9th Circuit Flummoxed by Motorola & Microsoft

     SAN FRANCISCO (CN) – The worldwide patent fight between Motorola and Microsoft took a strange turn before the 9th Circuit, which does not usually hear patent appeals.
     Microsoft accused Motorola of demanding “excessive and discriminatory” fees for its wireless-technology patents in a federal lawsuit filed in Seattle two years ago.
     Microsoft said it developed the Xbox 360, Windows 7 and its Windows Phone 7 while relying on Motorola’s promises to abide by the Institute of Electrical and Electronics Engineers (IEEE) and International Telecommunication Union (ITU) agreements to license its technology on reasonable and nondiscriminatory (RAND) basis.
     A day later, Motorola filed federal claims of patent infringement claims against Microsoft in Wisconsin, claiming that Microsoft’s game system, PC, server software and mobile technology infringed 16 Motorola wireless patents.
     U.S. District Judge James Robart declined to rule on Microsoft’s claim in Seattle earlier this year,
     Unconvinced that Motorola’s license fees are excessive. But the battle went global when a German judge determined that Microsoft had breached its licensing agreement with Motorola and ordered Microsoft to pull the Xbox 360 from the market there.
     Robart, the Seattle judge, then granted Microsoft a restraining order to continue selling its products in Germany.
     At a hearing before the 9th Circuit on Tuesday, Motorola attorney Kathleen Sullivan called this move “extraordinary and unprecedented, purporting to bar enforcement of a German injunction, in Germany, under German law.”
     Sullivan, a partner in the firm Quinn Emanuel Urquhart & Sullivan, also called Robart’s ruling flawed and erroneous. “The United States doesn’t set patent law for the world. Patent law is territorial,” she told the panel.
     But Sullivan faced stiff questioning as to jurisdiction as well as Robart’s injunction, which Judges Sidney Thomas and Marsha Berzon noted was not aimed at the German court but at Motorola’s enforcement of the ban.
     Patent infringement cases are typically handled in the Federal Circuit, though both sides claim this is a contract claim over licensing fees.
     “This appears to be a patent case,” Judge J. Clifford Wallace told Sullivan. “If it is a patent case, then we’re not doing our job and it should go back to Washington, to the Federal Circuit.”
     Sullivan replied: “The issue of whether a preliminary injunction can issue in a Washington state law contract case is an issue of regional circuit law and not an issue in which patent interpretation under our patent laws is required. So this is governed by 9th Circuit law, not Federal Circuit law.”
     “Microsoft has brought a contract action, not a patent action,” she added. “So we think that you properly have appellate jurisdiction here to decide whether the preliminary injunction issued by the court under its purported contract-based authority was valid.”
     Nonetheless, Sullivan said this is an issue of comity – the principle that one jurisdiction will extend certain courtesies to other jurisdictions or nations – because of the territoriality of patents. Robart’s preliminary injunction of the German sales ban is an affront to comity, Sullivan added.
     Judge Berzon disagreed. “That’s where the issue of comity sort of evaporates, when the contract-based nature of the case is taken into account, and the very limited nature of the preliminary injunction,” Berzon said. “So if you regard the current case as a contract case, I’m not seeing why you find [the injunction] a special problem with regard to comity.”
     “Inherent in the RAND commitment is not having an injunction,” she added, noting that 7th Circuit Judge Richard Posner reached a similar conclusion in a lawsuit Motorola and Apple.
     “And this is exactly where the offense to comity comes in,” Sullivan said. “Germany does not agree with Judge Posner, and Judge Posner was not addressing foreign patents.”
     Sullivan also disputed that Motorola had ever entered into a contract with Microsoft, because talks stalled after the software giant balked at Motorola’s $4 billion opening offer.
     “Instead of a counteroffer, we got a lawsuit,” Sullivan told the panel.
     Microsoft attorney Carter Phillips called Motorola’s opening offer “outrageous” and contrary to promises the company made to follow RAND guidelines.
     “Motorola has agreed to license its products on a global basis,” Phillips told the three-judge panel. “It didn’t agree to do so everywhere except in Germany.”
     Judge Berzon told Phillips, of the firm Sidley Austin, that she was uncomfortable dictating the terms of a licensing agreement from the bench.
     “It would be an extraordinary thing to do,” Berzon said. “This is a contract, but without a price in it.”
     Meanwhile, Judge Wallace echoed Sullivan’s previous sentiments.
     “You may feel that $4 billion is a little high,” he told Phillips. “But there’s been no response from Microsoft – there’s been a lawsuit filed. Doesn’t that indicate that Microsoft is taking a bad-faith position?”
     Phillips told the panel that it all comes down to reasonable and nondiscriminatory, claiming that other members of IEEE and ITU licensed the same Motorola technology for $6 million. “Money we can take care of, but it shouldn’t be extorted out of us,” he added.
     “And what if Judge Robart decides that $5 billion is the right price,” Wallace asked.
     Phillips said: “We’ll ask the 9th Circuit to take a hard look at it.”
     Microsoft and Motorola maintain that settlement talks are ongoing.
     Sullivan noted that “there’s no guarantee that the trial has to go forward.”
     Motorola’s attorney echoed the sentiment. “I think it’s wholly premature for the court to try and figure out a remedy before the judge makes a decision,” Phillips told the court.
     Previously, Robart refused to grant either company summary judgment, with harsh words about their abuse of the justice system.
     “The court is well aware that it is being played as a pawn in a global industry-wide business negotiation,” Robart said, according the tech blog GeekWire.
     “The conduct of both Motorola and Microsoft has been driven by an attempt to secure commercial advantage and to an outsider looking in, it has been arbitrary, it has been arrogant and frankly it appears to be based on hubris,” he added.
     And like so many of the tech trials in recent days, the legal fees alone in this dispute “could finance a small country,” Robart said.

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