Opinion ID: 2822000
Heading Depth: 3
Heading Rank: 3

Heading: The Jury’s Verdict on Breach

Text: At the close of Microsoft’s case-in-chief and again at the close of evidence, Motorola moved for judgment as a matter of law (“JMOL”), contending, inter alia, that the evidence was insufficient to support a finding that it breached its duty of good faith and fair dealing on any of Microsoft’s theories. Addressing the motions, Judge Robart concluded that a reasonable jury could find breach of the good faith duty arising from either Motorola’s opening offers or its pursuit of injunctive relief—and that, “[l]ogically, then, a reasonable jury could also find that these actions combined amount[ed] to a breach.”15 Motorola appeals from those rulings. We review the denial of a motion for judgment as a matter of law de novo and must affirm “where there is substantial evidence supporting a verdict in favor of the 15 The jury was instructed that it could find “that Motorola breached its contractual commitment with the ITU in one or more of the following ways, or a combination thereof: By the terms contained in the October 29, 2010, letter offering to license Motorola’s H.264 standards-essential patents; by filing lawsuits and seeking injunctive relief based on standards-essential patents in the ITC, United States District Courts, and/or Germany,” “or a combination thereof.” The jury was instructed on the same theories with respect to breach of Motorola’s commitment to the IEEE, with the additional instruction that they could find breach “by [Motorola’s] not having executed a license agreement covering its 802.11 standards-essential patents with Marvell, Microsoft’s chip supplier.” The district court did not reach the Marvell chip theory of breach in its order on JMOL, finding the other theories sufficient to support the verdict, and the parties do not address it here. 40 MICROSOFT CORP. V. MOTOROLA, INC. nonmoving party.” Gillette v. Delmore, 979 F.2d 1342, 1346 (9th Cir. 1992); see also MCH Fin. Ltd. P’ship v. City of San Rafael, 714 F.3d 1118, 1131–32 (9th Cir. 2013). Here, the only damages argued for and awarded were tied to the fees for defending the injunctive actions and the costs of moving Microsoft’s European distribution facility out of Germany. Consequently, the jury was instructed that to award damages, it must find that Motorola’s injunctive actions, “apart from Motorola’s general course of conduct, violated Motorola’s duty of good faith and fair dealing.” Because we conclude that substantial evidence supported the jury’s verdict on that theory, we do not separately address two other liability theories presented to the jury. But, because the jury was instructed in assessing damages to consider “the circumstances surrounding each lawsuit,” and was further instructed that seeking injunctive relief was not a per se violation of the RAND commitment, we address Motorola’s overall course of conduct, including sending the October 2010 offer letters, as it related to and affected the impact of the injunctive actions. To determine whether Motorola’s injunctive actions were in breach of its RAND commitments, the jury was instructed to consider the following factors, “alone or in combination”:
to the reasonable and justified expectations of other parties to the contract; (2), whether Motorola’s conduct would frustrate the purpose of the contract; (3), whether Motorola’s conduct was commercially reasonable; (4), whether and to what extent Motorola’s conduct conformed with ordinary MICROSOFT CORP. V. MOTOROLA, INC. 41 custom or practice in the industry; (5) to the extent the contract vested Motorola with discretion in deciding how to act, whether Motorola exercised that discretion reasonably; (6), subjective factors, such as Motorola’s intent and whether Motorola had a bad motive.16 Microsoft offered significant evidence upon which the jury could apply this standard and infer that the injunctive actions violated Motorola’s good faith and fair dealing obligations. The district court identified the testimony of five different experts from which the jury could conclude that Motorola’s actions were intended to induce hold-up, i.e., to pressure Microsoft into accepting a higher RAND rate than was objectively merited, and thereby to frustrate the purpose of the contract. See Microsoft I, 696 F.3d at 877. The jury heard, for example, that an injunction against Microsoft’s use of Motorola’s 802.11 and H.264 SEPs “[w]ould have [had] crippling consequences, because . . . [p]eople wouldn’t buy a computer that doesn’t have WiFi . . . [or] a computer that wouldn’t be able to play back highdefinition video.” The evidence that the rates Motorola sought were significantly higher than the RAND rate found by the court suggested that Motorola sought to capture more than the value of its patents by inducing holdup, and that it 16 Motorola provides no persuasive support for its argument that instructing the jury to consider the six factors “alone or in combination” was improper. If anything, the cases it cites tend to dispel Motorola’s contention that breach must be premised on a variety of factors, as they focus on a defendant’s bad intent or motives. See, e.g., In re Estate of Hollingsworth, 560 P.2d 348, 351–52 (Wash. 1977) (en banc); Cavell v. Hughes, 629 P.2d 927, 929 (Wash. Ct. App. 1981). 42 MICROSOFT CORP. V. MOTOROLA, INC. filed infringement actions to facilitate that strategy by preventing Microsoft from using its patents—and therefore from implementing the 802.11 and H.264 standards—until it obtained a license at a rate significantly higher than the RAND rate. The timing of the injunctive actions was also indicative of bad faith. In opening arguments, Microsoft’s counsel suggested that because the injunctions were sought immediately after the twenty-day acceptance window provided in the offer letters expired, the offers were no more than “a prelude to allow Motorola to be able to say, ‘We’ve made an offer. They didn’t accept it. Now we can sue.’” Motorola’s injunction suits were also brought after Microsoft filed its breach of contract lawsuit with the district court. At that point, Motorola was aware that the present lawsuit could establish RAND rates. “A patentee subject to FRAND commitments may have difficulty establishing irreparable harm.” Apple, Inc., 757 F.3d at 1332; see also Microsoft I, 696 F.3d at 877. Here, had Motorola accepted the RAND rates, it would then be fully compensated for Microsoft’s infringing use. The jury could have inferred, from that circumstance, that the injunctive actions were not motivated by a fear of irreparable harm, as payment of the RAND rate would eliminate any such harm. In the absence of a fear of irreparable harm as a motive for seeking an injunction, the jury could have inferred that the real motivation was to induce Microsoft to agree to a license at a higher-than-RAND rate. Finally, as discussed at more length in Part II.E.2, infra, there was evidence of Motorola’s knowledge that pursuing an MICROSOFT CORP. V. MOTOROLA, INC. 43 injunctive action could breach its duty of good faith and fair dealing. In May 2012, Microsoft expressed concern to the FTC about Motorola’s conduct concerning its RAND obligations. Shortly thereafter, the FTC initiated an investigation into whether Motorola and Google had “reneged on a licensing commitment made to several standard-setting bodies to license its standards-essential patents relating to smartphones, tablet computers and video game systems on FRAND terms by seeking injunctions against willing licensees of . . . SEPs.” The investigation ultimately resulted in a consent decree. Around the same time, the FTC contacted the ITC, before whom Motorola’s action for an exclusion order was pending, expressing concern that allowing an SEP holder to obtain an exclusion order against a license-seeker was “inconsistent with the RAND commitment.” So Motorola was aware the FTC found its conduct questionable, yet left its injunctive suits in place. This sequence provided some evidence that Motorola acted in bad faith. The evidence just summarized, discretely and taken as a whole, is susceptible to contrary interpretations as well. But it was for the jurors to assess witness credibility, weigh the evidence, and make reasonable inferences. See United States v. Sanchez-Lima, 161 F.3d 545, 548 (9th Cir. 1998). The record provides a substantial basis on which the jury could have based a verdict favoring Microsoft. See MCH Fin. Ltd. P’ship, 714 F.3d at 1131–32.