Microsoft Corp. v. Motorola, Inc.

• Decision Date: 28 September 2012
• Docket Number: No. 12–35352.,12–35352.
• Parties: MICROSOFT CORPORATION, a Washington corporation, Plaintiff–Appellee, v. MOTOROLA, INC.; Motorola Mobility, Inc.; General Instrument Corporation, Defendants–Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

696 F.3d 872

12 Cal. Daily Op. Serv. 11,223

2012 Daily Journal D.A.R. 13,619

MICROSOFT CORPORATION, a Washington corporation, Plaintiff–Appellee,

v.MOTOROLA, INC.; Motorola Mobility, Inc.; General Instrument Corporation, Defendants–Appellants.

No. 12–35352.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted Sept. 11, 2012.

Filed Sept. 28, 2012.

Derek L. Shaffer, Quinn Emanuel Urquhart & Sullivan, LLP, Washington D.C.; Kathleen M. Sullivan, Quinn Emanuel Urquhart & Sullivan, LLP, New York, NY, attorneys for Appellants.

Arthur W. Harrigan, Jr., Christopher Wion, Shane P. Cramer, Calfo Harrigan Leyh & Eakes LLP, Seattle, WA; David T. Pritikin, Constantine L. Trela, Jr., Richard A. Cederoth, Robert N. Hochman, Nathaniel C. Love, Sidley Austin LLP, Chicago, IL; Carter G. Phillips, Sidley Austin LLP, Washington, D.C.; T. Andrew Culbert, David E. Killough, Microsoft Corporation, Redmond, WA, attorneys for Appellee.

Appeal from the United States District Court for the Western District of Washington, James L. Robart, District Judge, Presiding. D.C. No. 2:10–cv–01823–JLR.

Before: J. CLIFFORD WALLACE, SIDNEY R. THOMAS, and MARSHA S. BERZON, Circuit Judges.

OPINION

BERZON, Circuit Judge:

In this interlocutory appeal, Motorola appeals from the district court's preliminary injunction to enjoin Motorola temporarily from enforcing a patent injunction that it obtained against Microsoft in Germany. We review the district court's grant of a foreign anti-suit injunction under the deferential abuse-of-discretion standard, and affirm.

I. BACKGROUND

The parties are involved in ongoing contract and patent litigation before the district court. We recite here only the factual and procedural history most relevant to this interlocutory appeal.

A. Standard-setting organizations and intellectual property law

The underlying case before the district court concerns how to interpret and enforce patent-holders' commitments to industry standard-setting organizations (“SSOs”), which establish technical specifications to ensure that products from different manufacturers are compatible with each other. See generally Mark A. Lemley, Intellectual Property Rights and Standard–Setting Organizations, 90 Calif. L.Rev. 1889 (2002). Specifically, the case involves the H.264 video coding standard set by International Telecommunications Union (“ITU”), and the 802.11 wireless local area network standard set by the Institute of Electrical and Electronics Engineers (“IEEE”). This appeal implicates primarily the H.264 standard.

Standards provide many benefits for technology consumers, including not just interoperability but also lower product costs and increased price competition. See Apple, Inc. v. Motorola Mobility, Inc., 2011 WL 7324582, at *1 (W.D.Wis. June 7, 2011). The catch with standards “is that it may be necessary to use patented technology in order to practice them.” Id. As a result, standards threaten to endow holders of standard-essential patents with disproportionate market power. In theory, once a standard has gained such widespread acceptance that compliance is effectively required to compete in a particular market, anyone holding a standard-essential patent could extract unreasonably high royalties from suppliers of standard-compliant products and services. This problem is a form of “patent holdup.” See generally Mark A. Lemley, Ten Things to Do About Patent Holdup of Standards (And One Not To), 48 B.C. L.Rev. 149 (2007).

Many SSOs try to mitigate the threat of patent holdup by requiring members who hold IP rights in standard-essential patents to agree to license those patents to all comers on terms that are “reasonable and nondiscriminatory,” or “RAND.” See Lemley, Intellectual Property Rights, 90 Calif. L.Rev. at 1902, 1906. For example, consider the ITU, whose H.264 standard is implicated in this appeal. The ITU's Common Patent Policy (the “ITU Policy”) provides that “a patent embodied fully or partly in a [standard] must be accessible to everybody without undue constraints.” Anyone who owns a patent declared essential to an ITU standard must submit a declaration to the ITU stating whether it is willing to “negotiate licenses with other parties on a non-discriminatory basis on reasonable terms and conditions.” If a “patent holder is not willing to comply” with the requirement to negotiate licenses with all seekers, then the standard “shall not include provisions depending on the patent.”

Pursuant to these procedural requirements, Motorola has submitted numerous declarations to the ITU stating that it will grant licenses on RAND terms for its H.264–essential patents. A typical such declaration provides:

The Patent Holder will grant a license to an unrestricted number of applicants on a worldwide, non-discriminatory basis and on reasonable terms and conditions to use the patented material necessary in order to manufacture, use, and/or sell implementations of the above ITU–T Recommendation ISOC/IEC International Standard.¹

The ITU Policy does not specify how to determine RAND terms, or how courts should adjudicate disputes between patent-holders and would-be licensors under a RAND commitment. To the contrary, the ITU Policy includes the following disclaimer:

[Standards] are drawn up by technical and not patent experts; thus, they may not necessarily be very familiar with the complex international legal situation of intellectual property rights such as patents, etc....

....

... The detailed arrangements arising from patents (licensing, royalties, etc.) are left to the parties concerned, as these arrangements might differ from case to case.

The ITU Policy also disclaims any role for the organization in negotiating licenses or in “settling disputes on Patents,” stating, “this should be left—as in the past—to the parties concerned.” Finally, the ITU form that patent-holders use to submit licensing declarations includes the caveat: “This declaration does not represent an actual grant of a license.”

Courts and commentators are divided as to how, if at all, RAND licensing disputes should be settled. Relatedly, some commentators have suggested that because of the RAND licensing commitment, injunctive relief is an inappropriate remedy for infringement of standard-essential patents. See, e.g., Lemley, Ten Things, 48 B.C. L.Rev. at 167 (“Denying [injunctive] relief is the most powerful way to prevent patent holdup[.]”). Judge Posner, sitting by designation on the U.S. District Court for the Northern District of Illinois, recently held in a different case involving Motorola-owned standard-essential patents for which Motorola had made a RAND commitment that the court would not

be justified in enjoining Apple [the plaintiff in that case] from infringing [the patent at issue] unless Apple refuses to pay a royalty that meets the FRAND requirement.² By committing to license its patents on FRAND terms, Motorola committed to license the [patent] to anyone willing to pay a FRAND royalty and thus implicitly acknowledged that a royalty is adequate compensation for a license to use that patent.

Apple, Inc. v. Motorola, Inc., 869 F.Supp.2d 901, 914, 2012 WL 2376664 (N.D.Ill. June 22, 2012), at *12 (Posner, J.). More generally, Justice Kennedy has suggested that injunctions against patent infringement “may not serve the public interest” in cases where “the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations.” eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 396–97, 126 S.Ct. 1837, 164 L.Ed.2d 641 (2006) (Kennedy, J., concurring).

B. The U.S. contract litigation

In October 2010, Motorola sent Microsoft two letters offering to license certain of its standard-essential patents. Of relevance to this appeal is the H.264 letter, sent on October 29, 2010. The letter proposed a royalty of “2.25% per unit” for each standard-compliant product, “subject to a grant back license” of Microsoft's standard-essential patents, “based on the price of the end product (e.g., each Xbox 360 product, each PC/laptop, each smartphone, etc.) and not on component software (e.g., Xbox 360 system software, Windows 7 software, Windows Phone 7 software, etc.).” It noted in closing: “Motorola will leave this offer open for 20 days. Please confirm whether Microsoft accepts the offer.”

Appended to the letter was a “non-exhaustive list” of the U.S. and international patents that Motorola declares that it owns and that are essential to the H.264 standard, and that would be “included in the license” being offered. The list comprised not just U.S. patents but also numerous patents granted or filed in foreign jurisdictions, including Australia, Canada, China, the European Patent Convention,³ France, Germany, Great Britain, Ireland, Japan, Korea, Mexico, the Netherlands, Norway, South Korea, Sweden, and Taiwan. Among these were German patents numbered EP0538667 (“'667”) and EP0615384 (“'384”), and U.S. patents 7,310,374 (“'374”); 7,310,375 (“'375”); and 7,310,376 (“'376”).⁴

On November 9, 2010, Microsoft filed a breach-of-contract suit against Motorola in the U.S. District Court for the Western District of Washington, under Washington state contract law.⁵ Microsoft's theory of liability is that Motorola's proposed royalty terms were unreasonable, and that Motorola's letters therefore breached its contractual RAND obligations to the IEEE and the ITU, to which Microsoft is a third-party beneficiary. The next day, Motorola filed a patent suit against Microsoft in the U.S. District Court for the Western District of Wisconsin, alleging infringement of U.S. patents ' 374, '375, and '376. The Western District of Wisconsin transferred the patent case to the Western District of Washington, where, in June 2011, the district court ruled that Motorola's patent claims were not compulsory counterclaims to Microsoft's contract claims. Nevertheless, the court consolidated the...