Reproduced with permission from BNA’s Patent, Trademark & Copyright Journal, 90 PTCJ 3215, 09/18/2015.Copyright � 2015 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com

PAT E N T S

The author contends that Judge James L. Robart’s framework for determining a royalty

rate for infringement of a standard essential patent ‘‘is now on the cusp of changing the

patent litigation landscape.’’

The Effect of Microsoft v. Motorola

BY MAURICIO URIBE

T hroughout U.S. patent law jurisprudence, a selectnumber of cases have made significant changes tofundamental aspects of the process of patent litiga-

tion. Such milestone cases often eclipse the more spe-cific details of the parties involved in the litigation, thetechnology and technical industries encompassed bythe litigated patents, and even the era of the litigation.For example, a little less than 20 years after the publi-cation of the opinion, there is simply no patent litigation

in today’s era in which a Markman hearing1 does notplay a significant role in the strategy and execution ofpatent litigation.

With the Ninth Circuit’s panel affirmance of the dis-trict court’s judgment on July 30, 2015, Judge James L.Robart’s opinion in Microsoft v. Motorola has the po-tential to make a similar effect on patent litigation forcomplex technology.

The First RAND Framework—Microsoft v.Motorola

In Microsoft Corp. v. Motorola, Inc., Microsoft suedMotorola on the basis of breach of a reasonable andnon-discriminatory (RAND) licensing commitment re-lated to patents declared as essential to two technicalstandards.2 Based solely on two licensing letters sent byMotorola to Microsoft which included Motorola’s pro-posed royalty rates for Microsoft to take an essentialpatent license, Microsoft sued Motorola in the U.S. Dis-trict Court for the Western District of Washington forbreach of contract. In filing the lawsuit, Microsoft al-leged that it was entitled to enforce Motorola’s RANDcommitment to the relative standard setting organiza-tions and that Motorola had breached its RAND com-

1 Originating from the holding in Markman v. Westview In-struments Inc., 517 U.S. 370, 38 U.S.P.Q.2d 1461 (1996).

2 Microsoft Corp. v. Motorola, Inc., 854 F. Supp. 2d 993,2012 BL 62310, 103 U.S.P.Q.2d 1235 (W.D. Wash. 2012) (83PTCJ 622, 3/2/12). Motorola asserted a 2.25 percent net royaltyrate for any device implementing either the 802.11 wireless airinterface specification adopted by the Institute of Electricaland Electronic Engineers or the H.264 video encoding stan-dard adopted by the International Telecommunications Union(ITU).

Mauricio Uribe is a partner in the Seattleoffice of Knobbe, Martens, Olson & Bear, LLPwho has been very active in complex, globalpatent and technology licensing, includingstandards-essential patents. Mr. Uribe is alsoactive in the prosecution of patent applica-tions in both the electrical, telecommunicationand computer software fields and has wide-ranging experience in developing patent port-folios and intellectual property assets.

COPYRIGHT � 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 0148-7965

BNA’s

Patent, Trademark & Copyright Journal®

mitments based on the requested royalty rate for thestandards essential license.

At the time of the initiation of the litigation, there wasno legal precedent or established legal framework tohelp the district court in defining the meaning of Mo-torola’s RAND licensing commitment and more impor-tantly, to determining whether Motorola had breachedits RAND licensing commitment simply with an offerletter. After a series of orders that confirmed Mi-crosoft’s standing as a third party beneficiary entitled toenforce Motorola’s RAND licensing commitment underthe policies of both relevant standard setting organiza-tions, with the consent of the parties, the district courtheld a bench trial to establish a RAND rate and rangefor the patents Motorola had declared as being essentialto the respective technical standards.3 Regarding theneed for such a bench trial, the district court judge,Judge Robart, reasoned ‘‘[w]ithout a clear understand-ing of what RAND means, it would be difficult or impos-sible to figure out if Motorola breached its obligation tolicense its patents on RAND terms.’’

In the simplest approach, Judge Robart could haveconsidered evidence from the parties and determined aRAND royalty rate for Motorola’s asserted essentialpatents. Instead, Judge Robart issued a 207-page opin-ion setting forth arguably the first framework, boundedby core economic principles, for determining RANDroyalty rates or RAND royalty rate ranges. In creatingthe framework, however, Judge Robart rejected the callfor a creation of new legal doctrine to determine themeaning of a RAND licensing commitment. Rather, inhis finding of facts, Judge Robart defined a RANDframework commensurate with a hypothetical bilateralnegotiation between the parties in accordance with ananalysis of the 15 factors set forth in Georgia-PacificCorp. v. U.S. Plywood Corp. as applied to essential pat-ents (RAND framework).4 Most notably, Judge Robartmodified the Georgia-Pacific factors on the basis of themore unique aspects of patents considered essential totechnical standards and subject to a RAND commit-ment.5 Applying the specifics of Motorola’s declared es-sential patents to the newly minted RAND framework,Judge Robart determined a RAND royalty rate range foreach patent portfolio and further set a RAND royalty

rate for Motorola’s essential patents.6 Thereafter, thejury was presented with the issue of breach in view ofthe Findings of Fact and Conclusions of Law and, notsurprisingly, determined that Motorola had in factbreached its RAND commitments.

Motorola appealed the district court’s Findings ofFact and Conclusions of Law and the jury verdict in-cluding at least whether Motorola had consented tobench trial on the determination of RAND royalty ratesand royalty rates ranges for Motorola’s declared stan-dard essential patents. Eight amicus briefs were filedfocusing more particularly on the appropriateness ofJudge Robart’s framework.7

Additionally, in the interim, the Federal Circuit in itsholding in Ericsson v. D-Link Sys, Inc., also examinedthe question of a RAND royalty framework. Stoppingshort of adopting Judge Robart’s framework as the onlyRAND royalty rate framework, the Federal Circuitnonetheless endorsed his approach by reasoning ‘‘[i]n acase involving RAND-encumbered patents, many of theGeorgia-Pacific factors simply are not relevant; manyare even contrary to RAND principles.’’8 In view of thebriefing on appeal, including the parties’ briefs and am-icus filings, Motorola’s appeal to the Ninth Circuit couldhave been interpreted as a clear challenge to Judge Ro-bart’s framework. However, the focus of the appealscourt’s July 30, 2015, opinion was more to the facts ofthe case related to consent to the bench trial and to thespecifics of the application of the framework to the spe-cifics of Motorola’s patents (e.g., the lack of weightgiven to Motorola’s other standard essential licenseagreements).9 In very limited discussion regarding theappropriateness of the framework, the Ninth Circuitsimply summarized:

In sum, in determining the RAND rate and range for eachSEP portfolio, the district court engaged in a thoughtful anddetailed analysis, giving careful consideration to the par-ties’ briefing and evidentiary submissions, and to the testi-mony. Although Motorola criticizes the district court’s ap-proach, it provides no alternative other than strict adher-ence to the Georgia-Pacific factors, without accounting forthe particulars of RAND agreements—a rigid approach dis-approved of by the Federal Circuit in Ericsson. See 771 F.3dat 1230–31. We conclude that the court’s RAND determina-tion was not based on a legal error or on a clearly errone-ous view of the facts . . . .

Adoption and Application—In re InnovatioShortly after the issuance of Judge Robart’s RAND

royalty rate framework, Northern District of IllinoisJudge James F. Holderman adopted Judge Robart’sRAND royalty rate framework in In re Innovatio IP Ven-

3 One of the main issues on appeal to the Ninth Circuit wasthe effect of the consent provided by Motorola’s litigationcounsel during a hearing.

4 See 318 F. Supp. 116 (S.D.N.Y 1970).5 ‘‘Factor 4 considers the licensor’s established policy and

marketing program to maintain his patent monopoly by not li-censing others to use the invention or by granting licenses un-der special conditions designed to preserve that monopoly.This factor is inapplicable in the RAND context because the li-censor has made a commitment to license on RAND terms andmay no longer maintain a patent monopoly by not licensing toothers. In fact, as the court has found in this case, the RANDcommitment requires the [standard essential patent] owner togrant licenses on RAND terms to all implementers of the stan-dard . . . . Factor 5 examines the commercial relationship be-tween the licensor and licensee, such as whether they are com-petitors in the same territory in the same line of business; orwhether they are inventor and promoter. Similar to factor 4,this factor does not apply in the RAND context. This is becausehaving committed to license on RAND terms, the patentee nolonger may discriminate against its competitors in terms of li-censing agreements. Instead, as explained, the patent owner isobligated to license all implementers on reasonable terms.’’

6 The royalty rate set by Judge Robart corresponded to anapproximate 95 percent reduction from the 2.25 percent roy-alty rate quoted by Motorola in its opening correspondence toMicrosoft as applied to Microsoft Xbox 360 video gaming con-sole.

7 Amicus briefs in support of the Judge Robart’s frameworkwere filed by Public Knowledge, Sierra Wireless Inc., IntelCorp. and T-Mobile USA, Inc. Amicus briefs in opposition ofJudge Robart’s framework were filed by the American Intellec-tual Property Association, Qualcomm Inc., Nokia Corp. andApple Inc.

8 Ericsson v. D-Link Systems, Inc., 773 F.3d 1201, 1229, 113U.S.P.Q.2d 1001 (Fed. Cir. 2014) (89 PTCJ 295, 12/5/14).

9 Microsoft Corp. v. Motorola, Inc., No. 14-35393, 2015 BL243900 (9th Cir. July 30, 2015) (90 PTCJ 2834, 8/7/15).

2

9-18-15 COPYRIGHT � 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC. PTCJ ISSN 0148-7965

tures, LLC Patent Litig.10 This case was notable notonly for being the first district court to embrace andadopt the framework, but also for providing guidanceregarding how Judge Robart’s RAND royalty rateframework might be applied to different factual sce-narios. For example, at the time Judge Holderman ad-opted Judge Robart’s RAND royalty rate framework,Judge Holderman had already determined that the pat-ents asserted by Innovatio IP Ventures were essential totechnical standards.11

Additionally, because Judge Holderman was apply-ing Judge Robart’s RAND royalty rate framework forpurposes of setting damages expectations, he deter-mined that a RAND royalty rate range was not appro-priate.12 Accordingly, in line with the Federal Circuit’ssubsequent guidance in Ericsson v. D-link, Judge Hold-erman made adjustments to the framework based onthe facts of the case and the timing of when Judge Ro-bart’s RAND royalty rate framework was being applied:‘‘The court notes, however, some of the distinct circum-stances of this patent infringement case that will re-quire some modifications to Judge Robart’s ap-proach.’’13 Because at least a portion of the patents as-serted by Innovatio also related to the same 802.11wireless air interface standards and arguably were con-sidered more significant, Judge Holderman’s applica-tion of Judge Robart’s RAND royalty rate frameworkand his determination of a royalty rate greater than theroyalty rate attributed to Motorola’s patents in the Mi-crosoft v. Motorola litigation validated the potential thatJudge Robart’s RAND royalty rate framework maywork well for complex technologies likely involvinghundreds, if not thousands, of patents.

In re Innovatio is widely known for its adoption andvalidation of Judge Robart’s RAND royalty rate frame-work, which was facilitated by the agreement by theparties to use the framework to set the royalty rate forthe asserted patents.14 More importantly than the adop-tion of a framework by another district court, however,was the fact that Judge Holderman and the partiesviewed Judge Robart’s RAND royalty rate frameworkas a mechanism for possible settlement or guidance inthe litigation: ‘‘The court and all parties agreed to ad-dress damages at this stage of the litigation, before a de-termination on the questions of validity and infringe-ment. The court hopes that by doing so, the possibilityof settlement will be enhanced because the parties willbe better able to evaluate the potential risks and ben-efits of expending additional resources in the litiga-tion.’’15

With that justification, Judge Holderman likely setforth the true potential and power of Judge Robart’s

RAND royalty rate framework, as a tool to provide guid-ance for litigation and licensing by setting potential roy-alty rate ranges or setting royalty rates for patent port-folios.

The Emergence of Robart Hearings—A Pathwayto More Efficient Litigation

With its holding in Markman v. Westview Instru-ments, Inc., the Supreme Court modified substantivepatent law with the interpretation that claim construc-tion was ‘‘exclusively with the providence of thecourt.’’16 It seems very likely that very few practitionersare aware that that asserted patents related to trackingclothing through the dry cleaning process using bar-codes or the particular terms in the asserted claims thatwere relevant for a determination of infringement or va-lidity issues. Rather, the subsequent application of theSupreme Court’s holdings by the district courts to con-strue patent claims by holding Markman hearings andthe eventual adoption of early Markman hearings in thetrial process have forever modified the process of pat-ent litigation and patent litigation settlement. It can beargued that a significant number of patent infringementlawsuits enter settlement negotiations in view of the re-sults of claim construction via a Markman hearing.

Without question, Judge Robart’s RAND royalty rateframework may impact substantive patent law by facili-tating the determination of RAND royalty rates orRAND royalty rate ranges. Much of the commentaryand analysis of Judge Robart’s Findings of Fact andConclusions of Law focus on the minutia of the assump-tions made with regard to specific patent pool licensingrates, comparative licenses, determination of essential-ity and the like. While certainly relevant for the partiesinvolved in the litigation, the potential range of royaltiesfor patents essential to the 802.11 air interface stan-dards or the H.264 video encoding standards will likelyhave minimal impact on the larger patent community.

For example, Motorola’s appeal brief to the NinthCircuit focused, among other issues, on whether JudgeRobart gave proper consideration to the comparative li-censes offered by Motorola and whether Judge Robartgave too much consideration to licensing rates/approaches from relevant patent pools. None of the am-icus briefs focused on these factual issues, but ratherprovided opposing viewpoints regarding the need or ef-fectiveness of Judge Robart’s RAND royalty rate frame-work in addressing issues such as patent holdup androyalty stacking for complex technologies.

It seems that very few patent practitioners would dis-agree with a proposal, such as an early Robart hearing,that would have the potential effect of promoting settle-ment or creating more efficient litigation. Nonetheless,skepticism of this approach seems to be focused on themore practical aspects of how exactly a Robart hearingmight be applied to patent cases, namely, whether thereis a prejudicial effect of considering potential damages/royalties in advance of a determination of infringementor validity and whether the parties could practicallypresent the relevant legal and factual issues. Such con-cerns can be properly addressed and the likely benefitof Robart hearings in all patent litigations would out-weigh potential drawbacks.

With regard to potential prejudicial effects of an earlydetermination of royalty rates or royalty rate ranges,

10 No. 11 C 9308, 2013 BL 277902 (N.D. Ill. Oct 3, 2013).11 ‘‘By contrast, this court has already held a separate pro-

ceeding to determine the essentiality of Innovatio’s patents,and has determined that they are all standard essential. Thequestion therefore arises of whether the court should adjustthe license rate for patents whose essentiality was question-able prior to the court’s adjudication.’’ 2013 BL 277902, at *7.

12 ‘‘By contrast, the purpose of the RAND determinationhere is to set damages for infringement of the standard essen-tial patents. The court must therefore determine a singleRAND rate for the purpose of calculating damages, rather thana range.’’ Id.

13 Id.14 Id. at *1.15 Id. 16 Supra note 1.

3

PATENT, TRADEMARK & COPYRIGHT JOURNAL ISSN 0148-7965 BNA 9-18-15

that determination could also have a number of poten-tial benefits. First, a determination of lower royaltyrates or royalty rate ranges, especially for complextechnologies in which royalties would be divided acrossa larger number of patents, may likely cause plaintiffsto offer more reasonable settlement terms. Second, adetermination of higher royalty rates or royalty rateranges may cause defendants to seek earlier settlementor provide a more appropriate basis for making in-formed business decisions regarding potential risks. Ata minimum, an earlier determination of potential roy-alty rate ranges or royalty rates should provide guid-ance in terms of how the parties will litigate and whichissues may be most important, especially in view of aglimpse of the potential outcome.

District courts are already well suited to consider is-sues in a manner to avoid potentially prejudicial effectson juries through the utilization of magistrate judges,arbitrators, mediators and the like, and the applicationof appropriate safeguards to avoid undue influence ofany royalty rate determinations for juries. Moreover,looking to application of Judge Robart’s RAND royaltyrate framework in Microsoft v. Motorola and In re Inno-vatio, different assumptions regarding infringementand validity can easily be incorporated into the frame-work. If the parties dispute the potential infringementof the patents or the validity of the patents, such dis-putes are easily factored into the hypothetical negotia-tion forming the basis of Judge Robart’s RAND royaltyrate framework.

If the parties do not dispute infringement (or in-fringement has already been determined), the hypo-thetical negotiation would simply not consider such dis-putes, as was the case in In re Innovatio. Thus, partiesto the litigation could approach a Robart hearing with-out necessarily conceding any potential issues regard-ing infringement or validity.

With regard to the practical limitations of incorporat-ing a Robart hearing in litigation, it is likely that mostparties that are involved in patent litigation do not havethe same financial and legal resources as Microsoft andMotorola. However, Judge Robart’s RAND royalty rate

framework can be implemented in a manner to leveragethe benefit of other existing procedures, such as in-fringement and invalidity contentions. More specifi-cally, most district courts already require plaintiffs toprovide detailed infringement contentions and defen-dants to provide detailed invalidity contentions prior todiscovery. These contentions could easily be consideredin Judge Robart’s RAND royalty rate framework forpurposes of establishing the hypothetical negotiationbetween the parties. Additionally, district courts couldallow for limited early discovery for purposes of betterevaluating facts relevant to the framework such as com-parative licenses, patent pools, adoption of the accusedinfringing technology in products, etc.17 By leveragingexisting litigation procedures and with the adoption ofstreamlined discovery, Robart hearings can be practi-cally implemented across all patent litigations.

ConclusionSince the publication of Findings of Fact and Conclu-

sions of Law in April 2013, Judge Robart’s RAND roy-alty rate framework has been held out as having the po-tential to influence future licensing and litigation mat-ters. With the affirmation of the district court in July2015 and the voluntary adoption of the framework inother district courts, Judge Robart’s RAND royalty rateframework has been validated as an effective tool to re-solve not only RAND patent issues, but any complexpatent issue involving complex technologies.

Similar to the application of the holding in Markmanv. Westview, if adopted early in the patent litigation pro-cess, Judge Robart’s RAND royalty rate framework isnow on the cusp of changing the patent litigation land-scape.

17 One example of a procedure for streamlining consider-ation of RAND disputes was set forth by the World IntellectualProperty Organization for arbitrating RAND disputes. Seehttp://www.wipo.int/amc/en/center/specific-sectors/ict/frand/annex3/.

4

9-18-15 COPYRIGHT � 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC. PTCJ ISSN 0148-7965