In separate amicus briefs, Qualcomm and the AIPLA said that U.S. District Judge James Robart was wrong to determine a reasonable and nondiscriminatory, or RAND, rate using a method that departed from both the expectations of the parties to the RAND agreement and the accepted method for calculating royalties under patent law.
After Judge Robart's determination, a September 2013 jury verdict ordered Motorola to pay Microsoft $14.5 million in damages for not licensing its patents on reasonable and nondiscriminatory terms. Motorola later argued the decision was the first time a federal district court ever set a royalty rate for a global standard-essential patent (SEP) portfolio.
“The manifest errors of the district court in interpreting RAND commitments and devising its methodology, if applied in other cases involving different SEPs and different products, will cause incalculable damage to innovation incentives and standards going forward,” Qualcomm's brief said. “It would necessarily devalue all SEPs, regardless of the actual value each contributes to the success of standardized products.”
Last week, Motorola asked the Ninth Circuit to reverse the lower court's decision that it breached an obligation to license its standard-essential patents to Microsoft on fair terms, saying the judge made a "cascade of errors," including the landmark decision setting a royalty rate for the patents.
Motorola argued that the RAND rate determined by Judge Robart for Motorola's patents "lacked any foundation" in patent damages law and must be reversed.
Motorola offered to license its standard-essential Wi-Fi and video coding patents to Microsoft at 2.25 percent of the sale price of every Microsoft Xbox, smartphone and other products.
Microsoft responded by filing suit in 2010, alleging that the rate was too high and breached Motorola's contractual obligation to the organizations that set industry standards to license its essential patents on RAND terms.
In April 2013, Judge Robart held that Motorola's patents were worth about 4 cents per product, which would amount to a license of about $1.8 million. That was far less than Motorola's initial 2.25 percent offer to Microsoft, which would amount to over $4 billion.
Using the RAND rate set by the judge, the jury concluded Motorola's initial offer was not RAND and that the company breached its obligation and must pay Microsoft's attorneys' fees and other damages.
According to Motorola, the judge's RAND rate was flawed in several respects. For instance, the judge did not set a date for a hypothetical negotiation between the companies, disregarded evidence of actual licenses Motorola offered and used rates for other patents that are not comparable to Motorola's as a benchmark.
In its brief, the AIPLA said that Judge Robart's setting of the rate was not dependent on any supporting evidence specific to this case and ran contrary to established patent law principles that require evidentiary support for royalty determinations.
The AIPLA, a national bar association of 15,000 members including both licensors and licensees of SEPs, said it is concerned that the district court’s “unbalanced methodology undermines the incentives that are key to a functional and successful standards environment.”
Qualcomm, which owns a large portfolio of SEPs, similarly said in its own brief that the lower court's methodology for interpreting Motorola’s RAND commitments “contravened the terms and purposes of the relevant contracts, ignored the evidence in this case and wrongly treated RAND-committed patents as different from other patents.”
Qualcomm said that the RAND policies at issue in this case are designed to balance two principles, “adequate compensation” for SEP owners and “access” to SEPs for licensees. But it said Judge Robart's determination ignored the former and misstated the latter.
“The district court rewrote the balanced RAND commitment from a right to access on reasonable terms into a one-sided directive that advances only implementers’ interests in obtaining licenses at the lowest possible cost,” Qualcomm's brief said.
If the Ninth Circuit approves Judge Robart's methodology, Qualcomm said, it would reduce patent holders' incentive to develop new technology and “wrongly alter the balance between innovators and implementers that has served our economy well.”
Qualcomm said that about 30 percent of its revenues come from licensing fees and royalties and that without those revenues the company would not be able to make risky investments in research and development.
The district court's approach “was consistent with neither the RAND commitments nor the evidence presented, and instead unfairly placed a thumb on the scale in favor of the implementer and against the innovator,” Qualcomm's brief said. “This is inconsistent with decisions by other courts that have adopted a more neutral analytical framework.”
Both Qualcomm and the AIPLA pointed out that they took no position on the district court's findings on the patents and products at issue in this particular case.
Representatives for Motorola were not immediately available for comment Tuesday. A representative for Microsoft declined comment.
Motorola is represented by Kathleen Sullivan, Brian Cannon and Ellyde Thompson of Quinn Emanuel Urquhart & Sullivan LLP.
Microsoft is represented by Carter Phillips, Constantine L. Trela Jr., David T. Pritikin, Richard Cederoth and Nathaniel C. Love of Sidley Austin LLP, Shane P. Cramer and Arthur W. Harrigan Jr. of Calfo Harrigan Leyh & Eakes LLP and in-house counsel T. Andrew Culbert and David Killough.
Qualcomm is represented by Richard S. Taffet, Patrick Strawbridge and Stephanie Schuster of Bingham McCutchen LLP.
AIPLA is represented by its president Wayne P. Sobon.
The case is Microsoft Corp. v. Motorola Inc., case number 14-35393, in the U.S. Court of Appeals for the Ninth Circuit.
--Additional reporting by Ryan Davis. Editing by Brian Baresch.
Correction: An earlier story misstated the lower court judge as being from California. The error has been corrected.
