Move over, Federal Circuit. There’s a new patent sheriff in town.
On September 28, the U.S. Court of Appeals for the Ninth Circuit issued a 37-page opinion emphatically denying Motorola’s bid to enforce a German court’s patent infringement ruling against Microsoft Corp. The dispute between the technology giants, which Motorola says is worth $4 billion a year, turns on a contract that requires Motorola to grant reasonable and nondiscriminatory, or “RAND,” licenses for its standards-essential patents. That’s why the case was appealed to the Ninth Circuit, rather than the Federal Circuit, which typically resolves patent disputes on appeal.
Judge Marsha Berzon tackled the issues with gusto for a unanimous panel. While it’s not clear whether courts can set a RAND rate, she wrote, “Implicit in such a sweeping promise is, at least arguably, a guarantee that the patent-holder will not take steps to keep would-be users from using the patented material, such as seeking an injunction, but will instead proffer licenses consistent with the commitment made.”
Therefore, U.S. District Judge James Robart of Seattle did not abuse his discretion when he issued a rare anti-suit order blocking Motorola from enforcing its patents in Germany while the technology companies resolve their licensing dispute in his court, Berzon concluded.
Senior Judge J. Clifford Wallace and Judge Sidney Thomas concurred.
Motorola, now owned by Google Inc., claims Microsoft has infringed its patents in Xbox, PC and smartphone software. The patents at issue primarily involve a video coding standard set by the International Telecommunication Union. Motorola is a member of the ITU, and as a condition of membership agreed to license technology essential to the standard at RAND rates. The ITU does not specify how RAND rates should be set or how courts should adjudicate disputes over them.
In October 2010, Motorola offered to license technology including the video coding to Microsoft for a rate equivalent to $4 billion annually. Rather than counter, Microsoft sued the next month in Seattle federal court. Robart ruled in February that by entering a standards-setting body Motorola had agreed to the RAND contract, with Microsoft a third-party beneficiary. Robart has set a trial on a reasonable global license for November.
In the meantime, Motorola sued Microsoft in Germany in July 2011 to enjoin sales of Microsoft products in that country. A German court entered an injunction last December. But Microsoft persuaded Robart to block Motorola from enforcing that judgment until Robart resolves the parties’ licensing dispute.
Quinn Emanuel Urquhart & Sullivan partner Kathleen Sullivan argued to the Ninth Circuit earlier this month that Robart’s ruling was flawed. “The United States does not set patent law for the world,” she told the court.
The Ninth Circuit saw it differently in Microsoft v. Motorola. “To be sure, if the district court had based its injunction in an expectation that U.S. patent claims could dispose of German patent claims, then it would have erred,” Berzon wrote. “But the district court did not base its injunction on the pendency of parallel patent proceedings. Rather, it is Microsoft’s Washington state contract claims that the district court determined could resolve the German patent claims.”
Berzon emphasized that the court was not deciding whether Robart may determine a RAND rate at trial later this year. “But we do hold this much,” she wrote. “The district court’s conclusions that Motorola’s RAND declarations to the ITU created a contract enforceable by Microsoft as a third-party beneficiary (which Motorola concedes), and that this contract governs in some way what actions Motorola may take to enforce its ITU standard-essential patents (including the patents at issue in the German suit), were not legally erroneous.”
Berzon compared the RAND agreement to a forum selection clause, where a contracting party gives up favorable interpretations of laws that may be available elsewhere. “Here, there is no forum-selection clause, but the broader principle applies: Courts should give effect to freely made contractual agreements,” Berzon wrote. “Motorola made promises to the ITU to license its standard-essential patents worldwide to all comers. In exchange, it received the benefit of having its patents implicated in the standards.”
Berzon also rejected Motorola’s argument that the anti-suit order tramples on comity between the United States and Germany. “At bottom, this case is a private dispute under Washington state contract law, between two U.S. corporations; it does not raise any ‘public international issue,’” she wrote.
Carter Phillips of Sidley Austin argued the case for Microsoft.
Scott Graham is a reporter for The Recorder, a Legal affiliate based in San Francisco. •