Microsoft Corp. v. Motorola, Inc.

• Decision Date: 12 August 2013
• Docket Number: Case No. C 10–1823JLR.
• Citation: 963 F.Supp.2d 1176
• Parties: MICROSOFT CORPORATION, Plaintiff, v. MOTOROLA, INC., et al., Defendants. Motorola Mobility, Inc., et al., Plaintiffs, v. Microsoft Corporation, Defendant.
• Court: U.S. District Court — Western District of Washington

963 F.Supp.2d 1176

MICROSOFT CORPORATION, Plaintiff,

v.MOTOROLA, INC., et al., Defendants.

Motorola Mobility, Inc., et al., Plaintiffs,

v.Microsoft Corporation, Defendant.

Case No. C 10–1823JLR.

United States District Court,

W.D. Washington,

at Seattle.

Aug. 12, 2013.

Anthony Balkissoon, Constantine L. Trela, Jr., David C. Giardina, David T. Pritikin, Douglas I. Lewis, Ellen S. Robbins, John W. McBride, Nathaniel C. Love, Richard A. Cederoth, William H. Baumgartner, Jr., Sidley Austin, Chicago, IL, Theodore W. Chandler, Sidley Austin, Los Angeles, CA, Arthur W. Harrigan, Jr., Christopher T. Wion, Shane P. Cramer, Calfo Harrigan Leyh & Eakes, LLP, Seattle, WA, Brian R. Nester, Carter G. Phillips, Sidley Austin, Washington, DC, David E. Killough, T. Andrew Culbert, Microsoft Corp., Redmond, WA, for Microsoft Corporation.

Douglas H. Hallward–Driemeier, Paul M. Schoenhard, Amanda Wieker, Michael D. Laufert, Ropes & Gray, Washington, DC, Gabrielle Elizabeth Higgins, Mark D. Rowland, Norman H. Beamer, James R. Batchelder, Ropes & Gray LLP, East Palo Alto, CA, Jesse J. Jenner, Steven Pepe, Kevin J. Post, Josef B. Schenker, Khue V. Hoang, Laurence S. Rogers, Conor Brew McDonough, Stuart W. Yothers, Ropes & Gray LLP, David Elihu, Ellyde Roko Thompson, Kathleen M. Sullivan, Quinn Emanuel Urquhart & Sullivan, LLP, New York, NY, Philip S. McCune, Ralph H. Palumbo, Summit Law Group, Seattle, WA, Andrea Pallios Roberts, Brian C. Cannon, Cheryl Ann Berry, Elanor Mangin, Quinn Emanuel Urquhart & Sullivan, LLP, Redwood Shores, CA, William C. Price, Quinn Emanuel Urquhart Oliver & Hedges, Los Angeles, CA, Samuel Lawrence Brenner, Ropes & Gray, Boston, MA, for General Instrument Corporation, Motorola Mobility, Inc. and Motorola, Inc.

ORDER ON PARTIES' SUMMARY JUDGMENT MOTIONS

JAMES L. ROBART, District Judge.

I. INTRODUCTION

Before the court is Microsoft Corporation's (“Microsoft”) motion for partial summary judgment of breach of contract and summary judgment on Motorola's third, fourth, fifth, seventh, eighth, and ninth affirmative defenses and second counterclaim. (Microsoft Mot. (Dkt. 727 (redacted), 729 (sealed).) Also before the court is Motorola, Inc., Motorola Mobility, Inc., and General Instrument Corporation's (collectively, “Motorola”) motion for partial summary judgment. (Motorola Mot. (Dkt. 720 (redacted), 733 (sealed).) The court has reviewed the motions,the papers filed in opposition and support thereof, and the relevant law. The court heard oral argument on July 31, 2013, and considering itself fully advised, GRANTS in part and DENIES in part Microsoft's motion, and GRANTS in part and DENIES in part Motorola's motion.

II. BACKGROUND

a. Factual and Procedural Background

This is a breach of contract case between Microsoft and Motorola. Microsoft claims that Motorola has an obligation to license patents to Microsoft at a reasonable and non-discriminatory (“RAND”) rate, and that Motorola breached its RAND obligations. ( See generally Am. Compl. (Dkt. # 53).) Microsoft sued Motorola for breach of contract in this court in November, 2010.¹ ( See id.)

Motorola's RAND commitment arises out of its and Microsoft's relationship with two international standard-setting organizations (“SSOs”), the Institute of Electrical Electronics Engineers (“IEEE”) and the International Telecommunication Union (“ITU”). These organizations create standards for use in designing and manufacturing technology products. These and other SSOs play a significant role in the technology market by allowing companies to agree on common technological protocols so that products complying with the standards will work together.

The standards at issue in this case involve wireless communications, commonly known as “WiFi,” and video coding technology. More specifically, this case involves two standards: an IEEE wireless local area network (“WLAN”) standard called the “802.11 Standard” and an ITU ² advanced video coding technology standard called the “H.264 Standard.”

Both of these standards incorporate patented technology. Thus, in order for a company to practice the standard, it is necessary for that company to utilize technology that is covered by one or more patents. Patents that are essential to the standard (in that they must be practiced to accomplish the standard) are called standard essential patents, or “SEPs.” The existence of SEPs is a common problem in the world of technology standards. To deal with this problem, SSOs have devised a solution. To make it easier for companies to practice their standards, SSOs seek commitments from the owners of SEPs to license their patents to standard-users on RAND terms. Motorola owns patents that are essential to the 802.11 and H.264 Standards and has committed to license them on RAND terms.

On October 21, 2010, Motorola sent Microsoft a letter offering to license Motorola's 802.11 SEPs. Motorola offered to license its patents at what it considered the RAND rate of 2.25 % of the price of the end product:

This letter is to confirm Motorola's offer to grant Microsoft a worldwide non-exclusive license under Motorola's portfolio of patents and pending applications having claims that may be or become Essential Patent Claims (as defined in section 6.1 of the IEEE bylaws) for a compliant implementation of the IEEE 802.11 Standards.... Motorola offers to license the patents under reasonable and non-discriminatory terms and conditions (“RAND”), including a reasonable royalty of 2.25% per unit for each 802.11 compliant product, subject to a grant back license under the 802.11 essential patents of Microsoft. As per Motorola's standard terms, the royalty is calculated based on the price of the end product (e.g., each Xbox 360 product) and not on component software (e.g., Windows Mobile Software).

(10/21/10 Offer Ltr. (Dkt. # 79–5) at 2.) On October 29, 2010, Motorola sent a similar letter offering to license its H.264 SEPs on similar terms. The letter again offered a royalty rate of 2.25% of the end product price:

Motorola offers to license the patents on a non-discriminatory basis on reasonable terms and conditions (“RAND”), including a reasonable royalty, of 2.25 % per unit for each H.264 compliant product, subject to a grant back license under the H.264 patents of Microsoft, and subject to any Motorola commitments made to JVT in connection with an approved H.264 recommendation. As per Motorola's standard terms, the royalty is calculated 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.).

(10/29/10 Offer Ltr. (Dkt. # 79–6) at 2.)

Eleven days later, on November 9, 2010, Microsoft initiated this breach of contract action against Motorola based on Motorola's two offer letters, claiming that the letters breached Motorola's RAND commitments to the IEEE and the ITU. ( See generally Am. Compl.) Microsoft alleges that Motorola's offer letters constituted a refusal to offer Motorola's SEPs on RAND terms. ( Id. ¶ 84.) Microsoft also alleges that Motorola breached its RAND commitment by filing other lawsuits involving Motorola-owned SEPs which seek to enjoin Microsoft's implementation of the standards. ( Id. ¶ 85.) In a previous order, the court held that these RAND commitments create enforceable contracts between Motorola and the respective SSO. (2/27/12 Order (Dkt. # 188).) The court has also held that Microsoft—as a standard-user—can enforce these contracts as a third-party beneficiary. ( See id.) In a separate prior order, the court interpreted Motorola's commitments to the ITU and IEEE as requiring initial offers by Motorola to license its SEPs to be made in good faith. (6/6/12 Order (Dkt. # 335) at 25.) However, the court has also held that initial offers do not have to be on RAND terms so long as a RAND license eventually issues. ( Id.;see also 10/10/12 Order (Dkt. # 465).)

In November 2012, the court conducted a bench trial to determine a RAND rate and range to assist the finder-of-fact in determining whether or not Motorola had breached its RAND commitments. On April 19, 2013, the court issued its Findings of Fact and Conclusions of Law (“FFCL”) under seal and then issued a public version, with redactions, on April 25, 2013, 2013 WL 2111217. ( See FFCL (Dkt. 673 (sealed), 681 (public).) The court's FFCL set a RAND rate and range for Motorola's 802.11 and H.264 SEP portfolios. ( See generally id.)

Having issued the FFCL, the next step in the case is a jury trial, scheduled to begin on August 26, 2013, to determine whether Motorola has breached its RAND obligations. According to Microsoft's interrogatory responses, at this trial, Microsoft will contend that Motorola breached its RAND obligations by (1) offering its 802.11 and H.264 patents at a rate that was not RAND; (2) seeking injunctive relieffor Microsoft's infringement of Motorola's SEPs; (3) not issuing a patent license to Microsoft's 802.11 chip supplier, Marvell; and (4) Google—Motorola's parent company—not issuing Microsoft a license under the terms of Google's license agreement with a group named MPEG LA. (Microsoft's Rog. Resp. (Dkt. # 733–6) at 23–26.)

b. The Parties' Present Motionsi. Microsoft's Summary Judgment Motion

In the motion presently before the court, Microsoft argues that Motorola breached the duty of good faith and fair dealing by engaging in conduct that was commercially unreasonable and that frustrated the purpose of the RAND commitment. ( See generally Microsoft Mot.) Microsoft contends that given the court-determined RAND rate, Motorola's offer letters demanded such a high royalty rate that no reasonable juror could conclude that Motorola had made a commercially reasonable offer. ( Id. at 15–17.) Microsoft also contends that Motorola's “demands” in the October offer letters combined with Motorola seeking injunctive relief in U.S. district courts, the ITC, and in...