products that the
demand relates to very specifically. And there's no
suggestion that you could have different rates for different
ones, or, oh, we'll talk about this, or whatever. They're
listed there in each of the two letters.
So the court raised the question about valuing the
patents. And, Your Honor, you cited to an article which we
believe, based on what you said about it, states the law
correctly, which is that you value the contribution of the
patented technology to the accused product. And that's
really what I was just talking about. That is a general
proposition for how you determine patent damages and how you
In the case of asking for a percentage of the product, you
have to show that your technology is the basis of customer
demand, which is a version of this general proposition,
because that is how you measure the contribution of the
technology to the product. And there is no way that that is
-- I won't repeat myself -- but that burden has not been met
here. But the court's statement is correct with regard to
what the overall rule is.
And here, not only is Motorola using the laptop product of
which Microsoft's product is a piece, to charge the royalty,
which violates the general principle because it's not even
applying it to the right product, but in addition we have
cited -- and I'll get to it if I ever arrive at my outline --
we have cited statements by Motorola folks who came up with
these letters and determined what was going to be sought.
To the effect that in the case of the Xbox, what they were
valuing was the contribution of the standard to the Xbox.
They thought that the standard had high value to the Xbox,
which is exactly what you do not get to do in a RAND context.
That is the holdup value. You don't get the value of the
standard. You get the value -- you get the proportionate
contribution of your technology to the standard. And that
has to then relate to its contribution to the product. And,
in fact, Motorola's deposition testimony admits that what
they considered was the value of the standard.
Would you take a look, please, at tab in the notebook.
I just want to call the court's attention to, in a little bit
more context, what Judge Shaw said, which is at tab 4. The
first quote is the one that Mr. Jenner read that the royalty
rate of 2.25 percent could not possibly have been accepted by
Microsoft. He then said, "Indeed there is no evidence that
any company would agree to the offer that Motorola sent to
Microsoft." Then he said, and this is significant in that it
shows how he was reading the RAND obligation, "The offers
made to Microsoft show that although Motorola assured the
SSOs and the public that it would provide reasonable and
non-discriminatory licenses for the patents essential to
certain standards, those communications were misleading."
ie: These letters show that the commitments had been
And then finally, "The evidence supports Microsoft's
conclusion that Motorola was not interested in good-faith
negotiations and in extending a RAND license to it."
We concur that the court is not bound in any way by those
observations. They're worth whatever the comments of an
independent third party about this situation are worth.
The court asked what happened in Germany. And at tab 10
there is a quote from the -- one of the translations. This
is Motorola's translation of the May 2nd order. And I am
merely calling the court's attention to the fact that the
German court does not recognize third-party beneficiary
rights. And there was a communication glitch here. And
there is one other statement we wanted to call to the court's
attention from the German case, and that is, "In the opinion
of the court, this consideration may be restricted to the
question whether the offer constitutes a blatant violation of
And what the court is talking about there is that
Microsoft had made its Orange Book offer, Motorola did not
accept it, and the question was, what is the significance of
that in terms of the failure to accept a reasonable proposed
royalty? And the court's answer was that the criteria for
determining that is whether the failure to accept that Orange
Book offer was a blatant violation of antitrust law, not just
a violation of antitrust law.
So the court's determination that this case is going to go
forward with an injunction, in spite of Microsoft's Orange
Book offer, was predicated on the fact that by turning it
down Motorola was not committing a blatant violation of
antitrust law. And that's the only determination of
reasonable royalties the court made or will make. So that
case is clearly inconsistent with RAND. And the fact that it
doesn't even recognize that Microsoft has contract right as a
third-party beneficiary, would suggest that the probability
of inconsistent outcomes and the motivation to do the end-run
THE COURT: Well, let's stop on that question. It is
a standard feature of judicial training that we are taught to
avoid conflicting judicial declarations, for the reasons that
they leave the parties in precisely the predicament that
we're in right now. How do I harmonize these two positions?
I mean, I was very careful not to enjoin the German legal
system and the German court. On the other hand, Motorola at
this point has a lawful opinion in Germany. How is it that
the court here can pretend like that doesn't exist without
depriving Motorola of its rights?
MR. HARRIGAN: Well, Your Honor, the anti-suit case
law provides the answer. And that is that this was an
end-run, it was an effort to create a situation where there
is a high likelihood of inconsistent outcomes, one in which
Motorola can get the leverage of an injunction that it would
not get under the jurisprudence in this country or in this
And so it is a classic end-run around a court that was
first seized with jurisdiction of this matter, and is in the
process of determining whether Microsoft has a license --
actually determining simply what the terms are of the license
that Microsoft will get. Because the stage is set, Microsoft
has committed to take a license, it has already been ruled by
the court that it has a right to such a license, and the
court can determine the terms. So there is no basis for
getting an injunction in this case, which I guess we'll be
talking about in a few minutes.
But this is a classic anti-suit situation, and the
decisions -- the decision of the German court simply
underscores the fact that in addition to the reasons that we
advanced earlier, now the injunction is imminent, which is
the basis for -- which was the motivation for the motion.
And it's clearly demonstrated that the legal system in
Germany is more antithetical to the RAND scheme of things
than we even suggested in the motion. We were hesitant to
say German law doesn't recognize third-party beneficiary
rights, but there seemed to be some confusion about it, but
there isn't any in the mind of the judge who made the
Your Honor, in the interests of time, I'm going to address
the -- let me make sure I don't have anything left here. Oh,
I'm going to address the repudiation issue as briefly as I
can. The original argument by Motorola was that when
Microsoft filed the lawsuit, it repudiated the contract. And
the court seemed to look askance at that proposition. And in
the current motion the ground has shifted and Motorola is now
arguing that there are -- arguing for two conditions
precedent that added together seem to amount to repudiation.
And so I will just address first the issue of conditions.
The first condition is that Microsoft must negotiate. In
other words, Motorola's duty to make a RAND offer is subject
to a condition precedent that Microsoft has to negotiate when
it gets the offer. And that just doesn't make any sense. In
terms of sequence, you can't have a condition precedent that
doesn't even -- where the occasion for the condition doesn't
even arise until after the other party has taken its action.
The duty that Motorola has under the contract that it says
Microsoft repudiated, obviously exists at the time that it
makes the offer. And it can't be subject to a condition that
-- a precondition that can't happen until after the demand
was delivered. And there is no --
THE COURT: Let me stop you, because I'm not sure I
understand the legal underpinnings for this argument. Do you
disagree with the statement of one of the witnesses here that
you need to look at the conduct of both the patent owner as
well as the implementer, they both need to be willing to
negotiate in good faith, and there is an obligation on both
parties' parts to negotiate in good faith? Is that in
disagreement to Microsoft's position?
MR. HARRIGAN: I think, Your Honor, that the RAND
contract does not contain any such duty.
THE COURT: Well, that's your senior director of
intellectual property talking in this context.
MR. HARRIGAN: Well, I think that the witness was
stating a belief with regard to how this should work. I
don't believe the witness was attempting to render a legal
opinion on what the RAND contract requires.
THE COURT: Well, his words speak for themselves. It
seems to me you're ignoring the second half of that sentence.
MR. HARRIGAN: No, Your Honor.
THE COURT: You know, what good faith is there in
saying: You know what? We don't want to play in your
sandbox, we're going to go sue you.
MR. HARRIGAN: Your Honor, first of all, that is
subject to the proposition that the first party has acted in
good faith to begin with.
But the court, if I can quote a higher authority on what
the contract means as opposed to how people should behave
themselves, has said, "Motorola has failed to provide any
legal authority that requires negotiation as a precondition
to a breach of contract claim based on RAND licensing
commitments." Or, and another statement, "Motorola attempts
to insert a requirement that Microsoft negotiated the license
terms prior to filing suit for breach of contract. The IEEE
and ITU guidelines provide no such requirement." And if you
look through the tab where we put all of this in there, and
you look at all the ones with yellow on them, you will not
find a word that says that the recipient of a RAND demand has
a duty to negotiate.
The fact is that if the recipient of the RAND demand, as
Microsoft did, looks at this offer and says, no one in its
right mind can ever accept this, this is not RAND, they've
breached their agreement. You have a right to file a lawsuit
to enforce the contract, that is exactly what we did. It
wasn't a repudiation.
THE COURT: Well, counsel, you know, I have two
questions about that. First, you apparently had been, you
Microsoft, had been disregarding Motorola's patent rights for
18 months. And then you accuse them of somehow improper
conduct when they write you an offer saying you have been
using our patents for 18 months, here are the terms for
licensing them. Isn't that inequitable?
MR. HARRIGAN: I think not, Your Honor. And, in
fact, I'll quote Motorola on that point, from one of their
motions for summary judgment on this issue at page 5,
"Companies sometimes choose not to engage each other in
licensing discussions, despite the fact that each is getting
value from the other side's patented technology. For years
that was the case with Motorola and Microsoft."
So companies, for whatever reason, think it might be
better to not bother with this, and we'll just proceed. And
the whole point of the RAND scheme is that if someone does
decide that they want to collect something for the standards
essential technology, you can be comfortable that it's not
going to cost you any more than a reasonable amount to take
care of that problem.
And presumably if you're a company like Microsoft you're
going to get something in return for your own standards
essential patents. And so it's all going to kind of come out
in the wash. And therefore maybe it's not worth bothering
What happened here, we believe, is that Motorola decided
to point a gun at Microsoft for various reasons, and it sent
them a letter that it had no intention of ever having
accepted, or didn't regard as being -- didn't actually regard
as being reasonable.
So it's completely outside the normal behavior of the
parties in this situation.
THE COURT: You know, counsel, you both have filed so
much stuff under seal, I'm hesitant to try and sort through
it, because your knowledge of that is better than mine. But
Motorola offered a compelling case that there had been prior
discussions, and negotiations, and business arrangements,
that had postponed this resolution. Pointing a gun at your
head seems to me to be the worst of hyperbole.
MR. HARRIGAN: The gun didn't get pointed until the
letters were delivered. The letters were completely outside
the context of any of those discussions. And, Your Honor, I
confess, I am not an expert in the content of those
discussions either. But I don't think anybody has suggested
that they were about the list of patents that were attached
to those two letters. They were about a variety of things.
THE COURT: Well, let me take your argument to a
slightly more extreme position. What I hear you saying is
that arrangements like the IEEE or the ITU, one side has a
good faith -- Patent Holder, has a good faith obligation to
propose a term. And every one of those is going to imply the
question of, is it RAND, because we don't know until it's
And then the implementer, as the language is used, is free
to immediately run to court and say, we don't like the terms,
court, you resolve them. That doesn't seem to me to give
rise to a commercially reasonable context for these essential
MR. HARRIGAN: Well, Your Honor, if the predicate is
that a RAND offer was made, then running to court would not
be appropriate. But you can run to court, as long as you
satisfy Rule 11, if you have a reasonable basis for believing
that you have a cause of action for breach of contract. And
the RAND scheme does not denigrate that right, nor does a
lawsuit to enforce the contract constitute repudiation.
And I'll just mention one other thing about that lawsuit,
which is that Microsoft did not merely sue for breach of
contract. Microsoft also asked for a decree that Microsoft
is entitled to license from Motorola any and all patents, et
cetera. In other words, the declaratory judgment action.
THE COURT: Well, you were doing better when you were
attempting to persuade the court that that wasn't the most
precise use of language. You need to take a long walk off a
very short pier to get to the position that you're arguing
here. That complaint does not ask for a license, only by
MR. HARRIGAN: Well, it asks for the court to rule
that Microsoft is entitled to a license. And it asks for the
court to determine that there are binding and enforceable
contractual obligations. Now, the court dismissed that
declaratory judgment action based on procedural grounds that
I'm not here to argue about. The question is what did
Microsoft say in its pleading that would be a repudiation?
And what I'm saying is that Microsoft didn't just say, you
breached. It also said, enforce this agreement. Declare
that Microsoft is entitled to a license, and that there is a
binding and enforceable agreement, which is the opposite of
repudiation. And under the repudiation standard, repudiation
will be found only where there is an unequivocal indication
that the repudiating party will not perform. Asking to
enforce a contract can not possibly meet that standard.
THE COURT: Well, wouldn't a less arrogant position
have been to say, Microsoft wishes to take a license under
this. Court, set the terms.
MR. HARRIGAN: Could have done that. Did do that
THE COURT: The evolving litigation position.
MR. HARRIGAN: The evolving litigation position. I
think it's fair to say the position of Microsoft specifically
asking the court to grant -- to see to it that it was granted
a license and that it would take one, arose in September of
THE COURT: All right. Please continue.
MR. HARRIGAN: So, Your Honor, I think it might help
at this point to turn to the actual letters for a second,
which are --
MR. WION: Tab 6.
MR. HARRIGAN: These have the attachments and some
yellow highlighting on them. I'd like to turn to the second
one in that tab, which is Exhibit 13, and just run down what
these letters actually say. And, Your Honor, the breach
claim that we are making should be measured by the actual
terms of the letters, because that's when we believe the
breach took place, and should not be read in light of
subsequent revisionist history about what we really meant and
what we normally do.
The October 29th, Exhibit 1letter, is for a worldwide
non-exclusive license for H.264. Motorola represents in the
letter that this offer is RAND. And that's highlighted. It
includes a royalty, a reasonable royalty of 2.25 percent,
subject to a grant-back license under the H.264 patents of
Microsoft. And that means you pay 2.25 percent, and we get a
grant-back license. It does not mean you get 2.25 percent
and we'll talk about reducing this if you give us a
grant-back license. The offer is made subject to the receipt
of a grant-back license.
The next sentence says that, "As per Motorola's standard
terms, the royalty is based on the price of the end product,
e.g., among other things, each PC/laptop, and not on
component software, e.g., Windows 7 software." I've already
covered why we believe that is a breach. It's very clear
that that is what's going on here. And those are stated to
be Motorola's standard terms. And their brief, which I
quoted from earlier, confirms that their standard term is
that they get 2.25 percent somehow.
So you can either -- what the letter actually says is we
get 2.25 percent, and we get the grant-back. But even if you
buy the revisionist history, Motorola says, we always get
2.25 percent somehow, taking into account what we might get
And finally, as the court already noted, "This offer is
open for 20 days. Confirm whether Microsoft accepts it." So
it is an ultimatum. It contains terms that we believe are
clearly not reasonable. And, therefore, it is a breach, if
the court determines that there is an obligation to make a
RAND offer. And I'm not going to go back through the
highlighted standards. The court has already read about them
numerous times. They're in the notebook.
We have underlined a number of statements by each of the
two organizations stating you either make it available, or
you offer -- you either make RAND terms available or you
offer RAND terms. And those provisions cannot logically be
that, well, at some point down the road you will finally get
to making a RAND offer. They state what the obligation is of
the Patent Holder with respect to an offer. And they say you
will make a RAND offer, or you will make your technology
available on RAND terms. It's not available on RAND terms if
your offer isn't RAND. You're making it unavailable RAND
THE COURT: Go back to diagraming the sentence in the
October 29th letter. It says, "Including a reasonable
royalty of 2.25 percent per unit, subject to a grant-back
license." It seems to me -- I don't know what that sentence
means. Does that mean 2.25, less the value of the grant-back
license? It doesn't say 2.and a grant-back license, which
is how you choose to read it.
MR. HARRIGAN: Well, Your Honor, the way I would read
it is this: We're starting out with the second word of the
sentence. "Motorola offers" -- offers to license. So here's
the offer: "Offers to license on a non-discriminatory basis
on reasonable terms and conditions, RAND, including a
reasonable royalty of 2.25 percent, subject to a grant-back
license." So what's subject to the grant-back license is the
offer. This offer is subject to a grant-back license. In
other words, we are offering you 2.25 percent. But the offer
of 2.25 percent is subject to a grant-back license. It
doesn't say the 2.25 percent is modified by a grant-back
THE COURT: You know, there was a wonderful Latin
phrase that attaches to construction of these terms, which I
think in more dignified language than I would use says that
the subject relates to the clause before it, not modifying
the entire sentence. Do you want to reconsider that, or are
you sticking to that position?
MR. HARRIGAN: Well, Your Honor, I hate to be
stubborn, and it's been awhile since I diagrammed a sentence.
However, I think -- and I'll be short here -- I already am
short. "Motorola offers to license." Then we go to the
comma, and it says, "Including a reasonable royalty,"
et cetera, comma, "subject to a grant-back license." I
believe with those two commas around that phrase, the
"subject to" is modifying the fact that Motorola offers, for
what it's worth.
So, why is this offer -- it is inherently unreasonable for
two main reasons: One, I've already stated and I don't have
time to repeat it, and that is that there's -- but very
briefly -- there's been no demonstration particularly in the
case of the laptop, Motorola can sustain the burden under the
rule requiring that it show that it was the basis of customer
Secondly, and more intuitively obvious than the legal
analysis of patent courts, is what is the -- how is it
possible for a royalty based upon Motorola's contribution of
a small part of a standard, that is a small part of an
operating system, how is it consistent with the general
requirement of proportionality for the royalty on -- for that
to depend upon the price of a device, the laptop that the
operating system is a small part of, when the price of the
laptop varies depending on how big its screen is, whether
it's got a titanium case, what kind of a keyboard it has, how
fast it is, how much memory it has. None of those things
have anything remotely to do with the contribution of
So, apart from the intricacies of patent law, just as a
matter of common sense, it doesn't make any sense for the
royalty that Motorola gets to be increased by ten times
because somebody buys a $4,000 laptop, instead of a $400
laptop. Maybe there isn't a $4,000 laptop. But maybe a
$3,000 instead of a $300. Because there's been no
demonstration of proportionality between those numbers and
THE COURT: Mr. Harrigan, shouldn't you be addressing
the jury? I mean, this is your opening statement.
MR. HARRIGAN: Well, Your Honor, the facts that I
just stated I don't believe are disputable. The fact is that
we know why people pay more for certain laptops. And there's
been -- Motorola would have to come forward with some
evidence that those variations are connected to its
technology somehow, or else it's simply inherently
unreasonable. So that's how we believe that that should be
And if the concern is that it's a factual issue, I will
revert to the entire Market Value Rule, which says you can't
do it this way unless you sustain the burden of proving that
your technology is the basis for customer demand. And we
submit that Motorola hasn't even started to or attempted to
sustain that burden. So, on that basis as a matter of law it
is unreasonable. And that would be outside the RAND context.
Even if you didn't have the constraints of RAND, that rule
I've already covered the ITC comments. With regard to the
various license agreements that Motorola has cited, they have
not come forward with any licensing agreement, where they did
what they're doing here in the case of the laptop. Whatever
else is wrong with their comparisons, and we've provided some
detailed comments on that in the briefs, they have produced
no comparable situation where the product of which they're
seeking a percentage royalty is not the product of the person
from whom they're getting the royalty. And for the reasons
I've already said, that is a grotesque situation which is
part and parcel of the letter, because you can't accept it
piecemeal. And that is, that the product of which they would
have -- the product that Microsoft is producing, the
operating system, is not the product that is the subject of
I'm a little confused about where I am on time.
THE COURT: You have about eight minutes left.
MR. HARRIGAN: Does that include the injunction
THE COURT: No.
MR. HARRIGAN: Okay. Thank you.
THE COURT: It doesn't mean you have to use all of
MR. HARRIGAN: I understand.
Another aspect of these letters that needs to be measured,
Your Honor, is the fact that Motorola is now claiming that it
was only seeking a total of 2.25 percent. And if we're -- I
believe that it is a valid basis for summary judgment on
breach that, in fact, there is no way to get there by reading
those two letters. They asked for 2.2 -- there were two
standards. They sent two letters. They asked for
2.25 percent in each letter. They listed the products they
wanted it on. If you read those two letters you would
immediately conclude that you're paying four and a half
percent total; or at least that they were separate royalties
for 2.25 percent, for each standard.
And Motorola has come forward with no evidence to suggest
that that level of royalty would be reasonable. And so if
we're going to measure their conduct in those letters it
should be measured in the way that -- it should be measured
according to the way that the letters were written. And you
just can't get to the position that they now say is their
Let me just see if I have left off anything terribly
important. Oh, one other thought I did want to express, Your
Honor, you alluded to the jury setting the RAND rate, or
determining the terms. And we believe the court can decide
that without a jury. We're not here to debate that today.
But I just want to let you know that that's something that
would probably be debated when the appropriate time comes.
MR. JENNER: Your Honor, at the risk of wearing out
my welcome, will you take four points in reply?
THE COURT: I think you had your time, Mr. Jenner.
MR. JENNER: Okay. Thank you.
THE COURT: Mr. Harrigan, I think it is -- we're
going to do injunctive relief. And do you want to do your
injunctive relief speech now, or are you delegating that to
MR. HARRIGAN: I'm doing it.
THE COURT: All right. Then I'll hear from you.
MR. HARRIGAN: All right.
THE COURT: Mr. Palumbo, you will get the last word
MR. PALUMBO: Thank you, Your Honor.
MR. HARRIGAN: As usual I have too much paper, so
I've got to find it.
So, Your Honor, we believe there are three reasons that
the court should dismiss the claim for injunctive relief.
The first I've just talked about, which is that if, in fact,
the letters were a breach, it remains for Motorola to even
make a RAND offer.
Second, we believe it's clear that Microsoft is going to
get a license in this case. It is entitled to one. It's
committed to take one. And it's asking the court to
determine the terms. And therefore at the end of the day
there will be -- not only at the end of the day, but at this
point in time, in light of those commitments and that
program, there will be no basis for injunctive relief.
And third, the lack of irreparable harm. And since I've
already talked about the first two, I will focus on the last.
THE COURT: Well, please do so in the context of the
eBay case, because it seems to me that's the controlling
authority that I'm to follow.
MR. HARRIGAN: I agree. Let me turn to the eBay case
then, right off the bat.
THE COURT: And also as part of that, I thought
Motorola made a strong argument in regards to, how do I know
what is irreparable harm in this context? Both of you have
cited things that the court would not normally think of as
irreparable harm, because it's not in this business. So I'd
like you to cover that also.
MR. HARRIGAN: So first of all, Your Honor, under
eBay, basic equitable principles of it relating to the
availability of injunctive relief are viable in patent cases.
And the factors that the court has identified that have to be
shown are not -- they're not balancing factors, they are four
independent factors, each of which has to be demonstrated.
The first one is that the party has suffered an irreparable
injury. The second is that remedies available at law, such
as monetary damages, are inadequate to compensate for that
injury. Then the court balances hardships and looks at the
The first two items, as well as the other two, are
requirements for getting injunctive relief. The court
doesn't balance the probability of irreparable injury against
some other thing in order to make a decision, it determines
if there has been irreparable injury, and if monetary damages
So we believe that the best evidence that monetary damages
are not inadequate is that Motorola has written two letters
stating that it will take what we think is an astronomical
amount of money, but nonetheless money, in exchange for a
worldwide license to these patents. And therefore it must
believe that it can be adequately compensated in money. It
is essentially an admission.
In fact, we had a similar statement recently which is at
tab 9 of your notebook, in describing the German -- outcome
of the German litigation Motorola said -- after stating it
was pleased -- it said, "Fair compensation is all that we
have been seeking for our intellectual property."
It has not been suggested -- Motorola has not come forward
with anything indicating that they have irreparable harm.
And, in fact, the two letters and their statement in Germany
strongly indicate that they do not.
Now, the question of whether there's been a breach by
Microsoft, or repudiation by Microsoft, doesn't bear on this
issue, because the whole notion of when do you get injunctive
relief, and do you have to show irreparable harm, presumes
that there's been in this case an infringement or there's
been some breach. The issue is, what's the remedy? And here
the remedy is money, and it will be decided in this case in a
RAND context pursuant to Microsoft's commitment to take a
license. And so, the end game here in this case will
inevitably result in Motorola receiving reasonable
compensation, and that removes any basis for injunctive
THE COURT: Well let me take you back to your
anti-suit briefing, in which you argued that Microsoft would
suffer irreparable injury if there was not an injunction
entered against Motorola, among other reasons that potential
customers wouldn't buy the product because of uncertainty,
that it was a damage to Microsoft's reputation for
reliability, all of those arguments which you were forcefully
making at the time.
If Mr. Jenner or Mr. Palumbo were to stand up, they would
say the same thing. So why were you right then, and they're
MR. HARRIGAN: Well, Your Honor, in fact Motorola
does not say the same thing. It has done nothing to identify
irreparable harm. Microsoft's irreparable harm actually
began before we even came into the court. And that is that
it had to move its distribution center to the Netherlands
because it wouldn't have time to make the change after an
injunction was entered. There were hundreds of people
dismantling its German operations. There was concern about
all kinds of partner relationships being dismembered, because
the German operation is huge and complicated, and there was
no way to comply with an injunction without making the
And that irreparable harm was already happening. Motorola
has come forward with nothing comparable to that at all.
THE COURT: That just seems to me that Microsoft made
a bad legal decision. German law was the same when it set
this up as it is now. And they chose to go into a large and
very lucrative market in the face of law which was known to
them. So, that argument doesn't have much traction with me.
MR. HARRIGAN: Well, Your Honor, I'm not trying to
debate the wisdom or the merits of the German legal system.
But the question was, wasn't Microsoft arguing it would
suffer irreparable harm from a German injunction? And the
answer is yes. And it really was irreparable harm. I'm
saying, if you look at Motorola's evidence, they just talk
about, well, there are these cases that say that this might
happen or that might happen. But there is no evidence that
it is happening or it actually would happen.
THE COURT: All right.
MR. HARRIGAN: For example, some of the cases say you
might lose market share, and that might be irreparable harm;
or, your litigation expenses are robbing you of the money to
do research. And Motorola cites those cases and mentions
those potential irreparable harm factors. But there is not a
declaration that says that Motorola is running out of
research money because of the lack of this licensing revenue,
or that it's lost market share as a result of this problem.
Motorola and Microsoft are not competitors. So the fact
is that it's up to Motorola, under the eBay case, to come
forward with something that at least creates an issue of fact
as to whether it has suffered irreparable harm.
THE COURT: Mr. Harrigan, I think the court could
take judicial notice of the fact that the legal fees in this
matter would finance a small country. Why don't you go ahead
and wrap up.
MR. HARRIGAN: All right. I will just briefly
address two things: One is, Motorola also argues that this
motion is coming too soon because, "The factual record has
not yet been developed to allow for adequate consideration of
these issues." And we suggest, Your Honor, that that is no
longer -- if that were ever the case, that is no longer the
case since there's been ample opportunity for discovery, and
that that work has not produced any evidence of irreparable
harm that would justify denying this motion.
Finally, Your Honor, I just want to mention the fact that
I believe the court's temporary restraining order, by its
terms, will expire upon the court's rendering a decision with
regard to the issues that we've been debating this morning.
And Microsoft is here requesting that there not be a hiatus,
and that when the court does rule, and thus potentially
satisfies that termination condition of the temporary
restraining order, that the court determine and act on
whether that order should be extended.
Thank you, Your Honor.
MR. JENNER: And, Your Honor, just for the record, if
Your Honor decides to entertain it, we would of course like
to be heard in opposition to that. No surprise, I'm sure.
THE COURT: No surprise. Mr. Jenner, given the
timing, you may get your four points here. Looks like we're
going to have some time. But have Mr. Palumbo go first.
MR. JENNER: I just would like -- four points I would
make in response to counsel's argument. Could you bring up
Dave's slide 46?
This goes to what I take to be the overriding, "they ask
too much" argument, $4 billion. And I would emphasize we
didn't ask $4 billion, we asked the standard rate of
2.25 percent applied to products. And nobody came back and
said, if you do that, it's going to be too big. Any time
anyone has ever come in negotiations, and we always have
negotiations, there have been caps, there have been
discounts, there have been royalty-free cross licenses.
Negotiations allow customization and remove this magnitudinal
problem that Microsoft brings up.
So I do not want to leave this notion that total money is
a demonstration of reasonability. And at the bottom of the
slide, as Judge Posner said, "If you think it's too much,
negotiate, just tell them they're charging too much."
Could you pull up slide 40. Slide 40 goes to the issue of
no way that you should be charging for the end product in the
first place. And we just want to call to Your Honor's
attention that the law, in particular the Lucent v. Gateway
case, in the middle of the page, recognizes that
sophisticated parties -- I don't want to say always,
routinely enter into license agreements that are based on the
end value of commercial products. Because that's the
convenient way, the foolproof check way, where you're not
speculating about somebody's profits or anything else. The
end product has a price, and you can work with it. Of course
you can negotiate that away. But it's recognized as a common
And at the bottom of the slide Your Honor will even see
the IEEE's Letter of Assurance even provides using the end
price of the product as a permissible option. So to say
using the end product price is improper is wrong.
THE COURT: Did you check that box?
MR. JENNER: I'm sorry?
THE COURT: Did you check that box on the IEEE?
MR. JENNER: Didn't have to.
THE COURT: You selected another option on the RAND
MR. JENNER: It's in the context of saying that the
price won't exceed a certain price. And we didn't agree the
price wouldn't exceed a certain price.
THE COURT: Counsel, the argument that you just made
to me was we selected a different basis for RAND terms, and
now we're proposing RAND terms that include the rejected
basis. That doesn't strike me as a particular powerful
MR. JENNER: All I'm trying to say the IEEE
understands that parties will, on occasion, use the end price
as a basis for pricing. It recognizes that that's possible.
The third point that I would like to make goes to this
question about "subject to." It's tab 6 of Microsoft's
binder where they showed you Exhibit 14, the ITU RAND letter.
And they take the position that it was appropriate to
interpret "subject to" as something that would come along for
What I would ask Your Honor to consider is a line further
down. At the end of line 3 of the second paragraph there's
another clause where it also says, "And subject to any
Motorola commitments made to JVT in connection with an
approved H.264 recommendation." That shows that there was
going to have to be a reduction in recognition of JVT.
Nobody could possibly suggest that Motorola used "subject to"
in that context to mean that Microsoft was supposed to pay
Motorola for obligations Motorola had to JVT. So clearly the
second "subject to" shows that it was going to be a decrease
in what was owed.
The last thing I would point out, Your Honor, is on slide
18. If you could bring up slide 18. The notion of Microsoft
saying that Motorola only had a duty to negotiate in good
faith. And that is not a duty that should be imposed upon
Microsoft. The middle box shows that Washington State law
imposes on both parties a good-faith negotiation obligation.
I just wanted to call that to the court's attention.
THE COURT: All right. Thank you.
Mr. Palumbo, other than me, you get the last word of the
MR. PALUMBO: I also have a bench book, Your Honor.
And I guess since you and I are going to have a conversation,
that makes it impossible for me to get through my bench book,
so I want to set this into context.
First, if you grant our repudiation motion, we're done,
since Microsoft's motion to dismiss our injunctive relief
claim is based on their right to a RAND license. So I'm
going to explain why you should not dismiss the injunctive
relief claim at this time, even if you deny our repudiation
motion. And as I'm sure you understand, the injunction
motion and the other motions you heard this morning, are
So I don't want to be flippant, but let me start with a
very simple and perhaps silly example. You fall in love with
a house. More importantly, your wife falls in love with a
house, and she tells you to go buy it. Your real estate
broker tells you that the seller wants $million, won't take
a dollar less, you've got 20 days to accept. What do you do?
You tell the broker, yeah, yeah, go offer them $800,000.
That's exactly what happened in this. And we can't tell you
the substance of those negotiations, but there have been
negotiations, and they have been significant.
So let me first explain to you what I think Mr. Jenner was
saying, and make it crystal clear about how we think this
case should proceed. If you determine that Microsoft has not
repudiated its right to a RAND license, we submit that you
should find the contract imposes a duty of good faith
negotiations on both parties, a mutual duty, and that that
duty is continuing.
We submit that that holding is consistent with the terms
of the contract where the parties clearly anticipate the RAND
terms will be set by negotiations and that that is a good
policy for the federal court.
In other words, federal courts should permit and even
encourage the parties to continue negotiations in good faith
until it's clear that both have negotiated in good faith, and
they have a genuine good-faith disagreement on the RAND
terms, and the dispute will not be resolved without the
court's intervention to resolve the dispute. Proceeding in
that manner does not require any change in the case schedule
in this case. Motorola and Microsoft have something less
than seven months between now and November 19th to reach an
agreement on all the RAND terms.
So what are the possibilities? First possibility, you
could determine on November 19th that one or the other party
had not negotiated in good faith, and you could think about
remedies for that. Second possibility, the parties could
reach an agreement on some but not all RAND license terms.
And if the court then determined that it was going to submit
those terms to the court's determination, you'd have less to
deal with. Or, the parties could agree upon all terms. And
proceeding in that manner is, we think, consistent with the
law, we think it's good policy for the federal court, and we
think it makes a great deal of sense.
THE COURT: Does that mean you're joining Microsoft
in taking this issue away from the jury?
MR. PALUMBO: We have to think about that, Your
Honor. We certainly considered whether this is simply a
matter of equity that would be for your determination only.
But I'd like to talk with the clients and talk with the other
lawyers before we weigh in. But if there is a disagreement
between us and Microsoft on that point, I'm sure you're going
to hear about it and the basis for it.
So the issues before the court are the two issues that I
have on the screen. Do the RAND Letters of Assurance and our
offer to Microsoft categorically bar Motorola for seeking
injunctive relief for the three H.264 patents? It's only the
H.264 patents that are at issue in this motion. And the
second issue is whether you should refrain from determining
whether Motorola could meet its burden of proving the
This motion comes to you in a manner that is somewhat
unprecedented. In all the cases cited in both the parties'
briefs, the Patent Holder makes a motion for injunctive
relief, supported by evidence that the Patent Holder has
offered to satisfy the four-part test for granting injunctive
relief. Some of those cases are preliminary injunction
cases, some are permanent injunction cases where there had
been a finding at trial of patent validity and infringement.
Motorola has not made and does not intend to make a
preliminary injunction motion.
If Motorola's patents are judged valid and Microsoft's
products are judged to infringe, whether Motorola makes a
motion for permanent injunction will depend on facts which
are yet to be determined, including future developments in
the markets in which Motorola and Microsoft's products
compete. The competing products right now are Windows 7,
which is offered on PCs, and on the Nokia phone. Microsoft
will release Windows 8, that will be a cross-platform license
that operates on PCs and all mobile devices, in direct
competition for Motorola's project.
So it remains to be seen, even to us, whether we would
make a motion for preliminary injunction. If we decided that
there was a basis to do it, we would offer the evidence in
support of the four-part test at trial and make the motion at
the conclusion of trial. And the evidence in that motion
will be undoubtedly different than the evidence we offer
Now, Microsoft argues in its reply that it is not arguing
that the RAND commitment is a categorical bar to injunctive
relief. But if you look at the third slide, Your Honor, if
you look at what they say consistently in their opening
motion, they are arguing precisely that the RAND commitment
is a per se or categorical bar. And I have shown you several
quotes out of Microsoft's briefs. And if you can look at
just the last one on slide 4. It's clear what they're
saying, they're saying that because we have made a RAND
commitment, that's an adequate remedy of law for use of the
patented technology and we have no right to injunctive
So what Microsoft's contending is that the RAND commitment
is an admission that a compulsory license is an adequate
remedy. And if that contention were true, if the RAND
commitment was a per se bar to injunctive relief, then there
would be a basis to grant this motion. But Microsoft's
contention is contrary to law.
Federal cases uniformly hold that a Patent Holder's
willingness to license its patent, including by making a RAND
commitment, does not bar injunctive relief. Rather, the
availability of injunctive relief is decided in each case
based upon the traditional four-factor test, and the specific
facts in that case. And we have eBay, the language which I'm
sure you're familiar with, Your Honor, where the district
court found that the willingness to license would be
sufficient to show that the Patent Holder would not suffer
irreparable harm. And Justice Thomas said, "But traditional
equitable principles do not permit such broad
classifications." And this is the language in eBay, that the
lower courts cite every time they're confronted with this
The CSIRO case is a RAND case. And the court found that
CSIRO's only intent was to derive license revenue, and CSIRO
made a RAND assurance to the IEEE. And in the face of both
of those, the district court granted a permanent injunction,
finding that a compulsory license will not adequately
compensate CSIRO for the infringement.
Courts have not distinguished between a willingness to
license evidenced by a RAND commitment, and a willingness to
license evidenced by the fact that the Patent Holder has
licensed to other parties, or even stated its willingness to
license to the infringer at issue.
So, we don't have many RAND cases. We do have a large
number of cases where the court considers evidence of a
Patent Holder's willingness to license, rejects that that is
a basis, per se, to deny it. And in each case they follow
the Supreme Court's decision in eBay.
So I'm going to go through very, very quickly, Your Honor,
a whole series of cases. Here is Transocean. And in this
case, Transocean, the evidence was that Transocean was
willing to consider licensing its invention to GSF, the
defendant in the case, and even in the face of that the court
granted a permanent injunction.
Then you have ActiveVideo, same ruling; Callaway Golf,
same ruling. Willingness to license does not forego the
ability to get injunctive relief, rather injunctive relief is
judged by the four-part test. And willingness to license is
a factor the court considers, but it is not a dispositive
And then here's a whole series of cases, again none of
these are RAND cases, Your Honor, but as I said, the courts
do not distinguish between a willingness to license,
evidenced by other evidence, and a RAND willingness to
So let me turn to what ALJ Shaw says, and this is
consistent with our research, and Microsoft cites no cases to
the contrary. What he says in denying Microsoft's RAND
defense is, "Microsoft was not able to cite one case in which
an exclusion order was foreclosed, due to the existence of
RAND obligations." And I submit, Your Honor, there is no
case that holds that a RAND commitment, standing alone, in
and of itself, bars injunctive relief.
So then Microsoft takes the position that if the court
establishes the terms of a RAND license, injunctive relief
cannot be granted, since Microsoft will have a license to
Microsoft's H.264 patents. And that proposition is contrary
to the district court's decisions in CSIRO and Transocean.
So here is the language from CSIRO, which was a RAND case.
And the court says, "Further, such royalty payment, a royalty
payment under compulsory license, does not necessarily
include the other non-monetary license terms that are as
important as monetary terms to a licensor such as CSIRO."
And Mr. Jenner has told you at some length that a RAND
license, and I'll show you some specific language, would
include not only a royalty rate, but many other material
So at least the CSIRO district court determined that even
though they could grant a compulsory license, that license
would not include all the essential terms that a Patent
Holder was entitled to for the infringement in this case on
the specific facts of the CSIRO case, and an injunction
issued, in the face of a RAND obligation.
Transocean, as I said before, was not a RAND case. But
the court said the same thing. "The court's persuaded that
if it does not enter a permanent injunction, it will force a
compulsory license on Transocean, that will not contain any
of the commercial business terms typically used by a Patent
And I promised that I would show you specific language
about the fact that a RAND license is going to be and have
more like the 80-page license that Mr. Jenner held up. What
the ITU policy says -- this is a policy that applies where
the Patent Holder checks the box that they're not going to
charge a royalty, and what the ITU says is, even in that case
where there's no royalty, the Patent Holder is still entitled
to require that the implementer sign a license agreement that
contains other reasonable terms and conditions such as those,
and it goes on.
So if you find yourself in a position where either you or
the jury has to determine the terms of a RAND license, you
will be doing much more, we submit, than simply determining a
royalty rate. You'll be looking at cross licenses, how the
cross licenses for Microsoft products impact the royalty
rate, and many other material terms.
So let me turn to now --
THE COURT: Before you leave that, in our research on
this, we could not find a RAND case in this context. The
RAND cases, including the ones that you're mentioning, are
all situations where the infringing party refuses to take a
RAND license. That seems to me to just wipe that whole line
of authority out. Because it is a dramatically different
situation. I would concede to you that it's appropriate to
have injunctive relief then, because you need to stop the
MR. PALUMBO: No question.
THE COURT: So, tell me why you then carry that over
into the RAND context.
MR. PALUMBO: I'm not sure I understand your
question. But let me try to answer it, and then you can
correct me. If you were to determine that both parties had
negotiated in good faith, we would still have the opportunity
to offer evidence to meet our burden of proof under the
four-part test that a compulsory license would not be
sufficient to protect our patent rights. And the courts go
on and they cite Justice Robert's concurring opinion where he
says, yes, that's the law that's in the majority opinion, but
we have a long history of honoring Patent Holder's rights to
exclude others from practicing their inventions, and that
history has to be honored. It's not dispositive as it was
before eBay, but it has to be honored.
Now, Your Honor, the burden of proof that we would have to
meet in that circumstance would be very substantial. And as
I said, we can't sit here today, because facts are yet to be
developed, and tell you that we could meet the burden of
proof. I'm prepared to tell you, we're not in a position
where we could even decide that we were going to seek a
permanent injunction. That decision will be made prior to
trial based on the evidence we believe we can offer at trial.
So where there is a RAND commitment, there's no question that
there's a balancing between the Patent Holder's right to
exclude, and the RAND commitment, and the burden for us to
show and meet the burden that CSIRO was able to meet in its
case is very substantial. And if you've read that case,
there are facts in that case which support it. And they are
different than the facts that we would be able to offer you.
So I'm not saying we would be entitled to it in the face of a
RAND commitment, I'm saying that is an issue that has yet to
But I want to turn to another subject, Your Honor.
Microsoft seems to suggest that there's something wrong and
unfair about requiring it to negotiate a RAND license, unless
the potential for injunctive relief is removed by this court.
But the clear intent of the parties to the contract is that
RAND license terms would be established by negotiations
between the parties. And we submit this court should stay
its hands until those negotiations have failed.
Since court intervention at the inception of negotiation
is unprecedented, as far as we can determine, I can find no
case, every infringer seeking a RAND license does so with the
potential that unsuccessful negotiations could result in an
The potential for an injunction, the potential, Your
Honor, not the injunction, but the potential is an incentive
for the infringer to engage in good faith negotiations, and
the countervailing incentive for Motorola as the Patent
Holder to engage in good faith negotiations, is the potential
such as this seeking to have the court set a compulsory
license. So there are equal and offsetting incentives. And
what we suggest is it would be a mistake for the court at
this point to remove the potential for an injunction.
And let me just show you a few slides on that issue.
These basically say what you've just said, Your Honor.
Members of the industry and the ABA standards clearly say if
you have a RAND commitment but you can't successfully
negotiate in good faith a RAND license offer, the Patent
Holder isn't precluded from getting an injunction. And if
you note in each of these, the underlying assumption is the
potential for injunction is out there as you negotiate.
Let me show you what Microsoft's two executives who are
responsible for standards have said in a June letter to the
ITC, and I'm not going to read you the whole thing, but look
at the bolded language at the bottom, "Any uniform
declaration that such relief" -- preliminary injunction --
"would not be available if the Patent Holder has made a
commitment to offer a RAND license for its essential patent
claims in connection with a standard may reduce any
incentives that implementers might have to engage in good
faith negotiations with the Patent Holder."
So that's a letter submission to the Federal Trade
Commission by Microsoft, and it says precisely that. This is
an incentive. It's out there. There's no guarantee that
there will be injunctive relief if there is no RAND license.
But it is an incentive. And I said, there are equal and
offsetting incentives for good-faith negotiations that weigh
upon Motorola, just as the potential for an injunction weighs
I'll show you a couple slides. Ericsson is, as you know,
a very large cellular company. And Ericsson basically says
the same thing, "The availability of injunctive relief for
standards essential patents indeed has depended on the
behavior of the parties to the proceedings and, in
particular, on their conduct in bilateral negotiations." So
Ericsson is recognizing the fact that courts do grant
injunctions even in the face of a RAND license, and resolving
that that is a good thing for the benefit of those
And then here is Transocean where the court says
effectively the same thing, recognizing the benefit of a
potential injunction on the commercial negotiating power in
a licensing negotiation. And because this is not a RAND
license, what the court in Transocean says is, "If
GlobalSantaFe can continue to infringe with a court-issued
compulsory license, then others would be encouraged to
infringe, and Transocean loses part of its commercial
negotiating power in license negotiations."
So what this is saying is if somebody gets a compulsory
license from Motorola, and then the risk of an injunctive
relief is removed, then that is diminishing the power to
successfully achieve future successful negotiations over a
And here is the German court. And the German court says
the same thing in the certified transcript. And I think
Mr. Harrigan has contended there is just no relationship
between RAND and this antitrust thing, yet he cited
absolutely no authority to you whatsoever for that
proposition, Your Honor. And you were troubled in the motion
we had the last time we were here about the impact that the
potential for an injunction would have on Microsoft. And you
were concerned about a disparate ruling by the German court.
But just in terms of negotiation, in the German court if
Microsoft -- if Microsoft's offer is deemed to be not
reasonable, not meeting the German court standard, we get an
If Microsoft makes an offer and the German court
determines that our denial or rejection of that offer is
unreasonable, then we can't enforce our patent rights. So we
don't have that here. But we do have a similar situation
where there are equal and offsetting incentives to both
parties to engage in good-faith negotiations, and you should
not grant a motion to dismiss the injunctive relief claim
because it hasn't even been posed properly and would be
contrary to law; but also because it removes one of the
critical incentives that may get the parties to agree upon
the terms of a RAND license without you ever having to do
anything in this case.
And then I have a whole series of slides, but I want to
conclude pretty quickly. And these slides just go on to
demonstrate why it is Mr. Harrigan said that -- well, they
say that we've got the burden of coming forward with all of
our proof. And yet here is the cite from their own case
which confirms what I've told you, which is this motion is
based solely on the RAND commitment as evidence that there
can't be irreparable harm. Motorola says because --
Microsoft says, "Because Motorola cannot show irreparable
harm and because monetary relief would provide an adequate
remedy, it is not necessary for the court to consider any of
the other eBay factors in rejecting Motorola's claim for
So the other factors and our proof in this motion of the
four-part test, wasn't even put on the table by Microsoft's
motion. Microsoft says, well, we're not direct competitors
and so you can't give an injunction, because we're not direct
If a motion for permanent injunction is made, you're going
to look at that issue, and you're going to look at it very
closely. The fact is, as I've said, Windows 7 is a platform
for mobile phones, Windows 8 is a platform for smart phones
and tablets, that will compete directly with Motorola's
mobile devices. And the ActiveVideo court says, "The court
is not aware of any precedent which requires direct
competition in any form before an injunction is made."
Microsoft also argues in its briefs that we could never
get an injunction because H.264 is not a core aspect of our
business. In fact, Motorola has been a leader in video
compression for 20 years. H.264 is a core functionality, and
Motorola and Microsoft were co-chairs of the joint video team
responsible for H.264 development. So to say this is a
non-core functionality for Motorola simply is not true
And moreover, here's the Bosch court, which says, "The
federal court granted a permanent injunction based on
indirect evidence of lost market share." And it says
further, "Injuries that affect a non-core aspect of a
patentee's business are equally capable of being irreparable
as ones that affect more significant operations." Even if it
were non-core, and it is core, that alone would not be a
Then I'm just swinging through --
THE COURT: You should go ahead and wrap up.
MR. PALUMBO: So Microsoft argues that the fact of a
RAND commitment standing alone means that a compulsory
license is an adequate remedy of law, and as a matter of law
we can't get injunctive relief. We've demonstrated that the
Supreme Court's decision in eBay and every single decision of
the federal courts following eBay, is contrary to Microsoft's
position. And we submit that you should refrain from
determining whether Motorola can meet its burden to prove the
four-factor test for permanent injunctive relief, unless and
until we seek such relief and offer evidence at trial. Thank
you, Your Honor. That's all I have.
THE COURT: Thank you. Mr. Harrigan, do you want to
take two minutes?
MR. HARRIGAN: I would. Thank you, Your Honor. I
was going to suggest the same amount of time.
Your Honor, this motion is really primarily predicated on
two things: The first one is that Microsoft, for all
practical purposes, has a license at this point. And the
only issue is what are the terms going to be? And they're
going to be set by the court. If that proposition accords
with the court's view of the matter, then there will never be
any need for a basis for injunctive relief because Microsoft
will have a license to the two standards and that will be the
end of it. And that is what was proposed in Motorola's
letters, but on unacceptable terms. That's the first
The second proposition is that the lack of irreparable
harm is not based on the fact that this is a RAND situation.
At page three of our reply brief, among other places, we
indicate that the key basis for this motion is that Motorola
offered to license its H.264 patent portfolio to Microsoft at
a 2.25 percent royalty rate.
In other words, this is not a case where Motorola
expressed a willingness to do this to some other party, or
even just expressed a general willingness to Microsoft. It
gave a specific amount of specific royalty that it would take
in return for a worldwide license for these patents with this
party. And that is a unique situation, and it means that,
especially in light of Microsoft's agreement to accept the
license at whatever rates the court sets, there isn't going
to be any basis for injunctive relief. But it's also an
admission by Motorola that at least payment of that much
money is acceptable, an acceptable outcome, and is all of the
relief that they are seeking in the letters.
Basically, Your Honor, Motorola is entitled to RAND rates,
and it's going to get them as a result of this lawsuit, if
not in some other way. Thank you.
THE COURT: Counsel, as I indicated at the start, I'm
taking these matters under advisement and will file a written
opinion. I'm reserving my ruling, in part, because I need
time to consider the material that you've given us today.
I'm not sure that there is a tree left standing in the
forest, given the volume that's been submitted. And I also
want to think about some of the arguments that you've made
However, I will tell you that it is at least my
preliminary -- and I stress "preliminary" -- view that
Microsoft's motion for breach of contract is going to be
denied and that Motorola's motion for repudiation is going to
Regarding Microsoft's motion to dismiss the injunctive
relief claim, Mr. Palumbo acknowledged what's been troubling
the court, which is there is not much legal authority
regarding RAND cases. And the authority which we've been
given by both sides has to do with infringers who decline to
take a license. That complicates that particular motion.
Secondly, the parties are well ahead of the court in what
a trial in this matter might look like. I need to go back
and try and determine from your pleadings, as opposed to your
argument, what issues are in and what are out in order to
evaluate the availability of injunctive relief. So that one
is reserved for further consideration.
In response to Mr. Jenner, I am acutely aware that I have
outstanding a temporary restraining order, and we may convert
it into a preliminary injunction, if that is in accordance
with our consideration of your motions. And I'm not inclined
to have another argument in doing so. You've had your
opportunity to present what you wanted to the court. And I
think you've done a good job of doing so.
I'm going to close with the following observation, which
I've thought about a fair amount, and which hopefully will
offer you some guidance in the court's view of this matter.
The court is well aware that it is being played as a pawn in
a global, industry-wide business negotiation. The conduct of
both Motorola and Microsoft has been driven by an attempt to
secure commercial advantage. And to an outsider looking in
at it, the conduct has been arbitrary, it has been arrogant,
and frankly it appears to be based on hubris.
When I use the word "hubris" I am reminded of Sophocles'
Antigone, when Creon refuses to even bury Polynices; or, for
those of you who want to be more highbrow, Icarus for flying
too close to the sun.
These days hubris is usually defined as extreme pride or
arrogance, often associated with the loss of contact with
reality, and an overestimation of one's own competence or
capabilities. In this case, it is an indictment of the
character of the parties.
So, returning to the court's self-described role as a pawn
in this chess game, I leave you with one of my favorite
traditional Irish sayings: When the chess game is over, the
pawn and the king go back to the same box.
You should think about that. We will be in recess. Thank
(The proceedings recessed.)
C E R T I F I C A T E