Microsoft v. Motorola: District Court Denies Motorola's Summary Judgment on Microsoft's Claim for a RAND License

October 22, 2012

Motorola moved for partial summary judgment to dismiss Microsoft's claim for a reasonable and non-discriminatory ("RAND") license agreement to be determined by the district court. As explained by the district court, "Microsoft and Motorola are both members of the Institute of Electrical and Electronics Engineers ("IEEE") and the International Telecommunication Union ("ITU"). The IEEE and ITU, neither of which are parties to the instant dispute, are international standards setting organizations. Standards setting organizations play a significant role in the technology market by allowing companies to agree on common technological standards so that all compliant products will work together. Standards lower costs by increasing product manufacturing volume, and they increase price competition by eliminating "switching costs" for consumers who desire to switch from products manufactured by one firm to those manufactured by another."

Motorola asserted that it would be inappropriate for the district court to fashion a license agreement between Microsoft and Motorola for Motorola's standard essential patents because no license agreement currently exists. The district court disagreed: "Motorola's declaration to the ITU and IEEE constitute binding agreements to license its essential patents on RAND terms, and Microsoft is a third-party beneficiary to those agreements and therefore entitled to a license of Motorola's essential patents on RAND terms. (6/6/12 Order at 13-14.) Indeed, Motorola has agreed that Microsoft is a third-party beneficiary to Motorola's assurances to license its essential patents on RAND terms. [Footnote omitted.] Nevertheless, Motorola argues, in part, that no license agreement exists between Microsoft and Motorola because Motorola's commitments to the ITU and IEEE only "bind Motorola to engage in bilateral, good-faith negotiations leading to RAND terms," but do not require Motorola to grand licenses on RAND terms. (Mot. At 18-20.) This is not what the court held in its June 6, 2012 order, and the court declines to reach that conclusion in this order. Instead, after examining the language of Motorola's agreements with the ITU and IEEE, the court held that Microsoft is entitled to a RAND license. (6/6/12 Order at 13-14.) To be clear, having previously determined that Microsoft has not repudiated or revoked this right, the court's prior holding means that Motorola must grant Microsoft a RAND license to its standard essential patents."

After reaching that conclusion, the district court determined that there must be a forum to resolve the dispute between the patent holder (Motorola in this case) and the implementer (Microsoft) to determine what in fact constitutes a RAND license agreement. "Here, the courthouse may be the only such forum. Indeed, the ITU and IEEE policies both explicitly disavow that either organization will assist the parties in determining a RAND agreement or resolving disputes of the parties. (IEEE Policy at 19 (The IEEE is not responsible 'for determining whether any licensing terms or conditions provided in connection with submission of a Letter of Assurance, if any, or in any licensing agreements are reasonable and non-discriminatory.').) Thus, unless the parties on their own can come to an agreed RAND licensing agreement, the courthouse acts as an appropriate forum to resolve disputes over legal rights."

The district court then rejected Motorola's argument that the district court could not make a contract for the parties. "Nevertheless, although Motorola agrees that Microsoft has a legal right to a RAND license agreement for Motorola's essential patents, Motorola argues that the court cannot enforce this right by creating that very license agreement. (See generally Mot.) In particular, Motorola argues that the court cannot create a license agreement between the parties because no license agreement currently exists and this court cannot 'make a contract for the parties -- that is, a contract different from that actually entered into by [the parties].' (Mot. At 22 (citing among other cases Chaffee v. Chaffee, 145 P.2d 244, 252 (Wash. 1943).) The court is not persuaded by this argument because it is not relevant to the circumstances before us. In this matter, the court is not examining an existing agreement to modify its terms or impose missing terms, but instead, the court is enforcing Microsoft's legal right to a RAND license agreement for Motorola's standard essential patents. Moreover, Motorola's view of its obligations leads to an illogical result. Here, Motorola agrees that Microsoft, as a third-party beneficiary, has a legal right to a RAND license agreement for Motorola's essential patents, but nevertheless asserts that the court cannot enforce this right by creating that very license agreement. Without the ability to create (or at the very least enforce creation of) the very license Motorola has promised to grant, Motorola's obligations would be illusory. The court finds such a result illogical and declines to adopt Motorola's position. See Eurick v. Pemco Ins. Co., 738 P.2d 251, 252 (Wash. 1987) (contract interpretation should not produce an absurd result)."

Finally, the district court concluded "[b]ecause Microsoft's right to a RAND license results from its third-party beneficiary status, the right exists irrespective of whether a licensing agreement exists between Motorola and Microsoft. Here, this court has been asked to resolve a dispute concerning whether Motorola had honored its obligations to license its essential patents on RAND terms. Although no specific remedy has been determined, and certainly no remedy has been proven, the court declines to dismiss from Microsoft's possible remedies the very license agreements to which the court has already determined it is entitled."

The district court accordingly ordered that the trial would proceed on November 13, 2012 to adjudicate these issues.


Microsoft Corporation v. Motorola, Inc., et al., Case No. C10-1823JLR (W.D. Wash. Oct. 10, 2012)

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