Microsoft Corporation v. Motorola Mobility , 795 F.3d 1024 ( 2015 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MICROSOFT CORPORATION, a No. 14-35393
Washington corporation,
Plaintiff-Appellee, D.C. Nos.
2:10-cv-01823-JLR
v. 2:11-cv-00343-JLR
MOTOROLA, INC.; MOTOROLA
MOBILITY, INC.; GENERAL OPINION
INSTRUMENT CORPORATION,
Defendants-Appellants.
Appeal from the United States District Court
for the Western District of Washington
James L. Robart, District Judge, Presiding
Argued and Submitted
April 8, 2015—San Francisco, California
Filed July 30, 2015
Before: Sidney R. Thomas, Chief Judge, and J. Clifford
Wallace and Marsha S. Berzon, Circuit Judges.
Opinion by Judge Berzon
2 MICROSOFT CORP. V. MOTOROLA, INC.
SUMMARY*
Patent Licensing
The panel affirmed the district court’s judgment in favor
of Microsoft Corporation in an action brought by Microsoft,
a third-party beneficiary to Motorola, Inc.’s reasonable and
non-discriminatory (“RAND”) commitments, alleging
Motorola breached its obligation to offer RAND licenses to
certain of its patents in good faith.
At issue in the appeal were two patent portfolios, formerly
owned by Motorola, both of which were subject to RAND
agreements. The court previously upheld, in an interlocutory
appeal, an anti-suit injunction preventing Motorola from
enforcing in a German action any injunction it might obtain
against Microsoft’s use of certain contested patents.
Microsoft Corp. v. Motorola, Inc., 696 F.3d 872 (9th Cir.
2012). Following that prior decision, a jury determined that
Motorola had breached its RAND good faith and fair dealing
obligations in its dealings with Microsoft.
The district court conducted a bench trial to determine a
RAND rate and range for Motorola’s patents. The case then
proceeded to a jury trial on the breach of contract claim, and
the jury returned a verdict for Microsoft in the amount of
$14.52 million. The district court denied Motorola’s motions
for judgment as a matter of law.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
MICROSOFT CORP. V. MOTOROLA, INC. 3
The panel held that this court had jurisdiction. The panel
held that this court’s exercise of jurisdiction over the case in
the prior interlocutory appeal, and the Federal Circuit’s
decision to transfer the instant appeal to this court because
this court had jurisdiction, were both law of the case. The
panel further held that the earlier jurisdictional determinations
were not clearly erroneous.
The panel rejected Motorola’s two merits challenges to
the RAND bench trial, specifically, that the district court
lacked the legal authority to decide the RAND rate issue in a
bench trial, and that the RAND rate analysis was contrary to
Federal Circuit precedent. First, the panel did not consider
whether, absent consent, a jury should have made the RAND
determination, because Motorola was aware that the RAND
determination was being made to set the stage for the breach
of contract jury trial, nor did Motorola ever withdraw its
affirmative stipulation to a bench trial for that purpose.
Second, the panel held that the district court’s RAND analysis
did not violate Federal Circuit patent damages law because
this was not a patent law action. The panel held, however,
that the district court’s analysis properly adapted the Federal
Circuit’s patent law methodology as guidance in this contract
case concerning the questions of patent valuation. The panel
concluded that the district court’s RAND determination was
not based on a legal error or on a clearly erroneous view of
the facts in light of the evidence.
Concerning the jury trial and verdict, the panel held that
the record provided a substantial basis on which the jury
could have based a verdict favoring Microsoft.
Concerning the motion for judgment as a matter of law,
the panel rejected Motorola’s two challenges to the damages
4 MICROSOFT CORP. V. MOTOROLA, INC.
sought for attorneys’ fees and litigation costs incurred in
defending the injunctive actions. First, Motorola raised the
Noerr-Pennington doctrine, which shields individuals from,
inter alia, liability for engaging in litigation. The panel noted
that the doctrine does not immunize a party from actions that
amount to a breach of contract. The panel held that enforcing
a contractual commitment to refrain from litigation does not
violate the First Amendment. The panel further noted that the
jury concluded that seeking injunctive relief violated
Motorola’s contractual RAND obligations. The panel
concluded that the Noerr-Pennington doctrine did not
immunize Motorola from liability for that breach of its
promise. Second, Motorola alleged that Microsoft was not
entitled to attorneys’ fees as damages under Washington law.
The panel held that where a party’s injunctive actions to
enforce a RAND-encumbered patent violated the duty of
good faith and fair dealing, Washington courts would allow
the damages awarded to include the attorneys’ fees and costs
expended to defend against the injunction action.
Finally, the panel rejected Motorola’s allegations that the
district court abused its discretion in making two evidentiary
rulings. First, concerning RAND rates and ranges submitted
to the jury, the panel held that Motorola consented to
admission of the facts underlying the RAND rates and ranges
to the jury. The panel agreed with the district court that
Motorola’s consent to the RAND bench trial encompassed
introducing the court’s findings of fact to the jury in the
breach of contract trial. Second, Motorola objected to the
admission of evidence of a Federal Trade Commission
investigation into Motorola’s enforcement policies, including
its seeking of injunctions. The panel held that the district
court did not abuse its discretion in admitting the evidence
because the danger of prejudice in admitting limited
MICROSOFT CORP. V. MOTOROLA, INC. 5
testimony about the FTC investigation did not so manifestly
outweigh the testimony’s probative value.
COUNSEL
Kathleen M. Sullivan (argued), Quinn Emanuel Urquhart &
Sullivan, LLP, New York, New York; Brian C. Cannon,
Quinn Emanuel Urquhart & Sullivan, LLP, Redwood Shores,
California, for Defendants-Appellants.
Carter G. Phillips (argued), Sidley Austin LLP, Washington,
D.C.; David T. Pritikin, Sidley Austin LLP, Chicago, Illinois;
Arthur W. Harrigan, Jr., Calfo Harrigan Leyh & Eykes LLP,
Seattle, Washington; T. Andrew Culbert, Microsoft
Corporation, Redmond, Washington, for Plaintiff-Appellee.
Wayne P. Sobon, Arlington, Virginia, and and for Amicus
Curiae American Intellectual Property Law Association.
Richard S. Taffet, Bingham McCutchen LLP, New York,
New York; Patrick Strawbridge, Bingham McCutchen LLP,
Boston, Massachusetts; Stephanie Schuster, Bingham
McCutchen LLP, Washington, D.C., for Amicus Curiae
Qaulcomm Incorporated.
Xavier M. Brandwajn, Alston and Bird LLP, East Palo Alto,
California, for Amici Curiae Nokia Corporation and Nokia
USA Inc.
Charles Duan, Washington, D.C., as and for Amicus Curiae
Public Knowledge.
6 MICROSOFT CORP. V. MOTOROLA, INC.
Mark S. Davies, Orrick, Herrington & Sutcliffe LLP,
Washington, D.C.; Christopher J. Cariello, Orrick, Herrington
& Sutcliffe LLP, New York, New York, for Amicus Curiae
Apple Inc.
Lauren B. Fletcher, William F. Lee, Joseph J. Mueller,
Timothy D. Syrett, Wilmer Cutler Pickering Hale and Dorr
LLP, Boston, Massachusetts; James L. Quarles III, Brittany
Blueitt Amadi, Wilmer Cutler Pickering Hale and Dorr LLP,
Washington, D.C.; Matthew R. Hulse, Intel Corporation,
Santa Clara, California, for Amici Curiae Intel Corporation,
Aruba Networks Inc., Dell Inc., Hewlett-Packard Company,
Newegg Inc., SAS Institute Inc., VIZIO, Inc., and Xilinx, Inc.
Robert F. Krebs, Ronald F. Lopez, Karl Belgum, Nixon
Peabody, LLP, San Francisco, California, for Amicus Curiae
Sierra Wireless Inc.
Christy G. Lea, Knobbe, Martens, Olson & Bear, LLP, Irvine,
California; Christopher C. Kennedy, Knobbe, Martens, Olson
& Bear, LLP, Washington, D.C.; Mauricio A. Uribe, Knobbe,
Martens, Olson & Bear, LLP, Seattle, Washington; Alice C.
Garber, John J. Murphy, T-Mobile USA, Inc., Bellevue,
Washington, for Amicus Curiae T-Mobile USA, Inc.
OPINION
BERZON, Circuit Judge:
We live in an age in which the interconnectivity of a wide
range of modern technological products is vital. To achieve
that interconnection, patent-holders often join together in
compacts requiring licensing certain patents on reasonable
MICROSOFT CORP. V. MOTOROLA, INC. 7
and non-discriminatory (“RAND”) terms. Such contracts are
subject to the common-law obligations of good faith and fair
dealing.
At issue in this appeal are two patent portfolios, formerly
owned by Appellants Motorola, Inc., Motorola Mobility, Inc.,
and General Instrument Corp., (“Motorola”), both of which
are subject to RAND agreements.1 Appellee Microsoft, a
third-party beneficiary to Motorola’s RAND commitments,
sued Motorola for breach of its obligation to offer RAND
licenses to its patents in good faith. Motorola, meanwhile,
brought infringement actions in a variety of fora to enjoin
Microsoft from using its patents without a license.
We previously upheld, in an interlocutory appeal, an anti-
suit injunction preventing Motorola from enforcing in a
German action any injunction it might obtain against
Microsoft’s use of certain contested patents. Microsoft Corp.
v. Motorola, Inc., 696 F.3d 872 (9th Cir. 2012) (“Microsoft
I”). We did so after determining that there was, in the
“sweeping promise” of Motorola’s RAND agreements, “at
least arguably[] a guarantee that the patent-holder will not
take steps to keep would-be users from using the patented
material, such as seeking an injunction, but will instead
proffer licenses consistent with the commitment made.” Id.
at 884.
After our decision, a jury determined that Motorola had
indeed breached its RAND good faith and fair dealing
obligations in its dealings with Microsoft. In this appeal, we
1
Patents owned by Motorola Mobility and General Instrument are now
owned by Google Technology Holdings, LLC, a wholly owned subsidiary
of Google Inc.
8 MICROSOFT CORP. V. MOTOROLA, INC.
address (1) whether the district court overstepped its bounds
by determining, at a bench trial preceding the jury trial on
breach of contract, a reasonable and non-discriminatory rate,
as well as a range of rates, for Motorola’s patents; (2) whether
the court erred in denying Motorola’s motions for judgment
as a matter of law on the breach of contract issue; (3) whether
the court erred in awarding Microsoft attorneys’ fees as
damages in connection with Motorola’s pursuit of injunctions
against infringement; and (4) whether the district court
abused its discretion in two contested evidentiary rulings.
I. BACKGROUND
A. Standard-Setting Organizations and Standard-
Essential Patents
When we connect to WiFi in a coffee shop, plug a
hairdryer into an outlet, or place a phone call, we owe thanks
to standard-setting organizations (“SSOs”). See generally
Mark A. Lemley, Intellectual Property Rights and
Standard-Setting Organizations, 90 Calif. L. Rev. 1889
(2002). SSOs set technical specifications that ensure that a
variety of products from different manufacturers operate
compatibly. Without standards, there would be no guarantee
that a particular set of headphones, for example, would work
with one’s personal music player. See id. at 1896.
Standardization provides enormous value to both
consumers and manufacturers. It increases competition by
lowering barriers to entry and adds value to manufacturers’
products by encouraging production by other manufacturers
of devices compatible with them. See id. at 1896–97; Amicus
Br. of American Intellectual Property Law Ass’n (“IPLA”) at
6; Amicus Br. of Apple Inc. at 2. But because SSO standards
MICROSOFT CORP. V. MOTOROLA, INC. 9
often incorporate patented technology, all manufacturers who
implement a standard must obtain a license to use those
standard-essential patents (“SEPs”).
The development of standards thereby creates an
opportunity for companies to engage in anti-competitive
behavior. Most notably, once a standard becomes widely
adopted, SEP holders obtain substantial leverage over new
product developers, who have little choice but to incorporate
SEP technologies into their products. Using that standard-
development leverage, the SEP holders are in a position to
demand more for a license than the patented technology, had
it not been adopted by the SSO, would be worth. The tactic
of withholding a license unless and until a manufacturer
agrees to pay an unduly high royalty rate for an SEP is
referred to as “hold-up.” Ericsson, Inc. v. D-Link Sys., Inc.,
773 F.3d 1201, 1209 (Fed. Cir. 2014). “Royalty stacking”
refers to the risk that many holders of SEPs will engage in
this behavior, resulting in excessive royalty payments such
that (1) the cumulative royalties paid for patents incorporated
into a standard exceed the value of the feature implementing
the standard, and (2) the aggregate royalties obtained for the
various features of a product exceed the value of the product
itself. Id.; see also Mark A. Lemley & Carl Shapiro, Patent
Holdup and Royalty Stacking, 85 Tex. L. Rev. 1991, 2010–13
(2007); Amicus Br. of Public Knowledge at 11–20.
To mitigate the risk that a SEP holder will extract more
than the fair value of its patented technology, many SSOs
require SEP holders to agree to license their patents on
10 MICROSOFT CORP. V. MOTOROLA, INC.
“reasonable and nondiscriminatory” or “RAND” terms.2
Under these agreements, an SEP holder cannot refuse a
license to a manufacturer who commits to paying the RAND
rate.
For example, International Telecommunications Union
(“ITU”), one of the SSOs at issue in this case, has established
a Common Patent Policy. That Policy provides that “a patent
embodied fully or partly in a [standard] must be accessible to
everybody without undue constraints.” ITU, Common Patent
Policy for ITU-T/ITU-R/ISO/IEC, http://www.itu.int/en/ITU-T/
ipr/Pages/policy.aspx (last visited June 15, 2015) [hereinafter
ITU, Common Patent Policy]. Any holder of a patent under
consideration for incorporation into an ITU standard is
required to submit a declaration of its commitment to
“negotiate licenses with other parties on a non-discriminatory
basis on reasonable terms and conditions.” Id.; see also
Microsoft I, 696 F.3d at 876. “If a ‘patent holder is not
willing to comply’ with the requirement to negotiate licenses
with all seekers, then the standard ‘shall not include
provisions depending on the patent.’” Microsoft I, 696 F.3d
at 876 (quoting ITU, Common Patent Policy).
The two standards underlying this case are the H.264
video-coding standard set by the ITU and the 802.11 wireless
local area network standard set by the Institute of Electrical
and Electronics Engineers (“IEEE”). The H.264 standard
pertains to an efficient method of video compression. The
802.11 standard regards the wireless transfer of information
2
The parallel terms of some SEP licensing agreements require fair,
reasonable, and nondiscriminatory, or “FRAND” rates. FRAND and
RAND have the same meaning in the world of SEP licensing and in this
opinion.
MICROSOFT CORP. V. MOTOROLA, INC. 11
using radio frequencies, commonly referred to as “WiFi.”
The H.264 standard is incorporated into Microsoft’s
Windows operating system and into its Xbox video game
console. The 802.11 WiFi network standard is incorporated
into Xbox.
B. History of the Present Dispute
In October 2010, Microsoft sued Motorola in both the
U.S. International Trade Commission (“ITC”)3 and the
Western District of Washington for alleged infringement of
certain smartphone patents. The parties thereupon engaged
in a series of discussions concerning, among other matters,
the possibility of a cross-licensing agreement granting
Motorola licenses to Microsoft’s smartphone patents in
exchange for licenses to any of Motorola’s patents
Microsoft’s products may have been infringing.
On October 21st and 29th, Motorola sent Microsoft two
letters offering to license its 802.11 and H.264 SEP portfolios
at 2.25% of the price of the end product—no matter the
manufacturer—incorporating the patents. In other words,
Microsoft would pay Motorola 2.25% of the selling price of
an Xbox game console or of any computer running Microsoft
Windows. The two offer letters, identical in all material
3
The ITC is “a quasi-judicial federal agency that adjudicates and
enforces intellectual property rights in international trade through Section
337 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1337.” Patricia
Larios, The U.S. International Trade Commission’s Growing Role in the
Global Economy, 8 J. Marshall Rev. Intell. Prop. L. 290, 294 (2009); see
U.S. Int’l Trade Comm’n, About the USITC, http://www.usitc.gov/press_
room/about_usitc.htm (last visited Apr. 21, 2015).
12 MICROSOFT CORP. V. MOTOROLA, INC.
terms, represented that the offer was in keeping with
Motorola’s RAND commitments.4
Soon after receiving Motorola’s letters, in November
2010, Microsoft filed a diversity action in the Western
District of Washington, alleging that Motorola had breached
its RAND commitments to the IEEE and ITU.5 Microsoft
4
The letter referring to the H.264 SEPs is substantially the same as that
referring to the 802.11 SEPs, and reads:
This letter is to confirm Motorola’s offer to grant
Microsoft a worldwide nonexclusive license under
Motorola’s portfolio of patents and pending
applications covering the subject matter of ITU-T
Recommendation H.264 . . . .
Motorola offers to license the patents on a non-
discriminatory basis on reasonable terms and conditions
(“RAND”), including a reasonable royalty of 2.25% per
unit for each H.264 compliant product, subject to a
grant back license under the H.264 patents of Microsoft
. . . . As per Motorola’s standard terms, the royalty is
calculated based on the price of the end product (e.g,
each Xbox 360 product, each PC/laptop, each
smartphone, etc.) and not on component software (e.g.,
Xbox 360 system software, Windows 7 software,
Windows Phone 7 software, etc.).
....
Motorola will leave this offer open for 20 days.
5
Microsoft’s complaint also pleaded claims of promissory estoppel,
waiver, and declaratory judgment. The waiver and declaratory judgment
actions were dismissed in June 2011. The promissory estoppel claim, and
Motorola’s counterclaim for declaratory judgment that it had not violated
its RAND obligations, are still pending.
MICROSOFT CORP. V. MOTOROLA, INC. 13
alleged that Motorola’s offer letters constituted a refusal to
license Motorola’s SEPs on RAND terms. The next day,
Motorola filed suit against Microsoft in the Western District
of Wisconsin seeking to enjoin Microsoft from using its
H.264 patents. The cases were consolidated before Judge
James Robart in the Western District of Washington.
Motorola also filed patent-enforcement suits with the ITC,
seeking an exclusion order against importing Microsoft’s
Xbox products into the United States, and with a German
court, seeking an injunction against sales of Microsoft’s
H.264-compliant products. The German action was
particularly threatening to Microsoft, as its European
distribution center for all Windows and Xbox products was
in Germany. To guard against the economic loss that would
result if an injunction against use of Motorola’s two German
H.264 patents were granted, Microsoft swiftly relocated its
distribution center to the Netherlands. At the same time,
Microsoft sought and obtained from the district court, in
April 2012, an “anti-suit injunction” barring Motorola from
enforcing any injunction it might obtain in a German court
against Microsoft’s use of Motorola’s H.264 SEPs until the
district court could “determine whether injunctive relief is an
appropriate remedy for Motorola to seek.” Microsoft I,
696 F.3d at 880. We affirmed the anti-suit injunction order
in September 2012. Id. at 889. Meanwhile, the German court
had ruled that Motorola was entitled to an injunction. Id. at
879.6
6
The German injunction is not self-enforcing. To enforce it, Motorola
must first post a bond securing Microsoft against damage if the ruling is
overturned on appeal. Microsoft could then file a motion to stay the
injunction. Microsoft I, 696 F.3d at 879.
14 MICROSOFT CORP. V. MOTOROLA, INC.
Proceedings in the district court continued apace.
Microsoft amended its complaint to allege that Motorola’s
filing of injunctive actions constituted a breach of contract,
because the obligation to offer RAND licenses to all seekers
prohibited Motorola from seeking injunctions for violations
of patents subject to that obligation.7 The court granted a
joint motion to stay all the patent-infringement claims in the
consolidated cases pending the outcome on the RAND issues.
In a series of orders, Judge Robart held that (1) “RAND
commitments create enforceable contracts between Motorola
and the respective SSO”; (2) “Microsoft—as a standard-
user—can enforce these contracts as a third-party
beneficiary”; (3) “Motorola’s commitments to the ITU and
IEEE . . . requir[e] initial offers by Motorola to license its
SEPs to be made in good faith,” but that “initial offers do not
have to be on RAND terms so long as a RAND license
eventually issues”; and (4) Motorola was not entitled to
injunctive relief on its H.264 or 802.11 patents.8
In November 2012, Judge Robart conducted a bench trial
to determine a RAND rate and range for Motorola’s H.264
7
Microsoft’s amended complaint pointed to the infringement actions in
Wisconsin district court and before the ITC as the source of the breach.
Microsoft did not formally further amend the complaint to include the
German infringement action, initiated several months later. The theory
that the German injunctive suit breached Motorola’s contractual
commitments was argued before the jury, without objection, however, and
was a focus of the jury instructions.
8
Having so ruled, the district court dissolved the anti-suit injunction,
ruling that the holding as to whether Motorola was entitled to an
injunction on its H.264 patents was “dispositive of the propriety of
injunctive relief in the German action.”
MICROSOFT CORP. V. MOTOROLA, INC. 15
and 802.11 patents. Such determination was necessary, the
court reasoned, because “[w]ithout a clear understanding of
what RAND means, it would be difficult or impossible to
figure out if Motorola breached its obligation to license its
patents on RAND terms.” After taking testimony from
eighteen witnesses, the court issued a 207-page order setting
forth its findings of fact and conclusions of law on RAND-
rate-related issues. The court concluded that the RAND
royalty for Motorola’s H.264 portfolio was .555 cents per
end-product unit, with an upper bound of 16.389 cents per
unit, and that the rate for Motorola’s 802.11 portfolio was
3.71 cents per unit, with a range of .8 cents to 19.5 cents.9
The case then proceeded to a jury trial on the breach of
contract claim. Over Motorola’s objection, Microsoft was
permitted to introduce the RAND rates determined at the
bench trial through witness testimony. Microsoft also
introduced, again over Motorola’s objection, testimony that
the FTC had previously investigated Motorola and its then-
parent company, Google Inc., for failing to license patents
relating to smartphones, tablets, and video gaming systems on
RAND terms. As damages for the asserted breach of
contract, Microsoft sought its attorneys’ fees and costs in
defending the injunctive actions Motorola had brought.
Microsoft also sought as damages the cost of relocating its
distribution facility from Germany to the Netherlands.
In September 2013, the jury returned a verdict for
Microsoft in the amount of $14.52 million: $11.49 million for
relocating its distribution center and $3.03 million in
9
Based on these rates, Microsoft tendered $6.8 million to compensate
for its past use of Motorola’s patents. Motorola did not accept the
payment.
16 MICROSOFT CORP. V. MOTOROLA, INC.
attorneys’ fees and litigation costs. The verdict form asked
both the general question whether Motorola “breached its
contractual commitment[s]” to the IEEE and ITU and,
specifically, for the purpose of damages, whether Motorola’s
“conduct in seeking injunctive relief, apart from Motorola’s
general course of conduct, violated Motorola’s dut[ies] of
good faith and fair dealing with respect to Motorola’s
contractual commitment[s].” The jury answered “yes” to all
questions, unanimously.
Motorola moved for judgment as a matter of law both at
the close of evidence and at the close of Microsoft’s case-in-
chief. See Fed R. Civ. P. 50(a). After the jury’s verdict, the
court denied Motorola’s motions in a joint order, concluding
that (1) the evidence was sufficient for the jury reasonably to
conclude that Motorola breached its duty of good faith and
fair dealing by making offers far above the RAND rates and
by seeking injunctions against Microsoft, and (2) the damages
award was proper. The court granted Microsoft’s motion for
entry of final judgment on the breach of contract jury verdict.
See Fed. R. Civ. P. 54(b).
Motorola then appealed from the judgment on the breach
of contract claim to the Federal Circuit. On Microsoft’s
motion, the Federal Circuit transferred the appeal to this
court. Microsoft Corp. v. Motorola, Inc., 564 F. App’x 586
(Fed. Cir. 2014).
II. DISCUSSION
A. Jurisdiction
In 2012, Motorola appealed to this court to review the
district court’s grant of a preliminary anti-suit injunction. See
MICROSOFT CORP. V. MOTOROLA, INC. 17
Microsoft I, 696 F.3d 872. In that appeal, Motorola
maintained that this court, not the Federal Circuit, had
jurisdiction, “[b]ecause Microsoft’s complaint is pleaded in
terms of contractual rather than patent rights.” Opening Br.
of Defs.-Appellants, Microsoft I, 696 F.3d 872, No. 12-
35352, 2012 WL 2132503, at *2. Upon entry of judgment in
the district court on the breach of contract claim, however,
Motorola switched gears and appealed to the Federal Circuit,
which has jurisdiction over cases “arising under” federal
patent law—that is, “those cases in which a well-pleaded
complaint establishes either that federal patent law creates the
cause of action or . . . that patent law is a necessary element
of one of the well-pleaded claims.” Christianson v. Colt
Indus. Operating Corp., 486 U.S. 800, 808–09 (1988) (citing
28 U.S.C. § 1338(a)). The Federal Circuit then transferred
the case here. See Microsoft, 564 F. App’x 586.
Our exercise of jurisdiction over this very case on an
interlocutory appeal, and the Federal Circuit’s decision to
transfer the instant appeal to this circuit because we have
jurisdiction, are both the law of the case. See Christianson,
486 U.S. at 817. Accordingly, we may now decline
jurisdiction only if “(1) the [earlier] decision[s] w[ere] clearly
erroneous; (2) there has been an intervening change in the
law; (3) the evidence on remand is substantially different;
(4) other changed circumstances exist; or (5) a manifest
injustice would otherwise result.” United States v. Renteria,
557 F.3d 1003, 1006 (9th Cir. 2009). Motorola’s argument
that the district court “constructively amended” the complaint
by holding a bench trial on the RAND rate tacitly invokes the
“changed circumstances” exception, although Motorola does
not so specify. But because our jurisdictional determination
on the interlocutory appeal was made knowing the RAND
bench trial would occur and the Federal Circuit’s decision to
18 MICROSOFT CORP. V. MOTOROLA, INC.
transfer the case was made after the bench trial, we conclude
that no changed circumstances are present. As the earlier
jurisdictional determinations were not clearly erroneous, we
have jurisdiction.
1. The Interlocutory Appeal
As we explained in the interlocutory appeal opinion in
this case, “‘[n]ot all cases involving a patent-law claim fall
within the Federal Circuit’s jurisdiction.’” Microsoft I,
696 F.3d at 881 (quoting Holmes Grp., Inc. v. Vornado Air
Circulation Sys., Inc., 535 U.S. 826, 834 (2002)). The
Federal Circuit, we noted, would have jurisdiction over
Motorola’s appeal of the anti-suit injunction “only if it would
have jurisdiction over a final appeal in the case under
28 U.S.C. § 1295.” Id. (citing 28 U.S.C. § 1292(c)(1)).
Looking to Microsoft’s complaint, we explained that this
action is not one “arising under any Act of Congress relating
to patents,” 28 U.S.C. § 1338(a), but rather “sounds in
contract and involves the district court’s diversity
jurisdiction.” Microsoft I, 696 F.3d at 881. We therefore
concluded that we had jurisdiction over the interlocutory
appeal, thereby necessarily deciding also that we would have
jurisdiction over a final appeal of the breach of contract
claim. Id.
2. The Federal Circuit’s Transfer
Motorola nevertheless appealed from the final judgment
in this case to the Federal Circuit. In support of Federal
Circuit jurisdiction, Motorola maintained that the district
court’s consolidation of Microsoft’s breach of contract case
with Motorola’s patent infringement suit—the latter of which
would fall within the Federal Circuit’s jurisdiction on
MICROSOFT CORP. V. MOTOROLA, INC. 19
appeal—conferred Federal Circuit appellate jurisdiction over
both cases. See Microsoft, 564 F. App’x at 589.
Applying law-of-the-case deference to our prior opinion,
the Federal Circuit rejected that argument.10 It noted that the
district court did consolidate the two cases under Federal
Rule of Civil Procedure 42(a) in the interest of “judicial
economy,” but denied a motion to dismiss Motorola’s patent-
infringement claims and re-file them as compulsory
counterclaims in the contract case. Id. at 588. In so ruling,
the district court reasoned that the facts of the two cases were
“not so intertwined and logically connected that
considerations of judicial economy and fairness dictate that
the issues be resolved in one lawsuit.” Id. Given that ruling,
the Federal Circuit held, it was “plausible to conclude, as the
Ninth Circuit seems to have done here, that the act of
‘consolidation did not merge the suits into a single cause, or
change the rights of the parties.’” Id. at 589 (quoting Johnson
v. Manhattan Ry., 289 U.S. 479, 496–97 (1933)) (internal
alterations omitted). Because the Federal Circuit found our
decision not “clearly erroneous,” it transferred the case. Id.
at 589.
10
Motorola had argued that law-of-the-case principles should not apply
because “‘neither party nor the Ninth Circuit realized the implications of
the consolidation of Motorola’s patent infringement claim with
Microsoft’s contract claim’ at the earlier stages of this litigation.”
Microsoft, 564 F. App’x at 589. As the Federal Circuit recognized,
however, our earlier opinion makes clear that we were quite aware of the
consolidation of the cases when we heard the interlocutory appeal and
nonetheless determined that we had jurisdiction. See id. (citing Microsoft
I, 696 F.3d at 878).
20 MICROSOFT CORP. V. MOTOROLA, INC.
3. Law of the Case, Applied
We, too, apply law-of-the-case deference to our previous
jurisdictional determination, as well as to that of the Federal
Circuit. In doing so, we are guided by the Supreme Court’s
holding in Christianson, which in very similar circumstances
highlighted the importance of deferring to prior jurisdictional
determinations.
Christianson came before the Supreme Court after both
the Federal Circuit and the Seventh Circuit had declined to
exercise jurisdiction over an antitrust suit with embedded
questions of patent validity. Christianson, 486 U.S. at
803–07. Review was initially sought in the Federal Circuit.
See id. at 806. That Circuit concluded that it lacked
jurisdiction and transferred the case to the Seventh Circuit.
See id. The Seventh Circuit then, sua sponte, addressed its
own jurisdiction, concluded that the Federal Circuit was
“clearly wrong” in transferring the case, and transferred it
back. Id. at 806 (quoting 798 F.2d 1051, 1056–57 (7th Cir.
1986)). The Federal Circuit, in turn, stated that it was the
Seventh Circuit that was “clearly wrong,” and had “exhibited
‘a monumental misunderstanding of the [Federal Circuit’s]
patent jurisdiction.’” Id. at 807 (quoting 822 F.2d 1544,
1547, 1551 n.7 (Fed. Cir. 1987)). Nevertheless, in the
“interest of justice,” the Federal Circuit addressed the merits
of the case. Id. (quoting 822 F.2d at 1559–60).
Faced with this intercircuit jurisdictional standoff, the
Supreme Court held, first, that the Seventh Circuit erred in
failing to adhere to the Federal Circuit’s jurisdictional
determination, and, second, that the Federal Circuit erred in
addressing the merits of the case after having determined that
it lacked jurisdiction. While a court always has the authority
MICROSOFT CORP. V. MOTOROLA, INC. 21
to revisit a prior jurisdictional determination of its own or of
a coordinate court, Christianson explained, “as a rule courts
should be loathe to do so in the absence of extraordinary
circumstances such as where the initial decision was clearly
erroneous and would work a manifest injustice.” Id. at 817
(internal quotation marks omitted). Otherwise, “every
borderline case [could] culminate in a perpetual game of
jurisdictional ping-pong . . . . Such a state of affairs would
undermine public confidence in our judiciary, squander
private and public resources, and commit far too much of
[the] Court’s calendar to the resolution of fact-specific
jurisdictional disputes that lack national importance.” Id. at
818–19. Christianson concluded that because the Federal
Circuit’s initial jurisdictional determination was “plausible,”
the Seventh Circuit, and the Federal Circuit on its second
review, should have adhered to it. Id. at 819.
Motorola maintains that Christianson’s firm admonition
does not cover the present circumstances. We owe no
deference to our earlier opinion, Motorola argues, because the
jurisdictional question is different now than it was when this
case was previously before the panel. The bench trial on the
RAND rate “constructively amended” the complaint, it
contends, so that what was once a simple breach of contract
case has morphed into a case necessarily requiring the
determination of a “substantial question of federal patent
law.” Id. at 809.
We disagree. The district court’s decision to hold a trial
on the RAND rate, whether or not doing so constituted a
constructive amendment of the complaint, does not in any
manner affect the application of law-of-the-case deference to
this appeal. We were aware of the district court’s plans to
determine the RAND rate in Microsoft I; indeed, that
22 MICROSOFT CORP. V. MOTOROLA, INC.
proceeding-to-come was a major subject of Motorola’s
briefing. See Microsoft I, 696 F.3d at 879; Opening Br. of
Defs.-Appellants, Microsoft I, 696 F.3d 872, No. 12-35352,
2012 WL 2132503, at *29–32. Yet, we determined that we
would have jurisdiction over the final appeal in the anti-suit
injunction appeal. Furthermore, as we have indicated, we
owe law-of-the-case deference as well to the Federal Circuit’s
decision to transfer the case, a decision made after the district
court held the RAND bench trial.
4. “Clear Error” or “Manifest Injustice”
Finally, looking briefly at the merits of Motorola’s current
jurisdictional argument, there was no “clear error” or
“manifest injustice” in concluding that the RAND bench trial
did not transform this case into a matter necessarily requiring
the resolution of a substantial question of federal patent law.
See Christianson, 486 U.S. at 809, 817; Arizona v. California,
460 U.S. 605, 618 n.8 (1983).
A complaint that alleges breach of contract and seeks
damages sounds in contract; its nature “does not change
because the contract is a patent license.” See Bonzel v. Pfizer,
Inc., 439 F.3d 1358, 1363 (Fed. Cir. 2006); see also Barnhart
v. W. Md. Ry. Co., 128 F.2d 709, 714 (4th Cir. 1942)
(collecting Supreme Court cases). Even if a court, in
interpreting a contract and assessing damages, “deems it
appropriate to apply the law of patent infringement, that of
itself does not change the complaint into one arising under the
patent law.” Bonzel, 439 F.3d at 1363; see also Complex
Litigation Committee of the American College of Trial
Lawyers, Anatomy of a Patent Case Ch.16.I.A.1. (2d ed.
2012) (“Anatomy of a Patent Case”) (explaining that
application of patent law for purposes of determining
MICROSOFT CORP. V. MOTOROLA, INC. 23
damages “does not by itself present a substantial issue of
patent law”).
Motorola points out that the Federal Circuit has exercised
jurisdiction in some breach-of-contract cases. See Parental
Guide of Tex., Inc. v. Thomson, Inc., 446 F.3d 1265 (Fed. Cir.
2006); U.S. Valves, Inc. v. Dray, 212 F.3d 1368 (Fed. Cir.
2000); Portney v. CIBA Vision Corp., 401 F. App’x 526 (Fed.
Cir. 2010). But those cases involved questions of patent
infringement, patent validity, or claim construction, or
included an embedded, outcome-determinative interpretation
of a patent law statute. See Anatomy of a Patent Case
Ch.16.I.A.1. (2d ed. 2012). This case, in contrast, is a straight
breach of contract action.
Calculation of appropriate royalty amounts in contractual
patent license cases involves similar determinations to those
that arise when calculating damages in patent infringement
cases. So there is some overlap in that regard between breach
of patent license cases and Federal Circuit patent
infringement cases. But Motorola has cited no case in which
the Federal Circuit has exercised jurisdiction over a breach of
contract claim for damages where the mode of calculating
contract damages, not any pure patent issue, was at stake.
In sum, there was no “clear error[]” or “manifest
injustice” that would justify disrupting ours and the Federal
Circuit’s prior determinations that we have jurisdiction.
Christianson, 486 U.S. at 817. Nor is any other exception to
the law-of-the-case doctrine applicable. We therefore reject
Motorola’s challenge to our jurisdiction.
24 MICROSOFT CORP. V. MOTOROLA, INC.
B. The RAND Bench Trial
We now turn to the first of two intertwined merits
challenges to the district court’s judgment—the assertions
that (1) the district court lacked the legal authority to decide
the RAND rate issue in a bench trial, severing it from the
ultimate breach of contract issue tried to the jury; and (2) the
court’s legal analysis in determining the RAND rate was
contrary to Federal Circuit precedent.11 In considering those
rulings, we review the district court’s findings of fact for
clear error and its conclusions of law de novo. See Teva
Pharm. USA, Inc. v. Sandoz, Inc., 135 S. Ct. 831, 841 (2015).
1. Motorola’s Consent to the Bench Trial
Judge Robart began by determining, quite reasonably, that
the true RAND royalty rate for Motorola’s SEPs was an
important fact for the jury to consider in determining whether
Motorola breached it good faith obligations under the RAND
agreements. After soliciting input from the parties as to how
the RAND rate determination should be made, he ordered a
bench trial as to that issue.
Microsoft contends that Motorola affirmatively consented
to a bench-trial determination of the RAND royalty rate for
each SEP portfolio, thereby waiving any argument that the
court lacked the authority to decide the RAND rate itself. We
agree.
11
Motorola did not raise before the district court a Seventh Amendment
claim with respect to the RAND rate bench trial itself, nor has it made that
argument on appeal.
MICROSOFT CORP. V. MOTOROLA, INC. 25
Motorola expressed its consent to a bench trial on the
RAND rate at a June 14, 2012 status conference. During that
proceeding, Motorola’s counsel informed the court that the
parties had agreed “that the court [will] decide all the material
terms of the RAND license.” After Microsoft’s counsel
confirmed the agreement, counsel for Motorola repeated that
the “agreement is that the court w[ill] decide all the material
terms of the RAND license.” The parties left open at that
hearing whether the question of Motorola’s breach of its
contractual obligation of good faith and fair dealing would be
determined by a jury or at a bench trial. Motorola requested
a jury trial on that issue shortly thereafter.
Motorola now protests that counsel’s June 14, 2012
statements consenting to a RAND-rate bench trial were
“taken out of context,” and “equivocal,” and did not amount
to consent. Specifically, Motorola contends that its consent,
if any, was limited to a bench-trial determination of the terms
of an agreement the court was planning to craft between the
parties. At the oral argument on this appeal, counsel
explained Motorola’s position:
We agreed that the court could set the terms
of a [RAND] license. The court later
abandoned the quest to set the terms of the
license . . . [H]e changed the basis on which
he was finding the RAND rate. He said, ‘I’m
not going to set a license; I now think it’s
necessary for the fact-finder to know the true
RAND rate in order for us to decide breach.’
That is a change of litigation parameters. We
are no longer setting a license, which is all we
conceivably could have agreed to.
26 MICROSOFT CORP. V. MOTOROLA, INC.
That contention is unpersuasive, for two reasons.
First, Motorola was not misled as to the connection
between the RAND determination and the breach-of-contract
trial, and did not cabin its consent to a license-setting
scenario. Judge Robart alerted the parties on several
occasions, long before the June 14, 2012 status conference,
that a determination of the RAND royalty rate would be used
“as guidance” in adjudicating the breach of contract claim.
For example, in an order on the parties’ cross motions to
dismiss filed June 1, 2011, Judge Robart indicated that
determination of the RAND rate was a necessary predicate to
adjudicating the breach of contract claim. Months later, in a
February 2012 telephone conference, he reiterated that he was
being asked “to determine what the RAND terms and
conditions . . . are so that [the factfinder] may then attempt to
determine if Motorola’s offer to Microsoft was within that
range.” And just days before the hearing in which Motorola
explicitly consented to a bench trial on the RAND rate, Judge
Robart, in denying Microsoft’s motion for summary judgment
on the breach of contract issue, stated that summary
judgement was inappropriate because before it could “[be]
determine[d] whether Motorola breached its duty to make
good faith offers by its October 21 and 29 Letters, the court
must first determine the RAND terms of an agreement
between Motorola and Microsoft for Motorola’s relevant
portfolios of standard essential patents.”
It was at that point that the court requested input from the
parties as to the structure of the trial—to which request the
parties responded they had agreed that the RAND rate
adjudication would be a bench trial. So Motorola was amply
aware before the June 14, 2012 hearing that Judge Robart
MICROSOFT CORP. V. MOTOROLA, INC. 27
believed the RAND rate determination was an essential
precursor to the breach-of-contract trial.
Second, Motorola’s contention on appeal that it consented
to adjudication of the RAND rate only for purposes of a
court-created license is diametrically opposed to its position
before the district court, expressed on several occasions. One
month after its June 14, 2012 consent to the bench trial,
Motorola filed a motion for partial summary judgment,
essentially asking the court not to determine a RAND royalty
rate after all. In that motion, Motorola told the court that it
had become opposed to such a trial once it “fully appreciated
that the Court intended to have a separate trial to determine
the actual terms of a RAND contract, as opposed to
identifying what is RAND for use in evaluating
reasonableness in the context of Motorola’s breach claim.”
In its reply in support of that motion, Motorola further
maintained that
until recently Motorola did not fully
appreciate and focus on—let alone fully
research the authority relevant to—the Court’s
intent to determine the actual terms of a
RAND contract in a separate trial, rather than
(as the Court suggested on Feb 13, 2012 and
in its June 6, 2012 Order) to consider RAND
terms in the context of determining the breach
of contract issues.
(Emphasis added). Motorola’s position at that juncture—that
it consented to a bench trial on the understanding that the
RAND rate would be determined for purposes of the breach
of contract adjudication, and that it was the license creation
28 MICROSOFT CORP. V. MOTOROLA, INC.
it objected to—is precisely the opposite of its current
contention.12
In short, Motorola was quite aware, when it agreed with
Microsoft in June to a RAND determination bench trial, that
the RAND determination was being made to set the stage for
the breach of contract trial. Nor did Motorola ever withdraw
its affirmative stipulation to a bench trial for that purpose.
We therefore do not consider whether, absent consent, a jury
should have made the RAND determination.13
12
Like its contention on appeal, Motorola’s July 18, 2012 argument to
the district court is also rebutted by the record. The court made the parties
aware that the RAND determination would be used both to enable “a jury
to resolve the question of whether Motorola’s October 21 and 29 Letters
breached its duty to make good faith offers,” and for purposes of creating
a license, should that relief be appropriate.
13
Seemingly to avoid the waiver problem through a jurisdictional
argument, Motorola recasts essentially the same challenge to the RAND-
rate bench trial by maintaining that the result was an “advisory opinion,”
and so beyond the district court’s constitutional power under Article III of
the Constitution. See Flast v. Cohen, 392 U.S. 83, 94–97 (1968); Gordon
v. United States, 117 U.S. 697, 702 (1864). The result of the bench trial
was, however, decidedly not advisory: That rate was vigorously disputed
by the parties from the outset of this case and, as the district court’s
observations quoted in the text illustrate, understood by both the court and
the parties as an essential factual aspect of the breach-of-contract
determination. Moreover, as we shall see, far from maintaining the
irrelevance of the RAND-rate determination to the ultimate jury verdict,
Motorola challenges that verdict as impermissibly influenced by Judge
Robart’s RAND-rate determination, going so far as to maintain that its
introduction “effectively directed a verdict for Microsoft.”
MICROSOFT CORP. V. MOTOROLA, INC. 29
2. The District Court’s RAND Determination
Motorola contends that on its merits, the district court’s
RAND analysis violated Federal Circuit patent damages law.
Specifically, Motorola cites to the damages provision of the
Patent Act, 25 U.S.C. § 284, which provides that a court shall
award damages “adequate to compensate for the
infringement, but in no event less than a reasonable royalty
rate for the use made of the invention by the infringer,” and
to Federal Circuit cases calculating damages under that
provision.
We reiterate that this is not a patent law action. Still, the
Federal Circuit’s patent law methodology can serve as
guidance in contract cases on questions of patent valuation.
See Bonzel, 439 F.3d at 1363. The district court’s analysis
properly adapted that guidance to the current context.
a. The Hypothetical Agreement
Neither the IEEE nor the ITU provide a specific formula
for setting the terms of a RAND license. At trial, both parties
offered expert testimony as to the appropriate method for
calculating a RAND rate. After trial, Judge Robart invited
the parties to submit post-trial briefs and proposed findings of
fact and conclusions of law. He then considered each party’s
submissions and adopted a framework sensitive to the
circumstances and objectives of RAND agreements.
The framework settled on was “generally [consistent]
with Motorola’s approach.” Applying that approach, the
district court sought to approximate the royalty rates upon
which the parties would have agreed by setting up a
hypothetical negotiation between the parties. In doing so, the
30 MICROSOFT CORP. V. MOTOROLA, INC.
court carefully thought through the “factors an SEP owner
and implementer would consider” in an actual negotiation
directed at licensing a patent subject to RAND commitments.
The court then discussed each of Motorola’s fifteen H.264
patents and eleven 802.11patents, considering the objective
value each contributed to each standard, given the quality of
the technology and the available alternatives as well as the
importance of those technologies to Microsoft’s business.
Finally, the court performed a meticulous analysis of the
testimony of eighteen witnesses, including executives,
economists, and technology experts, to sort out which
evidence to rely upon in determining the RAND royalty rate.
Generally, the court credited Motorola’s experts; where it did
not, it provided reasoned explanations for not doing so.
Motorola’s challenge to the district court’s exhaustive
analysis centers on its interpretation of Georgia-Pacific Corp.
v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970),
a patent-infringement case whose hypothetical agreement
framework for determining infringement damages has since
been widely adopted by district courts and “sanctioned” by
the Federal Circuit. See LaserDynamics, Inc. v. Quanta
Computer, Inc., 694 F.3d 51, 60 n.2 (Fed. Cir. 2012).
Georgia-Pacific set out fifteen factors for courts to consider
in arriving at a royalty rate the parties might have agreed
upon in a hypothetical negotiation. See Lucent Techs., Inc. v.
Gateway, Inc., 580 F.3d 1301, 1324–25 (Fed. Cir. 2009)
(citing Georgia-Pacific, 318 F. Supp. at 1120). Factor fifteen
directs courts to set the hypothetical negotiation at “the time
the infringement began.” Georgia-Pacific, 318 F. Supp. at
1120; see Panduit Corp. v. Stahlin Bros. Fibre Works, Inc.,
575 F.2d 1152, 1158 (6th Cir. 1978).
MICROSOFT CORP. V. MOTOROLA, INC. 31
Motorola’s central RAND-rate merits contention is that
Judge Robart’s analysis failed to meet Georgia-Pacific’s
factor fifteen criterion, as interpreted and applied by the
Federal Circuit, and so constituted error. Several portions of
the court’s findings of fact and conclusions of law do indicate
that the court did to an extent take into account the present-
day value to Microsoft of Motorola’s patents. For example,
the court noted that a third-party valuation of Motorola’s
802.11 SEPs was only somewhat probative because, at the
time of the valuation, “Motorola’s 802.11 SEP portfolio” was
much larger than the portfolio “as it exists today.”
This partial present-day focus did not, however, render
the district court’s RAND-rate determination invalid. First,
the Federal Circuit has “never described the Georgia-Pacific
factors as a talisman for royalty rate calculations.” Ericsson,
773 F.3d at 1230. Instead, outside the RAND context, the
Federal Circuit has recognized that, although “courts often
parrot all 15 factors to the jury,” some of the factors “clearly
are not relevant” to every case. Id. And in the context of
RAND agreements, the Federal Circuit in Ericsson cited
Judge Robart’s opinion in support of the proposition that
many of the Georgia-Pacific factors are “contrary to RAND
principles.” Id. at 1229; see also id. at 1230. Ericsson
recognized, for example, as did Judge Robart, that factor
four—“‘[t]he licensor’s established policy and marketing
program to maintain his patent monopoly by not licensing
others to use the invention or by granting licenses under
special conditions designed to preserve that monopoly’”—is
contrary to the RAND purpose of preventing monopolies. Id.
at 1230 (quoting Georgia-Pacific, 318 F. Supp. at 1120)
(alteration in original).
32 MICROSOFT CORP. V. MOTOROLA, INC.
Factor fifteen is another factor that merits modification in
some RAND contract contexts. An element of Microsoft’s
claim is that Motorola maintained its demand of a 2.25%
royalty rate throughout the proceedings, and also pressed its
injunction suits even after Motorola was on notice that its
actions were in tension with its RAND obligations. Given
Microsoft’s argument that Motorola’s breach was ongoing,
the district court could reasonably have concluded that it was
appropriate to include the present-day value of Motorola’s
SEPs as a factor in calculating the RAND rate-and-range for
use in the breach-of-contract proceeding.
Second, Motorola never specifies the past date the district
court should have used. In pointing to “the time the
infringement began, ” Georgia-Pacific, and subsequent cases
applying its framework, referred to the date of the
manufacturer’s first unlicensed use of the patented
technology. 318 F. Supp. at 1120; see also Lucent Techs.,
580 F.3d at 1324. But, as Motorola acknowledges, the
“infringement” at issue in this case is Motorola’s breach of
contract, not Microsoft’s use of Motorola’s patents. Motorola
mentions both “the date Motorola sent the [offer] letters” and
“the time right before Microsoft’s first [patent] infringement
began” as possible hypothetical negotiation dates the court
could have used, without specifying which is correct.
Motorola did not mention either date in putting forth its
version of the hypothetical negotiation analysis in its post-
trial brief. To assume the correct date would have been the
date the breach of contract began is of no help, as the alleged
breach of contract was not tied to any specific date. The jury
could have found a breach of contract based on Motorola’s
offer letters, its seeking a number of injunctions, or its overall
course of conduct.
MICROSOFT CORP. V. MOTOROLA, INC. 33
Third, it would have been impracticable for the court to
consider only such evidence as could pinpoint the value of
Motorola’s patents to Microsoft at a precise point in time.
Both parties introduced volumes of data—as to, for example,
the parties’ market share and the valuation of similar
patents—all meant to approximate the value of Motorola’s
patents. Notably, Motorola itself urged the district court to
rely on several studies and reports, from 2011 and 2012, that
would not have been available to the parties at an earlier-
dated hypothetical negotiation, and one of the “historical
licenses” Motorola asked the court to consider—and now
argues the court erred in failing to consider—dates from
December 2011. As the data presented was not pinpointed to
a past date, the district court’s approximation from that data
also could not be tied to a specific historical moment.
Finally, Motorola has not shown—nor has it even
argued—that it was prejudiced by the court’s analysis. See
Brown & Williamson Tobacco Corp. v. Philip Morris Inc.,
229 F.3d 1120, 1131 (Fed. Cir. 2000). As Motorola
acknowledges, the purpose of the hypothetical agreement
approach is to take account of the situation of the parties and
of the value each places on the patents in question. Motorola
has pointed to just one material change in the parties’
positions since the dispute began that could be relevant to the
court’s analysis: In 2012, Google bought Motorola.14 Judge
Robart considered Google’s broad commercial interests, not
just Motorola’s, when he estimated as part of his RAND-rate
analysis the likely benefits from inclusion in the patent pools.
But Motorola has not explained how it was prejudiced by
consideration of Google’s interests. In fact, Microsoft
maintains, persuasively, that Motorola benefitted from the
14
Google sold Motorola in 2014.
34 MICROSOFT CORP. V. MOTOROLA, INC.
court’s conflation of Google and Motorola, as Google, a
“sophisticated, substantial technology firm[] with [a] vast
array[] of technologically complex products,” would obtain
more value from the pool than would Motorola as an
independent entity.
In sum, given the need for flexibility in determining a
royalty rate for a RAND-encumbered patent, see Ericsson,
771 F.3d at 1230–31, and given that Motorola has not shown
that the court’s consideration of the companies’
circumstances at the time of the bench trial prejudiced it, see
Brown & Williamson Tobacco Corp., 229 F.3d at 1131, the
district court’s RAND order properly applied the hypothetical
agreement approach.
b. Patent Pools and Historical Licenses as Indicators
In addition to challenging the district court’s legal
analysis, Motorola objects to the court’s factual conclusions
that (a) the rates charged by two patent pools are relevant
indicators of the RAND rate for Motorola’s patents; and
(b) Motorola’s historical licenses are not. Motorola’s
argument is that the district court gave too much weight to the
former evidence and not enough to the latter, leading to a
decision “fatal[ly]” unsupported by the evidence in the
record.
Patent pools are collections of two or more SEP owners
that package and license their SEPs collectively. Royalties
are distributed amongst the contributors to the patent pool on
a per-patent basis, generally by valuing each patent in the
pool equally. Typically, pool members contributing their
patents to the pool also become licensees of the pool’s patent
package.
MICROSOFT CORP. V. MOTOROLA, INC. 35
For Motorola’s 802.11 portfolio, the court regarded the
VIA Licensing 802.11 pool as somewhat probative of the
RAND rate and range. The 802.11 pool did not achieve
widespread use of the covered standard. But it was designed
with that objective in mind and was otherwise a reasonably
reliable indicator of the RAND royalty rate. For Motorola’s
H.264 portfolio, the court found the royalty rate charged by
the MPEG LA H.264 patent pool a reliable indicator of the
RAND rate. That pool’s objectives mirrored the objectives
of RAND agreements, namely “includ[ing] advanced
technology to create valuable standards, while at the same
time . . . ensuring widespread adoption.”
In both instances, the court credited testimony from
Motorola’s experts that patent pools generally license at
lower rates than might be achieved in a bilateral agreement,
because a company receives value from pool membership that
goes beyond royalty payments—principally, grant-back
licenses and promotion of the standard. To account for those
benefits, the court multiplied the pool rates by three.
Motorola contends that a rate set by a pool arrangement
is too different from the rate that might have been agreed
upon bilaterally by the parties to serve as an appropriate
RAND-rate indicator, even if the pool rate is multiplied by
three. For the 802.11 patents, however, the district court used
the pool rate just as one relevant data point in its overall
analysis. The RAND rate the court ultimately settled on was
an amalgamation of a number of considerations, the pool rate
evidence being the most favorable to Motorola.
As to the H.264 patent, the district court provided a
reasoned explanation for its conclusion that the H.264 pool
was a reliable indicator: The pool’s patents and Motorola’s
36 MICROSOFT CORP. V. MOTOROLA, INC.
patents were essential to the same technical standards, and
Motorola provided no evidence that its patents were more
valuable than the other patents in the pool. If anything, the
record indicates that Motorola’s patents were on average less
valuable than other H.264 patents. Many of the Motorola
patents apply only to interlaced rather than (the more
advanced) progressive video. Motorola offered some
evidence suggesting that interlaced video coding was still
valuable to Microsoft, but it did not show that support for
interlaced video was more important to Microsoft than other
video-coding capabilities. Motorola therefore was not
prejudiced by the court’s assumption that its patents were of
roughly equal value to those in the pool, as they probably
were worth less.
Instead of the patent pools, Motorola argues, the court
should have considered several licensing agreements that
included licenses to Motorola’s H.264 and 802.11 patent
portfolios as probative of the RAND rate. The agreements
Motorola put forth provided for royalty rates close or equal to
the 2.25% it offered Microsoft.
Georgia-Pacific suggests that the royalties a patent owner
receives in other licensing agreements for the patents at issue
can be relevant in determining a hypothetical royalty
agreement. See 318 F. Supp. at 1120. In the current context,
however, it was not clear error to reject the past licenses as
too contextually dissimilar to be useful to the RAND rate
calculation.
The district court found Motorola’s license with VTech
Communications, Inc. not probative of a RAND rate for
Motorola’s 802.11 and H.264 patents because those portfolios
were licensed as part of a broader agreement that settled
MICROSOFT CORP. V. MOTOROLA, INC. 37
infringement claims Motorola held against VTech for use of
its cell phone patents. VTech indicated in an email to
Motorola that its interest in taking a license was to avoid a
potential infringement lawsuit, and it paid only trivial
royalties to Motorola under the 802.11 and H.264
licenses—an amount totaling a tiny fraction of the value of
the broader agreement. The district court reasonably
concluded that the 802.11 and H.264 VTech licenses were not
reliable indicators of the RAND royalty rate.
In Motorola’s RIM agreement, the 802.11 and H.264
SEPs were packaged with several other patents. Motorola
and RIM entered into a broad cross-licensing agreement
whereby, in exchange for a license to the Motorola SEPs RIM
used in its mobile devices, RIM provided Motorola a license
to its own SEPs, paid Motorola a large lump sum, and agreed
to pay as a royalty rate a percentage of the net sales price of
any mobile device it sold, subject to an annual royalty cap.
The royalty rate represented a blended rate for all the
Motorola patents included in RIM’s products, including non-
standard-essential patents. The district court concluded that,
for that reason, it would be impracticable to isolate, or
apportion the value of the 802.11 and H.264 SEPs,
particularly given the evidence that Motorola’s cell phone
patent portfolio was highly valuable and likely dictated the
terms of the agreement. In fact, an earlier agreement between
Motorola and RIM provided for the same royalty rate but did
not include rights to Motorola’s 802.11 and H.264 patents,
suggesting that the value of the 802.11 and H.264 patents was
zero or negligible. Finally, the RIM agreement was subject
to a royalty cap and was, like the VTech agreement, entered
into to resolve an ongoing infringement dispute between the
parties, further diminishing its trustworthiness as an indicator
of a free-standing RAND rate.
38 MICROSOFT CORP. V. MOTOROLA, INC.
Lastly, the district court also reasonably concluded that
Motorola’s three license agreements with Symbol
Technologies were not relevant. Two of the agreements were
formed under threat of litigation, included monetary caps, and
provided licenses for Motorola patents that expired before
Motorola and Microsoft’s hypothetical agreement would have
occurred. The third agreement also included patents that
expired before October 2010, and it required a total payment
amount much less than what Motorola would have obtained
in seeking a 2.25% royalty rate from Microsoft.
The district court provided reasonable explanations for
giving the Motorola bilateral licenses little to no weight.
Motorola does not address any of those explanations.
Nor does its citation of the Federal Circuit’s recent
opinion in Apple Inc. v. Motorola, Inc. afford it any help. See
757 F.3d 1286 (Fed. Cir. 2014), overruled on other grounds
by Williamson v. Citrix Online, LLC, No. 2013-1130, 2015
WL 3687459 (Fed. Cir. June 16, 2015). That case holds only
that licenses should be considered when comparable; it does
not in any respect impugn the district court’s reasoning as to
why the proffered licenses were not comparable. Id. at 1323.
In sum, in determining the RAND rate and range for each
SEP portfolio, the district court engaged in a thoughtful and
detailed analysis, giving careful consideration to the parties’
briefing and evidentiary submissions, and to the testimony.
Although Motorola criticizes the district court’s approach, it
provides no alternative other than strict adherence to the
Georgia-Pacific factors, without accounting for the
particulars of RAND agreements—a rigid approach
disapproved of by the Federal Circuit in Ericsson. See
771 F.3d at 1230–31. We conclude that the court’s RAND
MICROSOFT CORP. V. MOTOROLA, INC. 39
determination was not based on a legal error or on a clearly
erroneous view of the facts in light of the evidence. See Teva
Pharm., 135 S. Ct. at 841.
C. The Jury’s Verdict on Breach
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”:
(1) Whether Motorola’s actions were contrary
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 high-
definition 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.
D. Damages
In its JMOL motion, Motorola contended, with respect to
some of the damages sought—the attorneys’ fees and
litigation costs incurred in defending the injunctive
44 MICROSOFT CORP. V. MOTOROLA, INC.
actions—that the Noerr-Pennington doctrine precluded any
award. Additionally, Motorola maintained that Washington
law independently precludes recovery of attorneys’ fees for
defending a separate lawsuit as an element of damages.
1. Noerr-Pennington
The Noerr-Pennington doctrine shields individuals from,
inter alia, liability for engaging in litigation. The doctrine
originated in two Supreme Court antitrust cases holding that
the Petition Clause of the First Amendment prohibits
imposing liability under the Sherman Act for “attempt[ing] to
persuade the legislature or the executive to take particular
action.” E. R.R. Presidents Conference v. Noerr Motor
Freight, Inc., 365 U.S. 127, 136 (1961); see United Mine
Workers of Am. v. Pennington, 381 U.S. 657, 670 (1965).
The Noerr-Pennington principle has since been expanded to
ensure that “those who petition any department of the
government,” including the courts, “are immune from . . .
liability for their petitioning conduct.”17 Theme Promotions,
Inc. v. News Am. Mktg. FSI, 546 F.3d 991, 1006–07 (9th Cir.
2008); see also Cal. Motor Transp. Co. v. Trucking
Unlimited, 404 U.S. 508, 510 (1972).
17
The Noerr-Pennington doctrine creates an exception for “sham”
litigation, defined as “‘private action that is not genuinely aimed at
procuring favorable government action,’ as opposed to ‘a valid effort to
influence government action.’” Prof’l Real Estate Investors, Inc. v.
Columbia Pictures Indus., Inc., 508 U.S. 49, 58 (1993) (quoting Allied
Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 500 n.4
(1988)). We do not here determine whether Motorola’s infringement suits
might properly come within the sham litigation exception, because, as we
explain, the Noerr-Pennington doctrine does not apply in the first place.
MICROSOFT CORP. V. MOTOROLA, INC. 45
The doctrine does not, however, immunize a party from
actions that amount to a breach of contract. See Powertech
Tech., Inc. v. Tessera, Inc., 872 F. Supp. 2d 924, 931 (N.D.
Cal. 2012); Spear Pharm., Inc. v. William Blair & Co., 610 F.
Supp. 2d 278, 288 (D. Del. 2009). A number of courts have
so held, and at least one emphasized that Noerr-Pennington
does not protect patent holders from liability for asserting
rights in violation of a commitment not to enforce those
rights. See, e.g., Powertech Tech., 872 F. Supp. 2d at
931–32; ClearPlay, Inc. v. Nissim Corp., No. 07-81170-civ,
2011 WL 6724156, at *10 & n.10 (S.D. Fla. Dec. 21, 2011),
aff’d, 496 F. App’x 963 (11th Cir. 2012). More specifically,
at least two district court opinions, in addition to Judge
Robart’s, have held that Noerr-Pennington does not protect
a patent holder from liability for filing infringement actions
in violation of its covenant to negotiate with a RAND-rate
license-seeker. See Powertech Tech., 872 F. Supp. at 931;
Apple, Inc. v. Motorola Mobility, Inc., 886 F. Supp. 2d 1061,
1078 (W.D. Wisc. 2012). In resolving a dispute quite similar
to the one here, the Wisconsin district court reasoned:
Although the First Amendment protects
Motorola’s right to petition the courts to
enforce its patents, Apple’s breach of contract
claims are based on the theory that Motorola
agreed by contract that it would not enforce its
patent rights until it offered a license to Apple
on fair, reasonable and nondiscriminatory
terms. In other words, Apple contends that
Motorola waived some of its petitioning rights
through contract. It would be improper to use
the Noerr-Pennington doctrine to bar Apple
from enforcing that contract.
46 MICROSOFT CORP. V. MOTOROLA, INC.
Apple, Inc., 886 F. Supp. 2d at 1078 (citing Powertech Tech.,
872 F. Supp. 2d at 930–32).
Additionally, the FTC recently addressed the Noerr-
Pennington argument in a response to public comment on a
proposed consent agreement with Google and Motorola. See
Letter to Commenters, Motorola Mobility LLC & Google
Inc., FTC File No. 121-0120 at 3, (July 23, 2013), available
at https://www.ftc.gov/sites/ default/files/documents/cases/
2013/07/130724googlemotorolaletter.pdf. Some commenters
were concerned that imposing liability on Google and
Motorola (under Section 5 of the Federal Trade Commission
Act, 15 U.S.C. § 45) for seeking injunctions and exclusion
orders would offend the First Amendment. Id. The FTC
disagreed. Concluding that the (F)RAND commitments in
question “preclude[d] seeking an injunction or exclusion
order against a willing licensee of its SEPs,” the Commission
reasoned that taking action against Google and Motorola was
“simply requir[ing] those making promises to keep them.”
Id. (quoting Analysis of Proposed Consent Order to Aid
Public Comment, Motorola Mobility & Google Inc., FTC File
No. 121-0120 (Jan. 3, 2013), available at
https://www.ftc.gov/sites/default/files/documents/cases/201
3/01/130103googlemotorolaanalysis.pdf) (alterations in
original).18
We agree. “Because the Noerr-Pennington doctrine
grows out of the Petition Clause, its reach extends only so far
as necessary to steer . . . clear of violating the First
Amendment.” Freeman v. Lasky, Haas & Cohler, 410 F.3d
1180, 1184 (9th Cir. 2005). Enforcing a contractual
18
We do not otherwise approve or disapprove of the FTC’s analysis of
its Proposed Consent Order.
MICROSOFT CORP. V. MOTOROLA, INC. 47
commitment to refrain from litigation does not violate the
First Amendment; if it did, every settlement of a lawsuit
would be unenforceable as a Noerr-Pennington violation.19
As we explained in Microsoft I, a patent-holder who signs
“such a sweeping promise” as a RAND agreement “at least
arguably . . . guarantee[s] that the patent-holder will not take
steps to keep would-be users from using the patented
material, such as seeking an injunction, but will instead
proffer licenses consistent with the commitment made.”
696 F.3d at 884.
The jury concluded that in these specific circumstances,
seeking injunctive relief violated Motorola’s contractual
RAND obligations. The Noerr-Pennington doctrine does not
immunize Motorola from liability for that breach of its
promise. See ClearPlay, Inc., 2011 WL 6724156, at *10.
2. Washington Law
Motorola contends that Microsoft was not entitled to
attorneys’ fees as damages because “Washington courts
traditionally follow the American rule in not awarding
19
We agree with the Federal Circuit that a RAND commitment does not
always preclude an injunctive action to enforce the SEP. For example, if
an infringer refused to accept an offer on RAND terms, seeking injunctive
relief could be consistent with the RAND agreement, even where the
commitment limits recourse to litigation. See Apple Inc., 757 F.3d at
1331–32. The pertinent question is whether Motorola’s obligation of
good faith and fair dealing under its RAND agreements precluded it from
seeking an injunction in these circumstances. See Realtek Semiconductor
Corp. v. LSI Corp., 946 F. Supp. 2d 998, 1006 (N.D. Cal. 2013) (holding
that an SEP owner’s action in seeking injunctive relief before offering a
license on RAND terms was “inherently inconsistent and a breach of
defendants’ promise to license the patents on RAND terms.”) (citations
omitted). That question was for the jury to decide.
48 MICROSOFT CORP. V. MOTOROLA, INC.
attorney fees as costs absent a contract, statute, or recognized
equitable exception.” The RAND agreements do not
expressly provide for fees; Microsoft has identified no
statutory basis for fees; and Washington courts recognize
only limited equitable exceptions, none of which, Motorola
argues, are applicable here.20
Motorola’s arguments, however, elide a critical factor in
determining the propriety of attorneys’ fees in the damages
award in this case. The fees at issue here were incurred not
in the current breach of contract action but in defending
against the injunctive action found to have breached the
RAND agreement. The fees sought are thus distinct from the
20
The Washington Supreme Court has recognized “four equitable
exceptions to the American rule: (1) the common fund theory; (2) actions
by a third person subjecting a party to litigation; (3) bad faith or
misconduct of a party; and (4) dissolving wrongfully issued temporary
injunctions or restraining orders.” City of Seattle v. McCready, 931 P.2d
156, 160 (Wash. 1997) (en banc) (internal citations omitted).
There are three types of bad faith: (1) prelitigation misconduct,
(2) procedural bad faith, and (3) substantive bad faith. See Rogerson
Hiller Corp. v. Port of Port Angeles, 982 P.2d 131, 135 (Wash. Ct. App.
1999). In responding to Motorola’s arguments before the district court,
Microsoft raised only the exception for procedural bad faith, which is
defined as “vexatious conduct during litigation . . . unrelated to the merits
of the case.” Forbes v. Am. Bldg. Maint. Co. W., 198 P.3d 1042, 1057
(Wash. Ct. App. 2009), aff’d in part, rev’d in part, 240 P.3d 790 (Wash.
2010) (en banc). We agree with the district court that the procedural bad
faith exception does not apply here, because Motorola did not engage in
the kind of tactics—such as “dilatory tactics during discovery, failure to
meet filing deadlines, misuse of the discovery process, and misquoting or
omitting material portions of documentary evidence”—that threaten the
integrity of the court and “the orderly and expeditious disposition of
cases.” See Rogerson Hiller Corp., 982 P.2d at 136 (internal quotation
marks omitted).
MICROSOFT CORP. V. MOTOROLA, INC. 49
same-suit fees generally banned by the American rule. As
losses independent of the current litigation and triggered by
the contract-breaching conduct, they are best characterized as
recoverable consequential contract damages—the kind of
damages ordinarily recoverable in breach of contract suits.
See Eastlake Constr. Co. v. Hess, 686 P.2d 465, 470 (Wash.
1984) (en banc).
Notably, had Microsoft not defended the injunctive
actions and instead acquiesced in a default judgment,
Motorola’s damages in this suit could have been vastly
greater. An injunction against Microsoft in the Wisconsin
district court, for example, would have blocked all U.S. sales
of Microsoft’s Xbox and Windows products. As the jury was
instructed, Microsoft had a duty to mitigate its losses. The
attorneys’ fees and costs incurred in defending the injunctive
actions were, in essence, such mitigation, and so are
recoverable expenses of reasonable mitigating actions. See
Flint v. Hart, 917 P.2d 590, 594, 598 (Wash. Ct. App. 1996)
(allowing a plaintiff to recover attorneys’ fees incurred in
settling a third-party action in which the plaintiff became
involved by virtue of the defendant’s wrongful misconduct,
where the settlement was an attempt by the plaintiff to
mitigate damages); see also, e.g., Jacob’s Meadow Owners
Ass’n v. Plateau 44 II, LLC, 162 P.3d 1153, 1162 (Wash. Ct.
App. 2007).
Moreover, courts routinely award attorneys’ fees as
damages in a number of analogous circumstances, when
attorneys’ fees are a fair measure of the harm impermissibly
caused by the defendant. For example, in an action against a
union for breach of the duty of fair representation, an
employee who proves that his union impermissibly failed to
pursue a grievance on his behalf may recover compensatory
50 MICROSOFT CORP. V. MOTOROLA, INC.
damages, see Vaca v. Sipes, 386 U.S. 171, 195–96 (1967),
such as the attorneys’ fees he expended pursuing his
employer for breach of contract, Dutrisac v. Caterpillar
Tractor Co., 749 F.2d 1270, 1275–76 (9th Cir. 1983). In
Dutrisac, we rejected an argument that awarding the
employee attorneys’ fees as damages for breach of a union’s
duty of fair representation was in violation of the American
rule because there was no statutory or contractual provision
authorizing the award. 749 F.2d 1270, 1275–76 (9th Cir.
1983). Recognizing that “an exception to the American rule
cannot be justified solely on the ground that a losing
defendant’s wrongful conduct forced the plaintiff to resort to
litigation,” we nevertheless upheld the fee award because the
litigation expense incurred in such fair representation cases
“is not merely a result of the harm that [the union] did . . .; it
is the harm itself.”21 Id. at 1275; see also Ames v.
Westinghouse Elec. Corp., 864 F.2d 289, 293–94 (3d Cir.
1988) (“When there is a legal duty to provide representation,
whether that duty arises out of a contractual undertaking or,
as here, by operation of law, if the representation is
wrongfully withheld, the cost of substitute representation
should be recoverable as damages.”). We reaffirmed that
principle several years later, emphasizing that “the traditional
American rule that attorney fees are not ordinarily
recoverable” does not “affect[] those cases in which attorney
fees are not awarded to the successful litigant in the case at
hand, but rather are the subject of the law suit itself.” Zuniga
v. United Can Co., 812 F.2d 443, 455 (9th Cir. 1987) (citing
21
In Dutrisac, we carefully noted that we were not awarding the
employee expenses for prosecuting his claim against the union. 749 F.2d
at 1275 & n.3. Awarding those costs, we said, would raise concerns
about the American-rule principle that a party should not be “penalized
. . . for choosing to defend [a] lawsuit.” Id. at 1276.
 MICROSOFT CORP. V. MOTOROLA, INC. 51
First, Fourth, and Sixth Circuit cases elaborating the same
rule).
Similarly, a number of jurisdictions, including
Washington, permit awards of defense costs where an insurer
breaches its duty to defend an insured against claims within
the insurance policy’s coverage. See Woo v. Fireman’s Fund
Ins. Co., 164 P.3d 454, 459–60 (Wash. 2007) (en banc); see
also, e.g., Pac. Hide & Fur Depot v. Great Am. Ins. Co., No.
CV-12-36-BU-DLC, 2014 WL 2159330, at *3 (D. Mont.
May 23, 2014). A breach of the duty to represent an insured
undermines one of the primary purposes of the insurance
contract and the parties’ justified expectations; “[w]hen an
insured purchases a contract of insurance, it seeks protection
from expenses arising from litigation, not ‘. . . time-
consuming, expensive litigation.’” Olympic S.S. Co. v.
Centennial Ins. Co., 811 P.2d 673, 681 (Wash. 1991) (en
banc) (quoting Hayseeds, Inc. v. State Farm Fire & Cas.,
352 S.E.2d 73, 79 (W. Va. 1986)).
Finally, a Washington statutory fee provision illustrates
the sorts of situations in which attorneys’ fees as damages are
consistent with the American rule. Washington law codifies
the common law rule that the victim of malicious prosecution
can recover the reasonable costs he incurred in defending
himself against the false accusations. See Wash. Rev. Code
Ann. § 4.24.350; see also Restatement (Second) of Torts
§ 671 (b) (1977).
The RAND context is analogous to these various
circumstances in which attorneys’ fees expended in earlier
litigation are collectible as damages for a proven legal injury.
As the district court reasoned, treating fees in separate
lawsuits as damages where the RAND commitment is
52 MICROSOFT CORP. V. MOTOROLA, INC.
breached “makes particular sense in light of the purpose of
the RAND commitment, which is to encourage widespread
adoption of the standard.” That purpose would be
substantially defeated if adopting the standard “would expose
[potential implementors] to bad faith injunctive relief claims
and they were forced to absorb the cost of defending
themselves.”
In support of its argument that the fee award was
improper, Motorola cites Gruver v. Midas International
Corp., 925 F.2d 280 (9th Cir. 1991). Gruver addressed
whether an Oregon district court had erred in awarding
attorneys’ fees as damages for one party’s breach of an
agreement to release its fraud claims against another, where
the contract did not expressly provide for fees. Id. at 283.
The fees awarded were those incurred in defending the fraud
claims, not those expended in litigating the breach of the
agreement. On appeal, we recognized that cases from a
number of jurisdictions “support[ed] what the district court
did.” Id. at 284. Relying on a Colorado Supreme Court case,
however, we were persuaded that a majority of jurisdictions
would not have allowed the fees as damages. See id. (citing
Bunnett v. Smallwood, 793 P.2d 157, 161 (Colo. 1990)).
Oregon appellate courts had not addressed the question, but,
in light of those courts’ “repeatedly stressed . . . strict
adherence to the American rule that attorney’s fees are
recoverable in a breach of contract action . . . only where the
contract provides for them,” we reversed the damages award.
Id.
Our estimation of Oregon law in Gruver does not
persuade us to deny Microsoft its defensive attorneys’ fees in
the injunctive actions as damages here. Gruver, like many of
the cases denying attorneys’ fees as damages for breach of a
MICROSOFT CORP. V. MOTOROLA, INC. 53
covenant not to sue, involved a settlement agreement.
925 F.2d at 281–82. The rationale for precluding attorneys’
fees as damages in those circumstances reflects that context.
The Maine Supreme Court, in adopting the same rule as
Gruver did, reasoned that “[i]n logic, attorney’s fees should
be recoverable as damages for breach of a settlement
agreement . . . as arising naturally . . . from such breach of
contract itself.” Dodge v. United Servs. Auto. Ass’n,
417 A.2d 969, 975 (Me. 1980) (internal quotation marks
omitted). Dodge nevertheless denied the fee award for policy
reasons: Awarding fees would discourage “informal
settlement discussions,” as a lawyer might be wary of
subjecting his client to the expense of litigation should such
discussions later be deemed to have reached a binding
agreement. Id. at 976.
Here, that same rationale cuts in the opposite direction.
The prospect of an award of attorneys’ fees for filing an
infringement injunction action would encourage a licensor
instead to negotiate directly with the potential licensee in
furtherance of the public interest in promoting the standard.
See Apple Inc., 757 F.3d at 1332. The very purpose of the
RAND agreement is to promote adoption of a standard by
decreasing the risk of hold-up. See generally Mark A.
Lemley, Ten Things to Do About Patent Holdup of Standards
(And One Not To), 48 B.C. L. Rev. 149 (2001). If every SEP
holder could force standard implementers into court to defend
against injunctive actions without consequence, it would
expose those implementers to a flood of litigation, and could
discourage such implementers from adhering to standards in
the future. See id. at 153–57.
Enforcing the implied covenant of good faith and fair
dealing in commercial contracts through tort-like remedies,
54 MICROSOFT CORP. V. MOTOROLA, INC.
including attorneys’ fees, is appropriate where, as here, the
contract is “characterized by elements of public interest.” See
Matthew J. Barrett, Note, “Contort”: Tortious Breach of the
Implied Covenant of Good Faith and Fair Dealing in
Noninsurance, Commercial Contracts—Its Existence and
Desirability, 60 Notre Dame L. Rev. 510, 518, 528 n.104
(1985).22 Washington courts, for example, award fees for an
insurer’s failure to defend in part because the award “will
encourage the prompt payment of claims.” Olympic S.S. Co.,
811 P.2d at 681. Washington also views breach of the duty
to defend—for which it awards attorneys’ fees as
damages—as essentially a breach of the contractual duty of
good faith and fair dealing. See Edmonson v. Popchoi,
256 P.3d 1223, 1229 (Wash. 2011) (en banc). The purposes
to be served by awarding Microsoft the fees incurred
defending against Motorola’s infringement suits mirror the
purposes for which Washington courts have awarded
attorneys’ fees as damages.
In sum, we agree with the district court that, where a
party’s injunctive actions to enforce a RAND-encumbered
patent violate the duty of good faith and fair dealing,
Washington courts would allow the damages awarded to
include the attorneys’ fees and costs expended to defend
against the injunction action.
22
A RAND commitment “must be construed in the public interest
because it is crafted for the public interest.” Amicus Br. of Public
Knowledge at 4–9; see also Richard A. Lord, Williston on Contracts
§ 32:19 (4th ed. 2012) (“[C]ontracts . . . are to be liberally construed in
favor of the public interest . . . when an agreement between purely private
parties is perceived to entail some benefit to the public at large.”).
MICROSOFT CORP. V. MOTOROLA, INC. 55
E. Evidentiary Rulings
Motorola’s final argument is that the district court abused
its discretion in making two evidentiary rulings. Evidentiary
rulings are reviewed for abuse of discretion. Estate of
Barabin v. AstenJohnson, Inc., 740 F.3d 457, 462 (9th Cir.
2014), cert. denied, 135 S. Ct. 55 (2014). If we determine
that evidence was improperly admitted or excluded, we must
remand for a new trial unless the beneficiary of the error can
prove “that it is more probable than not that the jury would
have reached the same verdict.” Id. at 465.
1. The RAND Findings
At the end of the jury trial on breach of contract, Judge
Robart instructed the jury on the RAND rates and ranges he
had found for Motorola’s 802.11 and H.264 SEP portfolios.
The judge also allowed other findings from his findings of
fact and conclusions of law to be admitted through witness
testimony, as “undisputed facts.” For example, one of
Microsoft’s experts testified that it was undisputed that
Motorola’s H.264 SEPs were “only of minor importance to
the overall functionality of Microsoft’s Windows product . . .
[and] Xbox product,” and “only constitute a sliver of the
overall technology incorporated in the H.264
standard”—conclusions drawn directly from the court’s
RAND order. Similar facts were introduced regarding
Motorola’s 802.11 patents.
Motorola contends that admitting any of the findings from
the court’s RAND order was an abuse of discretion, because
the evidence was not relevant, Fed R. Evid. 401, and was
more prejudicial than probative, Fed. R. Evid. 403. With
respect to findings other than the RAND rates and ranges,
56 MICROSOFT CORP. V. MOTOROLA, INC.
Motorola contends not only that the evidence was irrelevant
and its admission prejudicial but also that admitting it
violated its Seventh Amendment right to a jury trial.
We concluded in Part II.C.1, supra, that Motorola waived
its right to a jury trial on the RAND determination. As we
explained, it did so knowing that the bench trial would
“identify[] what is RAND for use in evaluating
reasonableness in the context of Motorola’s breach claim.”
Motorola’s consent to the bench trial waived any objection to
admission of the RAND rates and ranges at the jury trial.
Admission of the district court’s factual findings
underlying its RAND order presents a closer question.
Undoubtedly, those findings were relevant to the ultimate
breach of contract determination. See Fed. R. Evid. 801. The
fact that Motorola’s patents were of minor import to the
H.264 standard, for example, was evidence from which the
jury could infer that demanding a 2.25% royalty rate was not
a good-faith effort to realize the value of the technology, but
rather an attempt to capitalize on the value of the standard
itself—that is, to obtain the hold-up value. As the district
court reasoned, the findings of fact were the “building
blocks” of the RAND rate and range; if the jury could
reevaluate those “building blocks,” “Motorola would in effect
be allowed a second bite at the apple on the RAND rate and
range.”
On the other hand, the very fact that the court’s findings
of fact and conclusions of law overlap with the issues in the
breach of contract trial could give rise to a Seventh
Amendment problem if Motorola did not waive its right to a
jury trial on those findings. See Toyota Motor Sales, U.S.A.,
Inc. v. Tabari, 610 F.3d 1171, 1184 (9th Cir. 2010) (citing
MICROSOFT CORP. V. MOTOROLA, INC. 57
Dollar Sys., Inc. v. Avcar Leasing Sys., Inc., 890 F.2d 165,
170 (9th Cir. 1989)). Once the court made those findings,
they became law of the case. See id. But a court must
generally avoid ordering proceedings in a manner that creates
“the risk that findings made in the bench trial w[ill] become
the law of the case and prevent a jury from determining the
common issues.” Id.
The district court disposed of Motorola’s Seventh
Amendment claim on the ground that Motorola had waived
any objections to the introduction of the underlying findings
in consenting to the bench trial. As the district court noted,
Motorola did not “qualify” its participation at the bench trial
and “submitted 100 pages of proposed findings of fact and
conclusions of law on these issues, urging the court to decide
the very facts it now seeks to exclude.” But, once the court
decided to hold a bench trial, Motorola had no choice but to
present evidence and try to persuade the court that the facts
weighed in its favor. Cf. Solis v. Cnty. of L.A., 514 F.3d 946,
955–56 (9th Cir. 2008). Further, Motorola objected to
introduction of the court’s underlying findings before the jury
trial, and again objected during the trial to their presentation
as “undisputed facts.”
On the other hand, “knowing participation in a bench trial
without objection may be sufficient to constitute a jury
waiver.” Palmer v. Valdez, 560 F.3d 965, 969 (9th Cir. 2009)
(citation omitted). Motorola did not object to a judicial
determination of the facts underlying the RAND rate and
range until after the bench trial was concluded. Motorola was
necessarily aware the court was going to make such findings,
as the court was required to make factual findings supporting
its decision, on the record. See Fed. R. Civ. P. 52(a)(1).
Without those findings, the court would have had no
58 MICROSOFT CORP. V. MOTOROLA, INC.
foundation on which to determine the RAND rates and
ranges. Had the jury been permitted to come to its own
conclusions on the factual issues underlying the RAND rate,
the court’s findings on the RAND rate and range would
largely be rendered a nullity—a bare set of numbers, divorced
from their context and meaning.
Further, Motorola’s claim that it expected the jury to
make its own determinations of the underlying facts is
unconvincing. The parties agreed to a bench trial in order to
spare the jury from becoming entangled in complicated
technical minutiae. By objecting to introduction of the
underlying facts at the jury trial only after the judge
announced those findings, Motorola was essentially seeking
“to have two bites at the procedural apple.” Fuller v. City of
Oakland, 47 F.3d 1522, 1531 (9th Cir. 1995). A party may
not stand “silently by as the court proceed[s] to try his claim
from the bench,” only later to demand a jury trial “after the
court ha[s] ruled against him.” See id. (citing White v.
McGinnis, 903 F.2d 699, 700, 703 (9th Cir. 1990) (en banc)).
With these considerations in mind, we hold that Motorola
consented to admission of the facts underlying the RAND
rates and ranges to the jury. Motorola knew the district court
would make those foundational findings when it consented to
the bench trial on the RAND rate. See Fed R. Civ. P.
52(a)(1). Motorola was also aware when it consented to the
bench trial that the RAND rates and ranges themselves would
be introduced at the breach of contract trial. Those RAND
rates and ranges would have had little meaning, and indeed
could have been undermined by conflicting findings by the
jury, if the facts supporting them were not also admitted. We
therefore agree with the district court that Motorola’s consent
MICROSOFT CORP. V. MOTOROLA, INC. 59
to the RAND bench trial encompassed introducing the court’s
findings of fact to the jury in the breach of contract trial.
2. The FTC Investigation
In July 2013, the FTC and Motorola settled an
investigation into Motorola’s SEP enforcement practices,
including its seeking of injunctions. The settlement stipulated
that it did not constitute an admission of a violation of any
law. Over Motorola’s objection, the court permitted
Microsoft to admit evidence of the investigation through the
testimony of Microsoft’s deputy general counsel, David
Heiner. Motorola contends that allowing that evidence to be
introduced was error.
Heiner testified that in May 2012, Microsoft filed a
complaint with the FTC alleging that Motorola “had not lived
up to its promise to make its patents available on . . .
reasonable but non-discriminatory terms; . . . and that they
compounded their failure to live up to that promise by
actually going to court in other places to get injunctions,
blocking Microsoft from shipping products that implemented
these standards.” Heiner further testified that, following
Microsoft’s communication, the FTC initiated an
investigation against Motorola for, in the FTC’s words,
“reneg[ing] on a licensing commitment made to several
standard-setting bodies to license its standards-essential
patents . . . on FRAND terms by seeking injunctions against
willing licensees of those SEPs.” Heiner was not permitted
to testify about the details of the investigation.
Motorola challenges admission of Heiner’s testimony
about the FTC investigation under Federal Rules of Evidence
403 and 408, both of which the district court considered
60 MICROSOFT CORP. V. MOTOROLA, INC.
before allowing the testimony.23 Rule 408 prohibits
introduction of evidence of acceptance of consideration for
compromising a claim to prove the validity of the claim. Fed.
R. Evid. 408. The rule has been interpreted to bar admission
of civil consent decrees to prove the governments’
allegations. See United States v. Austin, 54 F.3d 394, 400
(7th Cir. 1995). Consent decrees can be introduced, however,
for other purposes, such as to show notice or knowledge. See
id.; United States v. Gilbert, 668 F.2d 94, 97 (2d Cir. 1981).
Here, the court allowed the testimony to show that
Motorola was aware its actions were contrary to “custom and
practice in the industry”—that its “conduct ha[d] been found
objectionable.” That is, Heiner’s testimony was admitted not
to show that the FTC had made any conclusions about
whether Motorola’s conduct was in breach of its RAND
obligations, but rather to show that Motorola was aware the
FTC (and Microsoft) found its conduct questionable enough
to merit investigation. A conclusion that Motorola knew that
23
Microsoft’s argument that the testimony was admissible as curative
evidence is without merit. “Under the rule of curative admissibility, or the
‘opening the door’ doctrine, the introduction of inadmissible evidence by
one party allows an opponent, in the court’s discretion, to introduce
evidence on the same issue to rebut any false impression that might have
resulted from the earlier admission.” Jerden v. Amstutz, 430 F.3d 1231,
1239 n.9 (9th Cir. 2005) (internal quotation marks and citations omitted).
Microsoft argues that Motorola “opened the door” to Heiner’s testimony
by presenting testimony about a letter Heiner wrote to the FTC in 2011;
in the letter, Heiner stated that Microsoft had, up to that point, never
“accused anyone of patent hold-up,” which Motorola’s counsel argued
was evidence that hold-up was not a real concern. Whether or not
Heiner’s letter was inadmissible or misleading, the testimony regarding
the FTC’s investigation of Motorola was not responsive to any false
impression the jury may have gotten about Microsoft’s views on hold-up.
See United States v. Whitworth, 856 F.2d 1268, 1285 (9th Cir. 1988).
MICROSOFT CORP. V. MOTOROLA, INC. 61
its behavior had been considered questionable could support
a bad faith determination as to Motorola’s continuing
conduct. At trial, Microsoft emphasized that Motorola
continued to pursue its injunctive actions in the ITC and in
the Wisconsin district court after the FTC initiated its
investigation and after the district court imposed a temporary
restraining order against enforcing the German injunction.
Heiner’s testimony did—impermissibly—go beyond the
scope of Judge Robart’s admissibility ruling. When asked
how the FTC investigation concluded, instead of stating that
the parties entered a consent decree—which is what counsel
had represented to the judge Heiner would say—Heiner
testified that the FTC had “concluded” that Motorola
“reneged” on its agreements. Judge Robart twice instructed
the jurors to disregard the statement and informed them,
reading from the consent decree, that the settlement “does not
constitute an admission by Motorola Mobility or Google that
the law has been violated as alleged in the complaint.”
Before Heiner testified, the court had twice informed the jury
that “allegations in a . . . government investigation, are not
proof of the truth of the matter alleged.” These prompt, clear
instructions were adequate to cure the prejudicial impact of
Heiner’s comments. See B.K.B. v. Maui Police Dep’t,
276 F.3d 1091, 1105 (9th Cir. 2002).
As to its Rule 403 argument, Motorola cites two
occasions on which this court has upheld a district court’s
decision to exclude evidence of a no-fault consent decree
after balancing its probative value against the danger of
prejudice. See Gribben v. United Parcel Serv., Inc., 528 F.3d
1166, 1172 (9th Cir. 2008); Kramas v. Sec. Gas & Oil Inc.,
672 F.2d 766, 772 (9th Cir. 1982). In both cases, we deferred
to the district court’s decision to exclude the evidence, which
62 MICROSOFT CORP. V. MOTOROLA, INC.
decision was “committed to the trial court’s sound
discretion.” Kramas, 672 F.2d at 772; see also Gribben,
528 F.3d at 1172. Further, in both cases, the consent decrees
in question were at most minimally probative, as they related
to actions markedly different from those at issue in the later
litigation. See Gribben, 528 F.3d at 1172; Kramas, 672 F.2d
at 772. Gribben, for example, involved a retaliatory
employment action claim; the employer’s prior no-fault
consent decree with the EEOC was “irrelevant” to the
question whether the plaintiff-employee was terminated in
retaliation for filing his own complaint with the EEOC. Id.
at 1172.
Here, by contrast, the evidence the judge authorized was
undoubtedly probative. The FTC investigated Motorola for
the same conduct cited in Microsoft’s breach of contract
complaint, and for the same reason: The conduct was alleged
to be a violation of Motorola’s good-faith RAND obligations.
There was, undoubtably, a risk of prejudicing the jury in
admitting testimony about the FTC investigation. Although
the jury was instructed that the FTC made no finding of
liability, the jurors might have assumed the agency would not
have initiated an investigation if they did not believe
Microsoft’s complaint was true. Similarly, while the jury was
told that Motorola’s agreement to the consent decree was not
an admission of liability, they may have inferred from the
decree that Motorola believed its actions were wrongful.
Any prejudicial effect of the order, however, was likely
cumulative of the impact of Heiner’s testimony about the
“public interest statement” the FTC sent to the ITC around
the same time as the investigation, expressing its “concern[]
that a patentee can . . . seek an exclusion order for
infringement of [a] RAND-encumbered SEP as a way of
MICROSOFT CORP. V. MOTOROLA, INC. 63
securing royalties that may be inconsistent with the RAND
commitment.” Motorola did not challenge Heiner’s
testimony about the FTC’s statement to the ITC on appeal.
Thus, testimony about the FTC order was largely cumulative
and so not prejudicial.
In short, Heiner’s testimony on the FTC investigation and
subsequent consent decree was clearly both probative and
potentially prejudicial. But under Rule 403, evidence is to be
excluded only “if its probative value is substantially
outweighed by a danger of . . . unfair prejudice.” Fed. R.
Evid. 403 (emphasis added). And in determining whether the
district court abused its discretion in applying that Rule, we
employ a “highly deferential” standard of review, Boyd v.
City & Cnty. of S.F., 576 F.3d 938, 949 (9th Cir. 2009),
reversing only if the exercise of discretion was “manifestly
erroneous and prejudicial,” Wagner v. Cnty. of Maricopa,
747 F.3d 1048, 1055 (9th Cir. 2013) (quoting Orr v. Bank of
America, NT & SA, 285 F.3d 764, 773 (9th Cir. 2002)). Here,
the danger of prejudice in admitting limited testimony about
the FTC investigation did not so manifestly outweigh the
testimony’s probative value that admitting the evidence was
an abuse of discretion.
III. CONCLUSION
With the parties’ consent, the district court conducted a
lengthy, thorough bench trial on the RAND rate and range.
The court analyzed that evidence in its exhaustive findings of
fact and conclusions of law, in a manner consistent with the
Federal Circuit’s recent approach to establishing damages in
the RAND context. The court’s factual findings were
properly admitted at the jury trial. The jury’s verdict was
64 MICROSOFT CORP. V. MOTOROLA, INC.
supported by substantial evidence, and its damages award
was proper.
The judgment of the district court is AFFIRMED.