Source: http://www.groklaw.net/articlebasic.php?story=20130126201734627
Timestamp: 2019-04-20 23:14:38+00:00

Document:
Tomorrow, Monday, Microsoft and Motorola meet in a courtroom in Seattle at 1:30 PM to argue at a hearing before the Hon. James L. Robart about the meaning of a 2005 Google-MPEG LA patent license agreement and regarding a motion for summary judgment by Microsoft. I have all the documents for you so you can see what it is all about.
Don't worry if you don't understand everything when you read them. The parties' lawyers don't understand the licenses fully either, not for sure, in that they don't agree at all on what they mean, and that's why they are in a court of law.
After the parties briefed the issue of what they thought the agreement meant, the judge asked [PDF] them to present any "extrinsic evidence" they could on how to interpret that license, "such as affidavits from MPEG LA regarding the purpose and intent of the grant-back provision", and of course, Microsoft did exactly that, and surprise, surprise, MPEG LA's president claims in a declaration [PDF] that Microsoft is exactly right in its interpretation. When Motorola asked to depose him, the judge said: Nope. No can do. The judge can ask for such evidence this late, but there's no time to, you know, verify it to make sure it is actually true and admissible. Motorola calls it hearsay and inadmissible.
We haven't been covering each painful inch of this litigation, so maybe I missed it, but has this judge ruled for Motorola yet in anything? If so, email me please, and I'll add it to the article. All I know is, every time I parachute into this courtroom in Seattle, so to speak, to see how things are going, the judge has just ruled for Microsoft again.
It's a very complex dispute. The big question is, does Motorola have to license its FRAND patents to Microsoft on MPEG LA royalty rates, because it is now a Google subsidiary? I'll try to explain it all, but it's going to take some time to do it, if I want to fairly present everyone's position, and I do. So bear with me. We won't understand the eventual ruling without the background. And if you are planning to attend the hearing, this will, hopefully, give you a map to follow along.
The court heard from the parties on January 18, 2013. The court agrees with Microsoft and denies Motorola’s request to take the deposition of the MPEG LA declarant. First, the MPEG LA declarant is in no way a surprise witness. Indeed, counsel represented during the hearing that Motorola contacted MPEG LA after the court’s December 31, 2012, minute order. Motorola thus could have noticed and taken the deposition of MPEG LA regarding MPEG LA’s understanding of the Goolge-MPEG LA license agreement at any time since the court’s minute order, but chose not to do so.
Additionally, it cannot be surprising that MPEG LA would have an opinion as to the interpretation of its own agreement with Google.
Second, permitting the late deposition of MPEG LA will prejudice Microsoft and impact the court’s schedule and ability to adjudicate issues before it. Microsoft will be compelled to file its briefing on the import of the Google-MPEG LA license agreement without the opportunity to address any statements made by the MPEG LA declarant at the deposition. Similarly, because Motorola admits that any deposition of the MPEG LA declarant will not take place until after the January 23, 2013, briefing deadline, the court will be unable to weigh competing briefs from the parties regarding statements made during the deposition. Accordingly, the court denies Motorola’s request to take the deposition of the MPEG LA declarant after the January 23, 2013, deadline set by the court to submit such evidence.
But Motorola certainly did not know that the judge would ask for this last-minute "extrinsic evidence" from MPEG LA, so how would it anticipate needing to earlier depose anyone? Microsoft didn't think of it either. When the parties briefed the issue, neither thought of it. It was the judge who brought it into the case. Was the judge not surprised because this was the purpose of his request? The refusal to allow a deposition feels very disturbing to me in this fact pattern.
The attached Declaration of Lawrence A. Horn, MPEG LA’s President and CEO (the “Horn Decl.”), explains the background leading to the grant-back provision in MPEG LA’s AVC/H.264 License, including discussions regarding why the provision was drafted to cover a Licensee’s “Affiliates,” and provides emails circulated among the entities involved in the formation of the MPEG LA AVC/H.264 pool (including Motorola at that time) that address the intended scope and purpose of the grant-back provision. The Horn Declaration also describes a contemporaneous modification of the separate MPEG-4 Visual pool agreements to incorporate a grant-back provision parallel to that adopted for the MPEG LA AVC/H.264 pool (a change accepted by Motorola), and provides a sample email exchange that correspondingly addresses the intended scope and purpose of the addition of the “Affiliates” clause to the MPEG-4 grant-back provision.
This extrinsic evidence fully corroborates the plain meaning and consequence of the contract language. As a Google “Affiliate,” Motorola is bound by the grant-back provision with the result that Microsoft is entitled to license Motorola’s H.264 standard essential patents at pool rates, for a total payment of approximately $167,000 per year.
I left off one footnote, which you can read in the PDF.
5. There are currently 30 Licensors in the MPEG LA AVC/H.264 pool, who collectively have contributed hundreds of SEPs. Microsoft is one. There are currently more than 1,500 Licensees to the pool, including Microsoft and Google, Inc.
It says that the 2005 agreement between Google and MPEG LA includes the wording "and its Affiliates, if any" is language added to the license as a result of discussions he initiated. He attaches the Google license as Exhibit 1 [PDF], but as I'll show you in a bit, he seems to have neglected to mention some details in the license that contradict his position.
He says Motorola's Paul Bawel, representing General Instrument/Motorola at the pool formation meeting, was among those who got emails about changes to the license language about affiliates, although I don't see any evidence of that other than his statement. He attaches emails between him and Sony's representative and others about the language of Section 8.3, but nothing showing any feedback or involvement by Motorola.
I'm puzzled by this. If Motorola had bought Google, I could see how it might apply to Google if Google was then an affiliate of Motorola. But it's the opposite. So I'm drawing a blank on his reasoning. His conclusion is that the revision was intended to "eliminate any distinction between the H.264 standard essential patents of a Licensee and those of its Affiliates -- both are subject to the same grant-back terms." He claims that the proposed changes were adopted by "the MPEG-4 Licensors" and he attaches an executed version of a license [PDF], executed by General Instrument/Motorola in September of 2005, and one from 2002 [PDF], "whose grant-back provision did not cover 'Affiliates'." So... how does that help his argument? Plus, the licenses are for a MPEG-4 Visual Patent Portfolio license. It's about video compression. He says the changes were adopted by the licensors, but there is no paper proof of agreement other than the above, which to me means it needs to be examined more deeply in a deposition to even understand what he means it to mean and to figure out what is what. Perhaps he's implying that if Motorola took any kind of MPEG LA license, it is enough to be covered by Google's license later, but as you'll see in a bit, Google's license required two steps. That's one of them, but the other is that Google has to list Motorola as an affiliate it desires to be covered, and that never happened, Motorola says.
Whenever a potential licensee has asked about operation of the "Affiliates" clause in the grant-back provisions discussed above, I have explained that the grant-back obligation applies to the SEPs of both the Licensee and all of its Affiliates, without exception.
But where is there proof of that, other than his undeposed word in a declaration? Plus, what he says he said isn't the same as written agreements, and I don't see that. Further, Google didn't take this kind of license. He doesn't even mention that. Why not? Surely he sees in the records he keeps what kind of license Google opted for. Yet, he concludes, Google has to let Microsoft have a license at MPEG LA rates to its FRAND patents. Yup. The grant back means that *all* affiliates are covered and have that obligation.
But that's not in Google's license. He says it all means that now that Motorola is a sub of Google, "both companies would be treated as Google's Affiliates under the terms of the Google License," both companies meaning Motorola and General Instrument Corporation.
But let's take a look at Google's license itself, before we reach any conclusion. I think he's overlooking some vital information there.
Defendants Motorola Mobility LLC and General Instrument Corporation (collectively “Motorola”) submit this brief in response to the Court’s December 31, 2012 request for additional briefing regarding any extrinsic evidence relevant to the 2005 Google-MPEG LA AVC License Agreement (the “AVC Agreement”). (Dkt. No. 637.) As Motorola argued in its Post-Trial Brief Regarding the Google-MPEG LA AVC License Agreement (Dkt. No. 615 at 4-6), the plain language of Section 8.3 of the AVC Agreement makes clear that the scope of the grant-back license must be commensurate with the scope of the license selected by Google. (See Ex. 103 at § 8.3.)1	The plain language of the AVC Agreement similarly makes clear that the scope of that license extends only to Affiliates identified to MPEG LA by Google in writing. (See id. at § 3.3.) As Google never so identified Motorola, Motorola is not included within the scope of Google’s license – and so is not included within the scope of the grant-back provision.
Motorola respectfully submits that, under New York law, it is therefore unnecessary to consider extrinsic evidence, because the grant-back provision can be understood by its plain language. Even if the Court believes that the AVC Agreement is ambiguous, the extrinsic evidence is limited and either supports Motorola’s interpretation of Section 8.3 (see III.A) or is inconclusive (see III.B-D). Moreover, if, after considering the language of AVC Agreement and the extrinsic evidence, the Court concludes that Section 8.3 of the AVC Agreement is still ambiguous, then the AVC Agreement must be construed against the drafter, MPEG LA.
This is a contract that specifies NY State law as controlling law, and when a contract is ambiguous, any doubt about the language, under NY law, must be construed in favor of the nondrafting party, namely Google.
Motorola has learned that Microsoft expects to submit with its brief a declaration from MPEG LA. While Motorola does not know precisely what the declaration will say, it is likely that the declaration will support at least some (or all) of Microsoft’s arguments.
As an initial matter, any such declaration would constitute inadmissible hearsay, and should not be considered by the Court.5	See Fed. R. Evid. 802. Moreover, even if the declaration were not inadmissible hearsay, unless the declaration relies upon corroborating evidence, statements in the declaration are unsupported and entitled to little weight, especially in comparison to the side letters and related correspondence. See Grattan v. Societa Per Azzioni Cotonificio Cantoni, 151 N.Y.S.2d 875, 879 (N.Y. Sup. Ct. 1956) (where contemporaneous writings are at variance with proffered testimony, “it has been appropriate for the court to bear in mind the admonition of the Appellate Division of this Department that ‘Written evidence in such a case is of course entitled to much greater weight than testimony coming from the lips of an interested witness.’”); Cf. Consolidated Edison Co. of New York v. N.L.R.B., 305 U.S. 197, 229-30 (1938) (holding, in the context of an administrative hearing before the National Labor Relations Board, where hearsay is permitted, that “[m]ere uncorroborated hearsay or rumor does not constitute substantial evidence”); but see Richardson v. Perales, 402 U.S. 389, 408 (1971).
Motorola objects to the anticipated MPEG LA declaration because Motorola will not have been permitted to cross-examine the declarant on the statements made in the declaration. Without Motorola being afforded such an opportunity, the statements in the declaration are inadmissible hearsay. Knudsen v. City of Tacoma, No.C04-585OBHS, 2008 U.S. Dist. LEXIS 11842 (W.D. Wash. Jan. 15, 2008) (excluding written testimony as inadmissible hearsay where adverse party did not have an opportunity to depose or cross examine the declarant about his answers); Flow Control Indus. v. AMHI, Inc., 278 F. Supp. 2d 1193, 1197 (W.D. Wash. 2003) (excluding declaration as hearsay where defendants did not have an opportunity to cross-examine the declarant).
Motorola points out that while Microsoft and MPEG LA keep talking about the standard AVC license, Google opted for the Enterprise License, for which it paid a lump sum, not royalties, and under that license, if it wished its affiliates to be covered too, it has to give a list of them in writing to MPEG LA. And it never did that in connection with Motorola. Not to mention, although Google earlier did mention it, that it's quite recent that Motorola became a subsidiary of Google, so figuring out royalties for the past, which is what this is all about, for sure are not computable under any Google umbrella.
If you don't like arcane details in contracts, skip this. But I like contracts. I like to read them, and I like to notice details. So before I read either party's brief or the Horn declaration, I read all the exhibits, just so I wouldn't be influenced by anybody but could just draw my own conclusions from the evidence itself. And here's what I noticed.
My concern is that it would be difficult for MPEG LA to convince potential Licensees to agree with this provision since the requirement in the provision is not consistent with the scope of the license grant (unless Licensee elects an Enterprise License). While I understand and agree with you that the provision is for the interest of both Licensors and Licensees, some potential Licensees may argue such inconsistency.
That tells me that, at a minimum, there was a difference between the language of the regular AVC license and the Enterprise License prior to any change to the language of the former. That supports what Google is saying, that its license was an Enterprise License, so whatever the other license said, it had its own terms that it paid for, and those terms were different. In fact, Horn had pushed for the change because he wanted the change to be "like the grantback in other licenses." That's if the change went the way Mr. Horn claims, which we can't know for sure without deposing him. And that means at one time, prior to this revision, assuming it happened, the grant-back provisions were not the same. Which is what Google is saying.
In a 2004 email string with the subject “Revised AVC Draft License,” MPEG LA’s Larry Horn engaged in a discussion with representatives of Sony Corporation before the form AVC Agreement had been finalized regarding proposed changes to the language of Section 8.3. (Brenner Decl. Ex. H at MS-MOTO_1823_00002352423.) Motorola, however, has been unable to locate the “revised draft AVC license” referenced by the email in any of the productions in this case (i.e., Motorola’s, MPEG LA’s or Microsoft’s). Thus, it is entirely unclear whether or how Section 8.3 is being revised, what the proposed language says, and whether that revision was ultimately incorporated into the final agreement. Thus, even though this email string refers to and discusses some version of Section 8.3, it does not provide any clarity as to how the final version of Section 8.3 should be interpreted.
So, let's look at the license itself, at least what Microsoft says is the Google-MPEG LA license dated January of 2005. It's attached to the same Microsoft brief as Exhibit 1.
Emphasis added by me. Section 4.3 repeats that a Licensee is free to negotiate separately with any or all of the Licensors and come up with terms and conditions that can be independently negotiated by the parties.
Does that match what Microsoft claims, that entering into this license meant that Google *has* to offer Microsoft a license to Motorola's covered patents at MPEG LA prices? That Motorola going to Microsoft and asking for its standard price for the patents was a violation of its obligations under the license?
It's in black and white. It can do that. And in 2005, Motorola wasn't an affiliate of Google anyhow.
1.24 Enterprise - shall mean a Legal Entity and all Affiliate(s) of such Legal Entity.
1.31 Licensors (Individually Licensor) - shall mean Columbia; ETRI; France Telecom; Fujitsu; Philips Electronics; Matsushita; Microsoft; Mitsubishi Electric; Robert Bosch; Samsung; Sharp; Sony; Toshiba; and JVC; subject to additions and deletions from time to time, as identified in Attachment 1 hereto.
Here we see that an Enterprise means all affiliates as well, which is what Microsoft is claiming. More on that in a minute. But I have a question before I continue. Horn provides documents that have a list, including Microsoft, of all the entities that are licensors. Are the others on the list claiming what Microsoft is claiming, a right to Google's patents that it got when it acquired Motorola? If not, why not, if Microsoft is correct? Shouldn't that have happened as soon as the deal went through? Did it? If MPEG LA is saying Microsoft is right, is that not the logical conclusion? But prior to this litigation, did any of them make such a claim? I note that Motorola isn't in that list.
3.1.7 Enterprise Licensees. Pursuant to Article 2.7 and notwithstanding anything to the contrary in Article 2.9 hereof, and in lieu of the royalties in Articles 3.1.2, 3.1.3, 3.1.4 and 3.1.5, a Licensee and its Affiliates which are licensees under the AVC Patent Portfolio License and are identified in writing to the Licensing Administrator by Licensee shall pay no more than the following total amounts in each Calendar Year for all such licenses for the combined Sales of Licensee and its Affiliates during such year.
3.3 Notification by Enterprise Licensee of Affiliates. If a Licensee elects to pay the single amount specified per Calendar year in Article 3.1.7, Licensee shall notify the Licensing Administrator in writing of the identify of each current Affiliate which is to be included within the Enterprise License no later than February 28 of such Calendar Year. Should Licensee desire to add additional Affiliates within the Enterprise License after February 28 of the Calendar Year, it shall promptly notify the Licensing Administrator.
That would be MPEG LA, the Licensing Administrator. Mr. Horn, presumably. Section 3.11.5 confirms that when the Licensee paid yearly for the Enterprise License, it was to identify which Affiliates, "if any", the royalty applies to. I read 3.11.7 as saying that MPEG LA is not allowed to give out info on what folks like Google pay. "In no event shall the Licensing Administrator provide to any of the Licensors," it says, "information on royalties paid on a licensee-by-licensee basis unless required by law, court order, or rule or regulation." Hmm. Section 5 repeats that licensees' confidential information is to be kept confidential except for a list of possible situations, one being "As necessary to establish rights under this Agreement". It's a stretch, but I can't help wondering why MPEG LA is free to make all this public.
Section 6 says that the agreement expires on December 31, 2010 but "shall be automatically renewed for successive five (5) year periods for the life of any AVC Patent Portfolio Patent (unless terminated pursuant to Section 6.4) upon notice of renewal to Licensee by the Licensing Administrator." So did MPEG LA send Google such a notice of changes to the terms after Google acquired Motorola? If not, then the terms would continue as is, one assumes. And the terms do indicate that Google has to provide a list of affiliates if it wants them covered. If it's true, as Google has stated, that it never did that, then Google should prevail. The notices are to be sent to David Drummond, according to Section 8.2.2, so he'd know if he ever got such a notice, and presumably he can testify.
But this is Seattle. None of this may matter at this level. The judge won't let Mr. Horn be deposed, so I assume that means he's going to anoint Mr. Horn's testimony by relying upon it without giving Google a chance to ask Mr. Horn a thing to test out that testimony. Maybe that's why the judge asked for what he asked for, since it would be obvious that MPEG LA would support Microsoft. I predicted it, and so did Google, I notice, in its brief.
Which brings me to 6.4, Voluntary Termination. Google, according to the terms in that section, can terminate the agreement by providing thirty days' notice to MPEG LA. No matter what, though, it says in 6.6.4 that "the obligations of Licensee pursuant to Sections 8.3 and 8.4 survive expiration or termination of this Agreement". But wouldn't that cover only previous Licensors, not new arrangements? I think it must.
What does that mean, "commensurate to the scope of the licenses"? Google says it means Motorola isn't covered, because under the Enterprise License Google chose, Motorola wasn't included.
Again, the affiliates must be listed, identified in writing to the Licensing Administrator. So does that mean they aren't covered unless listed? Or they are covered but they have to be listed anyway as a bookkeeping function? Microsoft would say the latter, but does that make sense?
MPEG LA’s presentation shows this is incorrect. As Motorola explained in its post-trial briefing (Dkt. No. 615 at 4-5), Google elected to take an AVC Enterprise License – under which, according to § 3.1.7, a fee is paid in lieu of royalties by “a Licensee and its Affiliates which are licensees under the AVC Patent Portfolio License and are identified in writing to the Licensing Administrator by the Licensee.” (Ex. 103 at § 3.1.7.) Thus, the scope of an AVC Enterprise License is different from the scope of other licenses – as MPEG LA itself stated in 2006. While this presentation does not clearly define the meaning of the “similar in scope” language or the grant-back provision specifically, it does demonstrate that Microsoft’s interpretation of the contract language is incorrect.
So what does it mean, "similar in scope"? Microsoft says one thing, and Motorola says another, but that's what ambiguity means.
Beginning on page 25 of that same bundle of exhibits, we find a letter from Google to MPEG LA dated February 28, 2010, saying that Google was hereby providing written notification that it elected to pay the amount specified in section 3.1.1 for that calendar year. And it lists YouTube as an affiliate that it did want covered.
And MPEG LA writes in its letter that its letter should be considered an "attachment" to the Google AVC License, as that term is used in Section 8.18.1. So Google has the right to specify which affiliates are covered and which are not, and it can change the list at will.
But, you may be asking, what about after 2011? That same bundle of exhibits, on page 8, takes us to an email from Google to Darcey Feiertag of MPEG LA's Royalty Services dated February of 2011, responding to his question as to whether they would be electing the Enterprise License again. And, as best I can tell, Google shows it does, by electing the amount that would cover that license. In any case, Google adds that it will send "the signed affiliate license (an addendum to the AVC License) to Ryan Rodriguez of MPEG LA" next. I don't see that, so I don't know what that is. And then on page 24 of that same bundle of exhibits, there's an article by an MPEG LA guy, Bill Geary, VP, Business Development, and he lists all the licensors in MPEG LA patent pools as of June 30, 2009, and no Google on the list. Ditto on the list dated November 2, 2011, on page 36 of that same bundle of exhibits.
So, on balance, while I don't expect the judge to necessarily agree with me, all I see is Google didn't have to include all its affiliates. It gets to pick and choose, because it opted for the Enterprise License.
Why, I can't help but wonder, didn't Mr. Horn include any of the evidence that Google presented, in that all of it should be in MPEG LA's files too? That does leap off the page. So while the judge has shown an inclination to rule for Microsoft, if he does on this, I will view it as wrongly decided and there will certainly, absolutely be grounds of appeal.
And that means that whatever happens in Seattle tomorrow, it's almost certainly not the end of the story. This could be going on for years and years before we get to the final act.

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