Source: http://www.groklaw.net/articlebasic.php?story=20130106101927687
Timestamp: 2019-04-20 23:10:37+00:00

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I've finally got Microsoft's trial brief [PDF] in Microsoft v. Motorola, the Seattle litigation, done as text for you. Originally, I was going to put it with Motorola's but it took me so long, I was afraid you'd never even notice it was there. What an awful job it was, because Microsoft opted to file the document as a tiff, so it ended up requiring a lot of hand typing.
I suppose they did it because there are redactions. But since the brief includes the references to the trial testimony of the various witnesses, when the transripts are made public, we'll get to patch in the blanks. So it makes a lot of work for absolutely nothing.
Before we take a look at the brief, I thought I'd like to explain a little background for you on FRAND issues, as best I understand it. Because what we are watching is nothing less than an upending of the law regarding FRAND patents.
Of course, US law is a system whereby the courts interpret the statutes that the legislative branch passes, and those decisions collectively over time establish what the law is at any given time. So it's not a bad thing that the law does this. It's normal for law to grow and change as facts in various cases present new fact patterns.
But the changes we are watching aren't coming primarily from the courts but from regulators like the FTC. And considering how Microsoft whines nonstop to regulators about Google, perhaps it might explain a result that is so far leaving the playing field tilting Microsoft's way.
who rejected the FRAND offer.
So that's how it always was. FRAND patent owners could seek injunctive relief. Now it's viewed as a sin against the holy spirit, to hear Microsoft tell it.
It was around 2007 when the first court (see page 4) wouldn't order an injunction. I mention this history because when you read about Motorola being "guilty" of seeking injunctions for FRAND patents, you'll understand that when Motorola donated to the standard, it did so under that understanding that owners of FRAND patents had the full right to do so.
When the patent holder makes the RAND commitment, it gives up the right to employ the conventional process of negotiation to extract all that the traffic will bear from individual implementers. Because the non-discriminatory royalty has to be equally available to all, the demand cannot be justified by the posture or needs of any individual implementer. It is not a rug bazaar. A multiple of a RAND royalty would be very difficult to justify under any circumstances because that would skew the ensuing discussions away from, not toward RAND.
Now, Microsoft estimates that the patents are worth essentially nothing, or next to nothing. It actually values them, at one point, as being worth zero. Is this a game? One so intricate and boring that the public isn't seeing the pea moved from one hand to the other?
Many experts thus expect Posner’s ruling in Apple, Inc. v. Motorola, Inc. will strongly influence other courts and administrative agencies. If that happens, damage assessments will become far more important in patent infringement cases. Parties will need to adopt new, more rigorous methods for determining patent damages. And patentees will be unable to obtain injunctions for infringements of their FRAND patents. All this “will fundamentally alter the nature of patent litigation,” says J. Gregory Sidak, chairman of Criterion Economics, which supplies economic analyses for use in legal disputes.
Against this backdrop, regulators in the U.S. and Europe have actively pursued a FRAND clarification program of their own. As I noted in February, the U.S. Department of Justice (DOJ) appears to have persuaded Microsoft, Apple and Google to release a trio of "voluntary" statements describing their interpretations of FRAND. This public display occurred in connection with DOJ's review (and approval) of major patent acquisition transactions by each of these parties. The European Commission, which approved Google's acquisition of Motorola Mobility shortly thereafter, also exhibited a keen interest in Google's view of FRAND commitments.
It is no coincidence that these officials each came forward with comments regarding FRAND within a few weeks of each other. As suggested by Dr. Scott-Morton, this effort was at least loosely coordinated within the three agencies, each of which is actively involved in matters involving the licensing of patents essential to industry standards.
FRAND "clarification" is maybe too small a word. And the big changes began coming from coordinating agencies, not from the courts. That's what regulators do, one supposes. Although I'm thinking there has to be some review of regulators' decisions at some point, unless everyone agrees to voluntarily change the landscape. But if only one side is regulated, who is looking at the impact on the patent smartphone wars? I mean by that that Apple's Steve Jobs, just before the smartphone wars opened, declared he intended to destroy Android. And the patent claims have been serious and extreme. Is anyone going to regulate that? What about Microsoft? It's been trying to kill Linux as long as Groklaw's been writing, and long before that. And here they are, with Apple, following the same patent M.O., and both bleating about how awful FRAND patents are.
The strawman is that, if any open source project can be found that's successfully implementing a technical standard that requires use of patented techniques and has those patents licensed under "Fair, Reasonable And Non-Discriminatory" (FRAND) terms, then it must be OK for all open source projects and all variants of FRAND.
But that's wrong. Open source is not a set of rules waiting to be gamed by corporate lawyers and lobbyists. It's the pragmatic embodiment of an ideal called software freedom, based on the understanding that the flexibility to use, study, improve and share software is the essential dynamic of the new meshed society. When there's a difference between the pragmatic embodiment and the ideal, it's the ideal that wins every time.
Of course FRAND terms are incompatible with software freedom, even if you can find a project that has devised a construct to allow it to attempt to accommodate that incompatibility. When a standard includes patents that are not automatically licensed to all implementers -- on "Restriction Free" (RF) terms -- that means a standard may require permission to be implemented. Requiring explicit permission to act is anathema to software freedom.
The whole point of open source is that the software involved can be freely used and developed independently. If any implementer is required to have a relationship with anyone at all -- including an intermediary benefactor or non-profit -- that's automatically incompatible with the ideal of software freedom. The only "FRAND" compatible with software freedom is the "RF" - restriction-free - variant.
So any procurement policy that's intended to be compatible with open source must specify that any required standards are only open if all knowingly-incorporated standards are available restriction free to all. If it permits standards with restrictions on implementation -- no matter how much the name for the restrictions is tuned to sound OK -- then it discriminates against open source.
Of course Microsoft and Apple love the new rules regarding FRAND. But there is something bigger happening, as you might have noticed when Judge Richard Posner tossed out both Apple and Motorola's claims and especially when Judge Lucy Koh refused to order an injunction against Samsung as Apple asked her to.
Here's the change I see. When you and I watch the patent smartphone wars, we feel disgusted. We see that phones we want to have are in danger, on all sides, no matter what phone you like. And it's for alleged violation of patents that, when we read them, we consider inconsequential, even preposterous. Rounded corners and all that. And we ask ourselves, how could anyone grant a patent for *that*? You want to shut down the competition for *that*? That can't be the law, can it? That's awful.
Judges are people, you know, and many of them see all the gaming going on and the misuse of courts for what parties could just figure out on their own in negotiations. And some of them, like Judge Posner, don't like it either. So there is a sea change in the courts that has begun.
The "causal nexus" requirement, as applied in Apple II, requires the patentee to prove, as a prerequisite to securing a preliminary injunction, that the patented feature "drives consumer demand for the accused product." Slip op. 8, 10, 12. Neither the Supreme Court nor this Court has ever before imposed such a feature-specific prerequisite to injunctive relief. In this respect (and others) Apple II conflicts with Apple I and the Supreme Court's prohibition against judicially adoped principles that could preclude injunctive relief in broad swathes of cases. The "causal nexus" requirement warrants en banc review because it dramatically reduces the availability of preliminary injunctions, particularly in cases involving multi-featured smartphones, tablets, computers, and other electronic devices.
Um. Yes. Yes it does. That's a feature, not a bug, of the nexus requirement. See that sentence about the Supreme Court prohibiting "judicially adopted principles" that could preclude injunctive relief? And yet, both Apple and Microsoft are cheering when courts and the FTC come up with "judicially adopted principles" that are banning injunctions for FRAND patents, except after a newly created FTC process unfolds for six months first. That kind of "judicially adopted principles" (and its from a regulator, not a court at that) doesn't bother Apple, or Microsoft.
10	Patents and Standards: Tools to Prevent Patent ‘Hold-up’, http://www.ftc.gov/opp/ workshops/standards/index.shtml (last visited July 31, 2012).
11	Request for Comments and Announcement of Workshop on Standard-Setting Issues, 76 Fed. Reg. 28036, 28037-38 (May 13, 2011).
12	FTC Issues Agenda for Workshop to Explore the Role of Patented Technology in Collaborative Industry Standards, http://www.ftc.gov/os/comments/ patentstandardsworkshop/ (last visited July 31, 2012).
13	Microsoft’s Support for Industry Standards, http://www.microsoft.com/about/legal/ en/us/IntellectualProperty/iplicensing/ip2. aspx (last visited July 31, 2012).
So as you can see, at the moment, there is a real danger of the playing field being unequal, with it tilting all Apple and Microsoft's way, with FRAND patent owners like Motorola unable to ask for injunctions until after they've slogged through multiple steps and can prove in writing that the prospective licensee is willfully avoiding payment, while Apple and Microsoft are free to swashbuckle around the courts with their nonFRAND patents.
Don't get me wrong. I don't think software is patentable subject matter anyway, and as far as I'm concerned, standards should be available to everyone without paying a cent to anyone. But my bigger point is, when is someone going to notice that there's some Machiavellian bullying going on with patents, with Android and Linux the intended victim? Methinks, if regulators look into it, they'll find something worth regulating. Can it be a coincidence that both Apple and Microsoft are following the identical M.O. at exactly the same time?
Setting Organizations: Making Sense of FRAND Commitments," 74 Antitrust L.J.
According to Motorola's expert Richard Schmalensee, in the event of a disagreement about whether particular royalties are RAND royalties, the "Court needs to step in and say what is good faith, what is RAND." (11/19/12 Tr. 170.) That is now the task before the Court.
Microsoft, through its economic and technical experts, has provided a comparables-based methodology for determining RAND royalties, anchored in the economic principles underlying the RAND commitment, which prevents patent owners from abusing the power conveyed by standardization. Microsoft's proposed valuation methodology using real-world comparables (a common approach in real estate and many other markets) assures that the RAND royalty for Motorola's patents tracks what the market evidence shows are truly reasonable and non-discriminatory royalties for the use of a few patents from the broad, complex technical standards at issue.
Motorola, by contrast, has offered nothing of value to the Court in setting a RAND royalty. It repeatedly promised, but failed to provide, a "modified" Georgia-Pacific analysis. Its economist, Schmalensee, largely agreed with Microsoft. Its technical experts failed to establish in any rigorous way that the Motorola patents represent anything more than isolated and dated aspects of the standards, or are better than available alternatives. Motorola's valuation expert Dansky confirmed the obvious -- that the standards themselves are often important to Microsoft's products -- but offered no testimony on the importance of Motorola's patents to the standard or to Microsoft. And while Motorola's license expert Donohoe briefly testified about a few Motorola license agreements, they are demonstrably noncomparable and provide no meaningful guidance. In the end, Motorola provided neither useful real-world evidence nor a coherent methodology for determining a RAND royalty.
I. RAND VALUATION MUST REFLECT CORE RAND PRINCIPLES.
Recognize the Non-Royalty Benefits of Standardization to Patent Owners.
A patent may be considered "essential" to a standard if the patent is necessary to implement either a mandatory or optional section of a standard. (11/16/12 Tr. at 17 (Simcoe); 11/19/12 Tr. 71-72 (Williams); Ex. 1568 at MS-MOTO_1823_00004073096 (IEEE-SA Standards Board Bylaws).) Although the trial testimony focused on certain patented aspects of the two standards at issue, this patent-based perspective distorts in important ways the actual standards development process. Most of the technology reflected in popular standards like H.264 and 802.11 is unpatented-built on technologies known to the engineers collaborating to write the standard, or on unpatented contributions from those engineers or from prior technology. (11/14/12 Tr. 114-15 (Orchard); 11/13112 Tr. 215 (Sullivan); 11/14/12 Tr. 43 (Sullivan); 11/15/12 Tr. 96 (Gibson).) Moreover, most of what is included in the standards does not involve a conscious choice by the collaborating engineers between alternatives or between patented technologies -- and the inclusion of a given technology in a standard does not mean that it was superior to alternatives. There is no evidence that these engineers commonly consider specific patents or that they are even conscious of what might be patented when framing the standards. Typically, patents are just not considered. (11/15/12 Tr. 199 (Gibson); 11/15/12 Tr. 43-44 (Sullivan); 11/19/12 Tr. 22 (Luthra).) In the end, however, a successful and widely adopted standard may well implicated thousands of patents worldwide.
1. RAND Valuation Must Address Hold-Up.
SSOs and regulators recognize that standard-essential patents ("SEPs") may be used to block firms from implementing a standard and could impede its adoption. Without meaningful checks, SSO participants could use patents to unfairly exploit the standardization process. For example, they could submit their own patented technology to the SSO for consideration, in the guise of providing broader interoperability. If the suggested technologies are incorporated in the standard, and the standard is broadly adopted, the patent holder's patents provide it leverage to pounce on implementers, including its competitors. Even in the absence of such intent, every patented technology incorporated into a broadly-adopted standard endows the patent holder with the ability to hold up implementers, independent of any technical or commercial merit in the patent. As one of Motorola's economic experts in other litigation pointed out, "it only takes one bullet to kill"-and any SEP is a bullet.
The peer-reviewed literature universally recognizes this danger of hold-up. The solution imposed by virtually all SSOs is to require that SEPs be licensed on RAND terms, and as Schmalensee put it, "the RAND commitment and the whole apparatus exists to deal with hold-up." (11/19/12 Tr. 142.) This follows from the straightforward economic principle that firms with sunk costs in implementing a technology cannot readily switch to different technical solutions. These switching costs and inefficiencies make implementers vulnerable to patent holders exploiting the power of their SEPs. But the SEP holder that has made a RAND commitment is not entitled to exploit this hold-up leverage. (11/19/12 Tr. 169 (Schmalensee).) Restraining this hold-up power is the first and most important of the core economic principles underlying the RAND commitment.
2. RAND Valuation Must Track Basic Principles of Patent Valuation.
grant licenses on terms that are objectively commercially reasonable, taking into account the overall licensing situation, including the cost of obtaining all necessary licenses from other relevant patent holders for all relevant technologies in the end product.
rights are often not asserted in this part of the world."); 11/13/12 Tr. 160 (Murphy) ("[T]here's very little licensing of 802.11 patents, generally. . .. [T]he most common rate is actually zero, that most people are actually collecting.").) Even foundational contributors, such as Telenor in H.264 development, forego patents and potential royalties entirely. (11/14/12 Tr. 115 (Orchard); 11/13/12 Tr. 215 (Sullivan).) These SSO participants are not walking away empty-handed because they reap substantial benefits in ongoing and future sales of their products.
As the Institute of Electrical and Electronic Engineers (the "IEEE"), publisher of the 802.11 standard, recognized in its Operations Manual (part of the participants' undertaking when Motorola submitted its blanket letters of assurance), licensing SEPs on RAND terms means (at least with respect to Motorola's 802.11 patents) licensing at "nominal competitive cost." (11/16112 Tr. 27-30 (Simcoe); Ex 1130 at 19.) Motorola's doomsday arguments about the collapse of the standards system if companies cannot extract high royalties (e.g., Dkt. No. 541 (Motorola Trial Br.) at 1, 10) are fallacious, because they overlook the myriad motivations that companies have to contribute their technology to standards, the fact that an unchecked effort to extract high royalties would itself doom standardization (11/13/12 Tr. 144-45 (Murphy)), and the fact that some SSOs actually require royalty-free licensing.
Finally, a RAND valuation must recognize that a license for only a standard-compliant implementation has less value than an unrestricted license. RAND commitments do not entitle implementers to use the patents for anything other than an implementation of the standard. (E.g., Ex. 2839). Because a RAND value can never exceed the value of an unrestricted license, traditional patent damages law principles, such as the "entire market value rule," that apply a check on patent damages likewise serve as a further check on RAND valuation.
(Murphy).)1 There are two fallacies in this argument. First, the evidence shows that there has been hold-up by Motorola, including in the very licenses it urges the Court to consider as "comparables." (11/20/12 Tr. 101-03 (Dailey).) Second, even if other companies have complied with their obligations (so hold-up and stacking have not been problems), that proves nothing: the issue here is the royalty Motorola demands, which, if duplicated by others, would render implementation of the standards impossible. (11/16/12 Tr. 179 (Lynde); 11/13/12 Tr. 145-46, 150-51, 201-02 (Murphy).) That is the true measure of "hold up" and stacking.
1. RAND Valuation Requires Consideration of Alternatives.
to or equal to zero." (11/19/12 Tr. 165-66 (Schmalensee).) Judge Posner agreed that a RAND royalty should reflect only "the value conferred by the patent itself as distinct from the additional value-the hold-up value-conferred by the patent's being designated as standard essential." Apple, Inc. v. Motorola, Inc., 869 F. Supp. 2d 901, 2012 WL 2376664, at *11 (N.D. Ill. 2012). See also Layne-Farrar, Padilla, and Schmalensee, "Pricing Patents For Licensing in Standard-Setting Organizations: Making Sense of FRAND Commitments," 74 Antitrust L.J. 671,672 (2007) (Ex. 1674).
2. Patent Pools Provide Real-World Comparables for RAND Valuation.
Tr. 83-84.) [Redacted.] (11/20/12 Tr. 143.) Where, as here, Motorola never showed its patents were worth more than the average pool patent, the pro rata valuation approach is entirely appropriate. See Hovenkamp, "Competition in Information Technologies" U. of Iowa Legal Studies Research Paper No. 12-32 at 8-9 (Oct. 2012); Farrell et al., "Standard setting, patents, and hold-up," 74 Antitrust L. J. 603, 643 (2008).
Moreover, other participants have already reaped -- as Motorola has -- the benefits of participating in setting the standard, including advance knowledge, faster product development at reduced costs, and increased market size, so royalties flowing from broad licensing under a pool rubric provide a potential bonus. (11/16/12 Tr. 39-41 (Simcoe).) Even if it truly were the objective of the pools to set "low" rates, in testimony Motorola itself elicited, Schmalensee confirmed that even such "low" rates could still be RAND (11/19/12 Tr. 180), and offered no specific testimony as to whether he believed the MPEG LA H.264 Pool or Via Pool rates were "low" or not RAND. Motorola's expert in patent pools, Roger Smith, did not testify at all.
At trial, Motorola advanced the unsupported assertion that the 802.11 chip is not the smallest saleable unit with respect to its SEPs because the chips need support from other components of a computer, such as computer memory to store an 802.11 network password. (11/19/12 Tr. 99-100 (Williams).) The law is otherwise. Patent exhaustion "provides that the initial sale of a patented item terminates all patent rights to that item." Quanta Computer, Inc. v. LG Elecs., Inc., even if additional components are necessary to practice the patent. Id. at 631-34.
3. Bilateral Agreements Are Unlikely To Provide RAND Comparables.
conditions and other commercial considerations," or "unique licensing circumstances of each situation." (Dkt. No. 541 (Motorola Trial Br.) 2.) [Redacted.] (11/20/12 Tr. 64.) This may be "bilateral negotiation," but by definition, it is decidedly not RAND.
In support of its attempted reliance on bilateral license agreements, before trial Motorola urged a RAND valuation based on a "modified" Georgia-Pacific analysis. (Dkt. No. 541 (Motorola Trial Brief) 2.) However, as Schmalensee acknowledged, in the RAND context many of the individual Georgia-Pacific factors are suspect or irrelevant. (11/19/12 Tr. 150 (Georgia-Pacific "does not contemplate the RAND obligation," so "one would want to modify it to take that into account.").) For example, considering whether the patent holder might choose to maintain exclusivity over patent rights (Factor 4), or whether the patent holder competes with the prospective licensee (Factor 5), would be directly contrary to the RAND commitment. Likewise, the Georgia-Pacific hypothetical negotiation is ordinarily set at the time of the prospective licensee's first infringement, which in this case would be long after widespread implementation of the standards, and would maximize the patent owner's ability to capture hold-up value.
established royalty" -- would have to be modified. As Schmalensee admitted, "if the holder of a standard-essential patent approached a user of the standard, and succeeded in holding the user up, the 'hold-up' royalty would be reflected in a bilateral agreement." (11/19/12 Tr. 158.) Such royalties would obviously exceed a RAND royalty, and would either need to be excluded from the analysis altogether or adjusted downward to remove any "hold-up" portion. No Motorola witness explained how that might be done.
Average MPEG LA Pool Patent.
arrangements also reflect a pro rata approach, in that no individual patents are singled out for one-off valuation -- instead, the patents in the group are licensed together at a uniform rate.
Royalties for Motorola's H.264 Standard-Essential Patents.
$502,000 (Just Under 0.2 Cents Per Unit).
Lynde noted that the documents governing the MPEG LA H.264 pool permit the licensors "to increase the pool rates up to a maximum of ten percent should they deem that useful and appropriate, for example, if there were more patents in the pool." (Id. at 100.) Lynde then performed an alternative calculation, assuming that the inclusion of Motorola's H.264 SEPs would have prompted the 10% rate increase. In that case, Motorola's share of the annual pool royalties paid by Microsoft would increase to 0.204 cents per unit, or $521,000 for the most recent year. ( Id. at 161.) This provides an upper bound on the RAND royalty.
As Lynde explained, all of these calculations could easily be performed for other years, including future years, and counterpart figures determined for those years, taking account of patent expirations over time. (11/16/12 Tr. 104 (Lynde).) Therefore, if the Court adopts one of these approaches as the basis for a RAND royalty for the most recent year, the parties ought to be able to agree on the annual royalty amount that is payable for other years, using the same approach. Failing agreement, the Court could resolve the issue.
PATENTS IS AN AMOUNT IN THE RANGE OF 3 TO 6 CENTS PER UNIT.
Motorola's Patents Reflect At Most Marginal Contributions.
No Motorola expert conducted a rigorous infringement analysis to determine definitively which patents are actually essential to 802.11. (11/19/12 Tr. 67-134 (Williams).) Nor did any expert consider the validity of the patents or specifically refute testimony provided by Gibson that suitable alternatives existed for all of them. (Id.) Moreover, the Motorola 802.11 patents are rapidly expiring and have diminishing value.
Even as the 802.11 standard dominates the market today for short and mid-range wireless network devices, development continues on new versions. Much of that development draws upon technology contributed by companies such as Marvell, Atheros, and Intel that make the semiconductors that substantially embody the commercial implementation ofthe standard. These are commodity chips, used in broad ranges of end products, but providing the same wireless connectivity regardless of the end product involved. Market prices rest on strong competition, and are now about $3-4 per chip. Chip makers both rely on their own intellectual property and license-in intellectual property to be used in developing chips.
insisting that he considered something to be an alternative only if it could have been inserted into the standard without requiring any other change (11/19/12 Tr. 115-16), but as Gibson explained, the engineers developing the standard were fully capable of modifying related sections to accommodate alternatives (11/15/12 Tr. 115-16).
Best RAND Royalty Estimate Being $736,000 (5 Cents per Unit).
estimated annual Motorola royalty for the most recent year of 6.5 cents per unit or $920,000. (Id.) Under the governing IEEE contract specifying "nominal" compensation for essential patents, the RAND royalties proposed by Microsoft's experts are assuredly above -- not below -- the nominal compensation Motorola obligated itself to accept.
UNSUPPORTED BY EVIDENCE AND DEEPLY FLAWED.
[Redacted] (11/20/12 Tr. 100 (Dailey).) Under any Georgia-Pacific analysis (modified or otherwise), the Vtech license is irrelevant under Factor 1, which concerns "royalties received by the patentee" that prove or tend to prove "an established royalty." ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 869 (Fed. Cir. 2010) (emphasis added).
if H.264 video standard essential patents were licensed together with patents that were essential for other standards, one would need to estimate the value of the other patents and subtract it out.
(11/19/12 Tr. 160.) See LaserDynamics, 694 F.3d at 79; ResQNet.com, 594 F.3d at 869, 872.
While in the cases of both Windows and Xbox, [redacted] ( id. at 143-45), [redacted] (11/20/12 Tr. 137.) No Motorola witness presented any plausible reason why the long established entire market value rule can be disregarded in the RAND context.
The absurdity and bad faith inherent in Motorola's blind application of a 2.25% rate to end products was made abundantly clear in Motorola's dealings with chip supplier Marvell.
As Marvell's Jennifer Ochs explained, when she wrote to Motorola requesting a license to Motorola's 802.11 portfolio that would protect Marvell's customers (including Microsoft), Motorola responded with a proposed agreement that would require Marvell to pay a 2.25% royalty based on the end products incorporating its 802.11 chipsets and sold by Marvell's customers-whether a $400 Xbox 4 or $100,000 automobile. (11/14/12 Tr. 63, 68-70 (Ochs); Ex. 16.) As Ochs explained, it would be a "going-out-of-business model to pay such rates" because even in the case of the Xbox the "royalty is slightly higher than the cost of the chip itself." (11/14/12 Tr. 70, 69.) That cannot be RAND.
Donohoe's claim that Motorola's opening licensing demand "is RAND" lacks any support in the record, and is a worthless ipse dixit. See General Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997); Wendler & Ezra. P.C. v. Am. Intern. Group, Inc., 521 F.3d 790, 791 (7th Cir. 2008) (per curiam) ("An expert who supplies nothing but a bottom line supplies nothing of value to the judicial process.") (quotation marks omitted); Hathaway v. Bazany, 507 F.3d 312, 318 (5th Cir. 2007) ("[A]n expert's testimony that 'it is so' is not admissible.").
value its patents provided to Microsoft's products, beyond talking about the legally-irrelevant value of standard compliance. (11/19/12 Tr. 211-13 (Dansky).) That only confirms Motorola's effort to capture the hold-up value of standardization in violation of its RAND commitment. (11/19/12 Tr. 169 (Schmalensee).) The hold-up effort is further confirmed by Motorola's refusal to acknowledge the expiration of its patents: Motorola seeks the full 2.25% royalty so long as it still has a single unexpired SEP. That is the very definition of hold-up.
At the end of the trial, the Court asked the parties to address the "standard of what constitutes a good-faith range." (11/20/12 Tr. 171.) There are potentially two aspects to a "range" -- the range of royalties that are truly RAND, or the range of royalties demanded by the patent holder that, while not RAND, may be deemed consistent with a contracting party's good faith obligations. As to the former, in Microsoft's view, one applies the RAND principles as described above and then looks for an upper bound for the RAND royalty that is supported by the economic evidence. A RAND-committed patent holder can always agree to a royalty-free license; the upper bounds were provided by Dr. Lynde.
performance") and in the "assertion, settlement and litigation of contract claims and defenses" (such as "dishonest conduct such as conjuring up a pretended dispute, asserting an interpretation contrary to one's own understanding, or falsification of facts"). § 205 cmts. d, e. Bad faith includes "'obstinate conduct that necessitates legal action' to enforce a clearly valid claim or right," "vexatious conduct during the course of litigation," or the "intentional bringing of a frivolous claim [or) defense with improper motive." Rogerson Hiller Corp. v. Port of Port Angeles, 96 Wn. App. 918, 927-28, 982 P.2d 131 (1999).
Microsoft submits that a demand exceeding the upper bound of what is actually RAND would presumptively violate the duty of good faith and fair dealing, as the very purpose of the RAND commitment is to make non-discriminatory offers that anyone can accept, especially where, as here, the patent holder is concurrently seeking injunctive relief and has an incentive to forestall the consummation of a license. Any offer above the high end of RAND would require proof of extenuating circumstances to establish that the offer was legitimately made in good faith. When the patent holder makes the RAND commitment, it gives up the right to employ the conventional process of negotiation to extract all that the traffic will bear from individual implementers. Because the non-discriminatory royalty has to be equally available to all, the demand cannot be justified by the posture or needs of any individual implementer. It is not a rug bazaar. A multiple of a RAND royalty would be very difficult to justify under any circumstances because that would skew the ensuing discussions away from, not toward RAND.
For Motorola's H.264 SEPs, the Court should find that a RAND royalty for Microsoft is no more than $502,000 for the most recent year. For Motorola's 802.11 SEPs, the Court should find that a RAND royalty is no more than $736,000. The Court should direct the parties to try to reach agreement on annual royalty amounts for other years, using the same basic approach, and to report back to the Court.
DATED this 14th day of December, 2012.
By s/ Arthur W. Harrigan. Jr.
2 Motorola tried to cite to various Microsoft documents to suggest that pools provide low mtes, but Motorola misreads the documents. Exhibit 2345 is an email by Sullivan in which he correctly stated that SSOs and pools are sepamte and different organizations. He recognized that fundamentally-important IP may have greater value than the average patent in a pool, but based on his personal knowledge ofH.264 and Motorola's contributions, he believes that none of Motorola's patents fall into that category. (11/14112 Tr. 57 (Sullivan).) Motorola also points to a blog post written by Microsoft's Dean Hachamovitch suggesting that revenue played no part in Microsoft's decision to join the MPEG LA pool. (Hachamovitch Dep. at 227-32, 238-39; Ex. 2840. The post makes clear that he was not saying that the pool rates were low, merely that Microsoft had other motivations for joining.
3 [Redacted] (11/20/12 Tr. 144) [Redacted.] These royalty values are thus meaningless, and entirely dependent on the relative units sold by Microsoft and by Motorola in any given year -- they are not freestanding RAND royalty rates.

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