Microsoft Corporation v. Motorola, Inc , 696 F.3d 872 ( 2012 )

FILED
FOR PUBLICATION SEP 28 2012
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
MICROSOFT CORPORATION, a No. 12-35352
Washington corporation,
D.C. No. 2:10-cv-01823-JLR
Plaintiff - Appellee,
v. OPINION
MOTOROLA, INC.; MOTOROLA
MOBILITY, INC.; GENERAL
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 September 11, 2012
San Francisco, California
Before: WALLACE, THOMAS, and BERZON, Circuit Judges.
Opinion by Judge BERZON, Circuit Judge:
In this interlocutory appeal, Motorola appeals from the district court’s
preliminary injunction to enjoin Motorola temporarily from enforcing a patent
injunction that it obtained against Microsoft in Germany. We review the district
court’s grant of a foreign anti-suit injunction under the deferential abuse-of-
discretion standard, and affirm.
I. BACKGROUND
The parties are involved in ongoing contract and patent litigation before the
district court. We recite here only the factual and procedural history most relevant
to this interlocutory appeal.
A. Standard-setting organizations and intellectual property law
The underlying case before the district court concerns how to interpret and
enforce patent-holders’ commitments to industry standard-setting organizations
(“SSOs”), which establish technical specifications to ensure that products from
different manufacturers are compatible with each other. See generally Mark A.
Lemley, Intellectual Property Rights and Standard-Setting Organizations, 90
Calif. L. Rev. 1889 (2002). Specifically, the case involves the H.264 video coding
standard set by International Telecommunications Union (“ITU”), and the 802.11
wireless local area network standard set by the Institute of Electrical and
Electronics Engineers (“IEEE”). This appeal implicates primarily the H.264
standard.
Standards provide many benefits for technology consumers, including not
just interoperability but also lower product costs and increased price competition.
2
See Apple, Inc. v. Motorola Mobility, Inc., 2011 WL 7324582, at *1 (W.D. Wis.
June 7, 2011). The catch with standards “is that it may be necessary to use patented
technology in order to practice them.” Id. As a result, standards threaten to endow
holders of standard-essential patents with disproportionate market power. In
theory, once a standard has gained such widespread acceptance that compliance is
effectively required to compete in a particular market, anyone holding a standard-
essential patent could extract unreasonably high royalties from suppliers of
standard-compliant products and services. This problem is a form of “patent
holdup.” See generally Mark A. Lemley, Ten Things to Do About Patent Holdup of
Standards (And One Not To), 48 B.C. L. Rev. 149 (2007).
Many SSOs try to mitigate the threat of patent holdup by requiring members
who hold IP rights in standard-essential patents to agree to license those patents to
all comers on terms that are “reasonable and nondiscriminatory,” or “RAND.” See
Lemley, Intellectual Property Rights, 90 Calif. L. Rev. at 1902, 1906. For example,
consider the ITU, whose H.264 standard is implicated in this appeal. The ITU’s
Common Patent Policy (the “ITU Policy”) provides that “a patent embodied fully
or partly in a [standard] must be accessible to everybody without undue
constraints.” Anyone who owns a patent declared essential to an ITU standard
must submit a declaration to the ITU stating whether it is willing to “negotiate
3
licenses with other parties on a non-discriminatory basis on reasonable terms and
conditions.” 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.”
Pursuant to these procedural requirements, Motorola has submitted
numerous declarations to the ITU stating that it will grant licenses on RAND terms
for its H.264-essential patents. A typical such declaration provides:
The Patent Holder will grant a license to an unrestricted number of
applicants on a worldwide, non-discriminatory basis and on
reasonable terms and conditions to use the patented material necessary
in order to manufacture, use, and/or sell implementations of the above
ITU-T Recommendation | ISOC/IEC International Standard.1
The ITU Policy does not specify how to determine RAND terms, or how
courts should adjudicate disputes between patent-holders and would-be licensors
under a RAND commitment. To the contrary, the ITU Policy includes the
following disclaimer:
[Standards] are drawn up by technical and not patent experts; thus,
they may not necessarily be very familiar with the complex
international legal situation of intellectual property rights such as
patents, etc. . . .
1
The ITU’s policy documents use the term “recommendation” rather than
“standard.” “ISOC/IEC” refers to the International Organisation for
Standardization and the International Electrotechnical Commission, with which the
ITU jointly developed the H.264 standard.
4
....
. . . The detailed arrangements arising from patents (licensing,
royalties, etc.) are left to the parties concerned, as these arrangements
might differ from case to case.
The ITU Policy also disclaims any role for the organization in negotiating licenses
or in “settling disputes on Patents,” stating, “this should be left — as in the past —
to the parties concerned.” Finally, the ITU form that patent-holders use to submit
licensing declarations includes the caveat: “This declaration does not represent an
actual grant of a license.”
Courts and commentators are divided as to how, if at all, RAND licensing
disputes should be settled. Relatedly, some commentators have suggested that
because of the RAND licensing commitment, injunctive relief is an inappropriate
remedy for infringement of standard-essential patents. See, e.g., Lemley, Ten
Things, 48 B.C. L. Rev. at 167 (“Denying [injunctive] relief is the most powerful
way to prevent patent holdup[.]”). Judge Posner, sitting by designation on the U.S.
District Court for the Northern District of Illinois, recently held in a different case
involving Motorola-owned standard-essential patents for which Motorola had
made a RAND commitment that the court would not
be justified in enjoining Apple [the plaintiff in that case] from
infringing [the patent at issue] unless Apple refuses to pay a royalty
5
that meets the FRAND requirement.2 By committing to license its
patents on FRAND terms, Motorola committed to license the [patent]
to anyone willing to pay a FRAND royalty and thus implicitly
acknowledged that a royalty is adequate compensation for a license to
use that patent.
Apple, Inc. v. Motorola, Inc., — F. Supp. 2d —, 2012 WL 2376664 (N.D. Ill. June
22, 2012), at *12 (Posner, J.). More generally, Justice Kennedy has suggested that
injunctions against patent infringement “may not serve the public interest” in cases
where “the patented invention is but a small component of the product the
companies seek to produce and the threat of an injunction is employed simply for
undue leverage in negotiations.” eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388,
396-97 (2006) (Kennedy, J., concurring).
B. The U.S. contract litigation
In October 2010, Motorola sent Microsoft two letters offering to license
certain of its standard-essential patents. Of relevance to this appeal is the H.264
letter, sent on October 29, 2010. The letter proposed a royalty of “2.25% per unit”
for each standard-compliant product, “subject to a grant back license” of
Microsoft’s standard-essential patents, “based on the price of the end product (e.g.,
each Xbox 360 product, each PC/laptop, each smartphone, etc.) and not on
2
Instead of RAND, some courts and commentators use the alternative,
legally equivalent abbreviation “FRAND,” for “fair, reasonable, and non-
discriminatory rates.”
6
component software (e.g., Xbox 360 system software, Windows 7 software,
Windows Phone 7 software, etc.).” It noted in closing: “Motorola will leave this
offer open for 20 days. Please confirm whether Microsoft accepts the offer.”
Appended to the letter was a “non-exhaustive list” of the U.S. and
international patents that Motorola declares that it owns and that are essential to the
H.264 standard, and that would be “included in the license” being offered. The list
comprised not just U.S. patents but also numerous patents granted or filed in
foreign jurisdictions, including Australia, Canada, China, the European Patent
Convention,3 France, Germany, Great Britain, Ireland, Japan, Korea, Mexico, the
Netherlands, Norway, South Korea, Sweden, and Taiwan. Among these were
German patents numbered EP0538667 (“’667”) and EP0615384 (“’384”), and U.S.
patents 7,310,374 (“’374”); 7,310,375 (“’375”); and 7,310,376 (“’376”).4
3
The European Patent Convention allows applicants to file patent
applications with the European Patent Office (“EPO”), designating for which
contracting states the patent is sought. If the EPO grants a European patent, the
grant does not result in a single, transnational patent, but rather creates an
independent, nationally-enforceable patent within each of the designated states,
with “the effect of and . . . subject to the same conditions as a national patent
granted by that State, unless this Convention provides otherwise.” European Patent
Convention art. 2, Oct. 5, 1973. Infringement claims, for instance, must be litigated
independently within each country under each country’s patent law. See id. art.
64(3).
4
The prefix “EP” denotes that these are European patents.
7
On November 9, 2010, Microsoft filed a breach-of-contract suit against
Motorola in the U.S. District Court for the Western District of Washington, under
Washington state contract law.5 Microsoft’s theory of liability is that Motorola’s
proposed royalty terms were unreasonable, and that Motorola’s letters therefore
breached its contractual RAND obligations to the IEEE and the ITU, to which
Microsoft is a third-party beneficiary. The next day, Motorola filed a patent suit
against Microsoft in the U.S. District Court for the Western District of Wisconsin,
alleging infringement of U.S. patents ’374, ’375, and ’376. The Western District of
Wisconsin transferred the patent case to the Western District of Washington,
where, in June 2011, the district court ruled that Motorola’s patent claims were not
compulsory counterclaims to Microsoft’s contract claims. Nevertheless, the court
consolidated the two cases in the interest of judicial economy.
In February 2012, the district court granted partial summary judgment for
Microsoft on its contract claims, finding that:
(1) Motorola entered into binding contractual commitments with the
IEEE and the ITU, committing to license its declared-essential patents
on RAND terms and conditions; and (2) that Microsoft is a third-party
beneficiary of Motorola’s commitments to the IEEE and the ITU.
5
Microsoft’s amended complaint of February 23, 2011, is the currently
operative complaint.
8
The district court noted that, at a status conference earlier in February 2012,
“Motorola stated on the record that it did not dispute that it entered into the
aforementioned binding contractual commitments with the IEEE and the ITU and
that Microsoft is a third-party beneficiary of these commitments.”6
The district court denied Microsoft’s motion for summary judgment as to
whether Motorola must offer RAND terms in its initial offer letters (or whether
only the ultimate license must be RAND, which is Motorola’s position), and as to
6
The transcript of the status conference states, in relevant part:
THE COURT: Is the first part of that sentence also accurate,
that you entered into binding contractual commitments with IEEE and
ITU, committing those to that RAND process?
[COUNSEL]: Well, yeah, that is really what the issue is, your
Honor, in terms of what the assurance is. The assurance is that we
would — that Motorola agreed to license those standard essential
patents on RAND terms.
THE COURT: All I am asking is — I think you just agreed
with me. I am not asking you if you did it or not, I am just asking you
if that’s what you are supposed to do. I think the answer to that is yes.
[COUNSEL]: Yes. Enter into a license on RAND terms, that’s
right.
THE COURT: The second point that Microsoft asked the court
to declare is, and I will quote, “Microsoft is a third-party beneficiary
of Motorola’s commitments to the SSOs.” Once again, let’s stay away
from the precise terms that were offered and asked as a conceptual
matter. I think there is also no disagreement on that. [Counsel], am I
correct on that?
[COUNSEL]: Your Honor, that is correct, we would agree that
Microsoft can fairly claim to be the third-party beneficiary of the
assurance.
9
whether Motorola’s letters offering to license its H.264 and 802.11 standard-
essential patents breached Motorola’s RAND obligations. These remaining two
issues are scheduled to be tried to the bench in November 2012.
C. The German patent litigation
In July 2011, several months into the above-described domestic litigation,
Motorola sued Microsoft in the Landgericht Mannheim, or Mannheim Regional
Court, alleging infringement of the German ’667 and ’384 patents.7 In the German
suit, Motorola sought, among other relief, an injunction prohibiting Microsoft from
selling allegedly infringing products in Germany, including the Microsoft Xbox
gaming system and certain Microsoft Windows software.
On May 2, 2012, the Mannheim Court issued its ruling. First, the court held
that Microsoft did not have a license to use Motorola’s patents. Second, it rejected
the argument that Motorola’s RAND commitment to the ITU created a contract
enforceable by Microsoft, because German law does not recognize third-party
contractual rights. Finally, the German court held that Microsoft had infringed the
’667 and ’384 patents, and enjoined Microsoft from “offering, marketing, using or
7
The plaintiff in the German suit is General Instrument Corporation, a
defendant in this case and a subsidiary of the Motorola Group. The defendants in
the German suit are Microsoft Corporation, the plaintiff in this case, as well as
Microsoft Deutschland GmbH and Microsoft Ireland Operations Ltd.
10
importing or possessing . . . in the territory of the Federal Republic of Germany
decoder apparatus (in particular Xbox 360)”; from “offering and/or supplying in
the territory of the Federal Republic of Germany computer software (in particular
Windows 7 and/or Internet Explorer 9)”; and “from offering and/or supplying in
the territory of the Federal Republic of Germany computer software (in particular
Windows Media Player 12).” The German court rejected the argument that a
RAND commitment operates as a “waiver of claims for injunctive relief.”8
The German injunction is not self-enforcing. According to an expert
declaration on German law submitted by Motorola to the district court, to enforce
the German patent injunction, Motorola would have to post a security bond
covering potential damages to Microsoft should the infringement ruling be
reversed on appeal. Microsoft could then file a motion with the German appellate
court to stay the injunction, which motion “would be granted if there is a
reasonable likelihood of success for the appeal and if enforcement pending appeal
would cause significant harm.”
8
We quote from the preliminary translations of the German court order
provided by the parties to the district court. Although each party submitted its own
translation, they do not differ substantially. This quote comes from the translation
provided by Microsoft.
11
According to the same expert, Microsoft could alternatively avoid
enforcement of the injunction pending appeal by following what is known in
German law as “the Orange Book procedure,” after the German Supreme Court
opinion that introduced it. Under this procedure, Microsoft would have to make
“an unconditional offer to conclude a license agreement” with Motorola. Microsoft
could include in its offer either a specific proposed royalty rate, or “a provision
according to which the patent holder shall determine the appropriate royalty rate at
its fair discretion,” subject to German judicial review.
D. The anti-suit injunction
While the parties were awaiting the German court’s decision, Microsoft
asked Motorola (through an email exchange between their lawyers) to “agree that it
would not seek enforcement of a German injunction pending a ruling on the
RAND related issues by Judge Robart,” and “offered to post a bond of $300
million” against any possible injury to Motorola. Absent such an agreement,
Microsoft said, it would ask the district court to enjoin Motorola from enforcing
any German injunction that it might obtain. Motorola responded with “surprise[]
that Microsoft would ask a United States District Court to rule on the propriety of a
remedy in Germany,” particularly given the availability of the Orange Book
procedure.
12
On March 28, 2012, Microsoft moved the district court for a temporary
restraining order (“TRO”) and preliminary injunction to enjoin Motorola from
enforcing any German injunctive relief it might obtain. On April 12, 2012, after
oral argument on the motion, the district court granted Microsoft’s motion for a
TRO, requiring Microsoft to post a $100 million security bond as collateral for any
damages to Motorola. It was after that, on May 2, that the Mannheim Court issued
its ruling.
On May 14, 2012, the district court converted the TRO into the preliminary
injunction at issue in this interlocutory appeal. The preliminary injunction bars
Motorola from “enforcing any injunctive relief it may receive in the German
Action with respect to the European Patents at issue therein,” and “shall remain in
effect until [the district court] is able to determine whether injunctive relief is an
appropriate remedy for Motorola to seek with respect to Microsoft’s alleged
infringement of Motorola’s standard essential patents.”
The district court explained its rationale for granting the injunction as
follows. First, the district court concluded that the pending contract action before it
would be dispositive of the German patent action, “because the European Patents
at issue in the German Action were included in Motorola’s October 29 Letter
offering a worldwide license for Motorola’s H.264 Standard-essential patents, and
13
because Motorola contracted with the ITU to license the European Patents on
RAND terms to all applicants on a worldwide basis.” Second, the court determined
that the German action raised “concerns against inconsistent judgments,” and that
“the timing of the filing of the German Action raises concerns of forum shopping
and duplicative and vexatious litigation,” particularly since “Motorola’s
commitments to the ITU involved approximately 100 Motorola-owned patents, yet
Motorola invoked the German Action implicating only two . . . of these patents and
sought injunctive relief in Germany before [the district court] could adjudicate that
precise issue.” “In sum,” the district court concluded, “Motorola’s actions have
frustrated [the district court’s] ability to adjudicate issues properly before it,” i.e.,
the propriety of injunctive relief in the RAND context.
Finally, the district court reasoned that the injunction’s “impact on comity
would be tolerable,” Applied Med. Distrib. Corp. v. Surgical Co., 587 F.3d 909,
919 (9th Cir. 2009) (internal quotation marks and citation omitted), because the
German action was filed after the U.S. action; the “anti-suit injunction is limited in
scope to enjoining Motorola from enforcing any injunctive relief that it may
receive in the German Action,” but does not otherwise affect Motorola’s ability to
pursue its German patent claims against Microsoft; and “[the district court] has [a]
strong interest in adjudicating the claims before it,” as both parties are U.S.
14
corporations and the facts at issue in the contract dispute took place within the
United States.
On May 16, 2012, Motorola filed a timely notice of appeal from the
preliminary injunction in this court.
II. JURISDICTION
“Not all cases involving a patent-law claim fall within the Federal Circuit’s
jurisdiction.” Holmes Group, Inc. v. Vornado Air Circulation Sys., Inc., 535 U.S.
826, 834 (2002). The Federal Circuit has jurisdiction over an interlocutory appeal
only if it would have jurisdiction over a final appeal in the case under 28 U.S.C. §
1295. 28 U.S.C. § 1292(c)(1). Microsoft’s complaint sounds in contract and
invokes the district court’s diversity jurisdiction under 28 U.S.C. § 1332. We
therefore have jurisdiction over this interlocutory appeal under 28 U.S.C. §
1292(a)(1).
III. STANDARD OF REVIEW
We review a district court’s foreign anti-suit injunction for abuse of
discretion. See Applied Med., 587 F.3d at 913. We review the district court’s
factual findings in connection with the injunction for clear error, and its legal
interpretations de novo. See id. “When a district court makes an error of law, it is
an abuse of discretion.” Id.15
Abuse-of-discretion review is highly deferential to the district court. See
United States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009) (en banc). Under
this standard of review, we must “uphold a district court determination that falls
within a broad range of permissible conclusions in the absence of an erroneous
application of law.” Grant v. City of Long Beach, 315 F.3d 1081, 1091 (9th Cir.
2002), amended by 334 F.3d 795 (9th Cir. 2003) (order). We reverse “only when”
we are “convinced firmly that the reviewed decision lies beyond the pale of
reasonable justification under the circumstances.” Harman v. Apfel, 211 F.3d 1172,
1175 (9th Cir. 2000).
IV. ANALYSIS
“‘A federal district court with jurisdiction over the parties has the power to
enjoin them from proceeding with an action in the courts of a foreign country,
although the power should be used sparingly.’” E. & J. Gallo Winery v. Andina
Licores S.A., 446 F.3d 984, 989 (9th Cir. 2006) (quoting Seattle Totems Hockey
Club, Inc. v. Nat’l Hockey League, 652 F.2d 852, 855 (9th Cir. 1981)).
We clarified our framework for evaluating a foreign anti-suit injunction in
Gallo, 446 F.3d 984, and elaborated upon that framework in Applied Medical, 587
F.3d 909. Together, these cases establish a three-part inquiry for assessing the
propriety of such an injunction. First, we determine “whether or not the parties and
16
the issues are the same” in both the domestic and foreign actions, “and whether or
not the first action is dispositive of the action to be enjoined.” Gallo, 446 F.3d at
991 (citations omitted). Second, we determine whether at least one of the so-called
“Unterweser factors” applies. See id. Finally, we assess whether the injunction’s
“impact on comity is tolerable.” Id.The Unterweser factors are a disjunctive list of considerations that may
justify a foreign anti-suit injunction, first articulated by the Fifth Circuit in In re
Unterweser Reederei GMBH, 428 F.2d 888, 896 (5th Cir. 1970), aff’d on reh’g,
446 F.2d 907 (5th Cir. 1971) (en banc) (per curiam), rev’d on other grounds sub
nom. M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), and adopted by this
court as instructive in Seattle Totems, 652 F.2d at 855. The full list of Unterweser
factors is as follows:
[whether the] foreign litigation . . . would (1) frustrate a policy of the
forum issuing the injunction; (2) be vexatious or oppressive; (3)
threaten the issuing court’s in rem or quasi in rem jurisdiction; or (4)
where the proceedings prejudice other equitable considerations.
Gallo, 446 F.3d at 990 (quoting Seattle Totems, 652 F.2d at 855).9
9
In Applied Medical, we more narrowly described the second Gallo step as
an inquiry into “whether the foreign litigation would ‘frustrate a policy of the
forum issuing the injunction,’” 587 F.3d at 913 (quoting Gallo, 446 F.3d at 991);
in other words, we referenced solely the first of the Unterweser factors. But there is
no indication that Applied Medical meant, in so doing, to narrow the Gallo inquiry.
(continued...)
17
In determining whether to issue Microsoft’s requested anti-suit injunction,
the district court applied the three-step Gallo framework, and therefore “identified
the correct legal standard for decision of the issue before it.” Hinkson, 585 F.3d at
1251. Under the abuse-of-discretion standard of review, we next consider whether,
in applying that framework, “the district court’s findings of fact, and its application
of those findings of fact to the correct legal standard, were illogical, implausible, or
without support in inferences that may be drawn from facts in the record.” Id.A. The parties and issues are the same in both actions
The threshold consideration for a foreign anti-suit injunction is “whether or
not the parties and the issues are the same” in both the domestic and foreign
actions, “and whether or not the first action is dispositive of the action to be
enjoined.” Gallo, 446 F.3d at 991 (citations omitted); accord Quaak v. Klynveld
Peat Marwick Goerdeler Bedrijfsrevisoren, 361 F.3d 11, 18 (1st Cir. 2004) (“The
gatekeeping inquiry is, of course, whether parallel suits involve the same parties
9
(...continued)
Rather, in both Gallo and Applied Medical, such a focus made sense because the
contracts at issue included forum-selection clauses, and the specific rationale for
the anti-suit injunction in each case was to protect the strong U.S. public policy of
enforcing forum-selection clauses. Still, Gallo itself is clear that the list of
Unterweser factors is disjunctive, and that “any of the Unterweser factors” may
justify a foreign anti-suit injunction, not just the first. 446 F.3d at 991 (emphasis
added).
18
and issues.”); Paramedics Electromedicina Comercial, Ltda. v. GE Med. Sys. Info.
Tech., Inc., 369 F.3d 645, 652 (2d Cir. 2004).
Conducting this threshold inquiry in Applied Medical with reference to a
contract containing a forum-selection clause, we clarified that
whether the issues are the same and the first action dispositive of the
action to be enjoined are interrelated requirements; that is, to the
extent the domestic action is capable of disposing of all the issues in
the foreign action and all the issues in the foreign action fall under the
forum selection clause, the issues are meaningfully “the same.”
587 F.3d at 915. Although the contract at issue in this case does not contain a
forum-selection clause, we are nevertheless informed by Applied Medical’s
emphasis on the functional character of the threshold similarity-of-issues inquiry.
We ask “whether the issues are the same” not in a technical or formal sense, but “in
the sense that all the issues in the foreign action . . . can be resolved in the local
action.” Id. The issues need not be “precisely and verbally identical,” as “the verbal
form of laws in different countries will inevitably differ.” Id.Here, all agree that the parties are the same in both the U.S. and German
actions. As to whether the issues are the same in the sense that all the issues in the
German patent action can be resolved in the U.S. contract action, Motorola argues
that the U.S. action cannot resolve the German action, because patent law is
uniquely territorial and patents have no extraterritorial effect.
19
To be sure, if the district court had based its injunction in an expectation that
U.S. patent claims could dispose of German patent claims, then it would have
erred. See Stein Assocs., Inc. v. Heat & Control, Inc., 748 F.2d 653, 658 (Fed. Cir.
1984) (upholding denial of foreign anti-suit injunction against enforcement of
British patents corresponding to U.S. patents-in-suit, holding that “resolution of the
domestic action will not dispose of the British action” because “[o]nly a British
court, applying British law, can determine validity and infringement of British
patents”); Canadian Filters (Harwich) Ltd. v. Lear-Siegler, Inc., 412 F.2d 577, 579
(1st Cir. 1969) (vacating injunction of Canadian patent proceedings and finding
that none of the exceptions to comity that might justify a foreign anti-suit
injunction applied “where the subject matter of the foreign suit is a separate,
independent foreign patent right”); cf. Sperry Rand Corp. v. Sunbeam Corp., 285
F.2d 542, 544-45 (7th Cir. 1961) (rejecting argument that district court could
enjoin German trademark litigation).
But the district court did not base its injunction on the pendency of parallel
patent proceedings. Rather, it is Microsoft’s Washington state contract claims that
the district court determined could resolve the German patent claims. Specifically,
the district court concluded that the pending domestic contract action could resolve
the issues in the German patent action “because the European Patents at issue in
20
the German Action were included in Motorola’s October 29 Letter offering a
worldwide license for Motorola’s H.264 Standard-essential patents, and because
Motorola contracted with the ITU to license the European Patents on RAND terms
to all applicants on a worldwide basis.”
The contractual umbrella over the patent claims in this case brings it in line
with Medtronic, Inc. v. Catalyst Research Corp., 518 F. Supp. 946 (D. Minn.
1981), aff’d, 664 F.2d 660 (8th Cir. 1981). There, as here, the district court
enjoined a party from enforcing injunctive relief in foreign patent-infringement
actions, although unlike here, none of the foreign fora had yet issued an injunction.
The district court in Medtronic correctly observed that “[w]here patents are the
issue, the subject matter is not the same” for foreign anti-suit injunction purposes.
Id. at 955 (citing Western Elec. Co., Inc. v. Milgo Elec. Corp., 450 F. Supp. 835,
838 (S.D. Fla. 1978)). But the court concluded that it could issue an anti-suit
injunction against the enforcement of foreign patents where the precise issue
before the U.S. court was not the patents themselves, but “a contract between the
parties” not to enforce the patents. Id. In other words, the party was “not seeking to
enjoin [a party from litigating in] a foreign court on the basis of a patent validity or
infringement finding by a United States court” but on the basis of a contract
interpretation by a U.S. court. Id.21
Ordinarily, we do not assess at all the likelihood of success on the merits in a
case like this, because when a preliminary injunction is also a foreign anti-suit
injunction, the likelihood-of-success aspect of the traditional preliminary
injunction test is replaced by the Gallo test. See Gallo, 446 F.3d at 990 (“To the
extent the traditional preliminary injunction test is appropriate, we only need
address whether [the injunction seeker] showed a significant likelihood of success
on the merits. The merits in this case, however, are about whether [the injunction
seeker] has demonstrated that the factors specific to an anti-suit injunction weigh in
favor of granting that injunction here.” (alterations in original) (internal quotation
marks, ellipses, and citation omitted)). So in this case, a ballpark, tentative
assessment of the merits of the contract dispute is intrinsically bound up with the
threshold anti-suit injunction inquiry: If we concluded that the district court’s
interpretation of the RAND commitment as a contract enforceable by Microsoft
was fundamentally legally erroneous, then we would have to conclude that it was
an abuse of discretion for the district court to rule that the U.S. contract action
might dispose of the German patent action. Here, however, Motorola does not
dispute that its RAND commitments created a contract that Microsoft can enforce
as a third-party beneficiary, even if it disagrees with Microsoft over how to
interpret the terms of that contract.
22
We emphasize that we do not (indeed, we may not) decide whether the
district court’s partial summary judgment, or its determination that it would
adjudicate a RAND rate, was proper — if an appellate court is to review those
determinations, it will have to do so on a final, not an interlocutory, appeal. But we
do hold this much: The district court’s conclusions that Motorola’s RAND
declarations to the ITU created a contract enforceable by Microsoft as a third-party
beneficiary (which Motorola concedes), and that this contract governs in some way
what actions Motorola may take to enforce its ITU standard-essential patents
(including the patents at issue in the German suit), were not legally erroneous.
Motorola, in its declarations to the ITU, promised to “grant a license to an
unrestricted number of applicants on a worldwide, non-discriminatory basis and on
reasonable terms and conditions to use the patented material necessary” to practice
the ITU standards. This language admits of no limitations as to who or how many
applicants could receive a license (“unrestricted number of applicants”) or as to
which country’s patents would be included (“worldwide,” “the patented material
necessary”). Implicit in such a sweeping promise is, 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. See Apple, 2012 WL 2376664 at *12.
23
In particular, the face of the contract makes clear that it encompasses not just
U.S. patents, but all of Motorola’s standard-essential patents worldwide. When that
contract is enforced by a U.S. court, the U.S. court is not enforcing German patent
law but, rather, the private law of the contract between the parties. Although
patents themselves are not extraterritorial, there is no reason a party may not freely
agree to reservations or limitations on rights that it would have under foreign
patent law (or any other rights that it may have under foreign law) in a contract
enforceable in U.S. courts. By way of comparison, whenever a party agrees to a
forum-selection clause, it relinquishes any benefits that it might receive from
statutory rights or favorable canons of contractual interpretation only available in
other forums. That is the party’s choice, and “[t]here are compelling reasons why a
freely negotiated private international agreement, unaffected by fraud, undue
influence, or overweening bargaining power, . . . should be given full effect.” M/S
Bremen, 407 U.S. at 12-13.
Here, there is no forum-selection clause, but the broader principle applies:
Courts should give effect to freely made contractual agreements. Motorola made
promises to the ITU to license its standard-essential patents worldwide to all
comers. In exchange, it received the benefit of having its patents implicated in the
24
standards. Motorola could have withheld the promise at the price of having the ITU
avoid its patents when setting standards, but chose not to.
In sum, whether or not the district court ultimately determines that Motorola
breached its contract with the ITU (it may or may not have), it is clear that there is
a contract, that it is enforceable by Microsoft, and that it encompasses not just U.S.
patents but also the patents at issue in the German suit. Moreover, even if Motorola
did not breach its contract, then, however the RAND rate is to be determined under
the ITU standards, injunctive relief against infringement is arguably a remedy
inconsistent with the licensing commitment. That the licensing agreement is not
itself a license according to the ITU Policy does not detract from this conclusion.
The question is how the commitment to license is to be enforced, not whether the
commitment itself is a license.
Motorola maintains that it is improper for the district court to determine the
prospective RAND rate (or retrospective royalties consistent with the RAND rate),
at least before good-faith bargaining between the patentee and the prospective
licensee has failed to produce a rate. We do not at this juncture decide whether that
is true or not. Cf. Apple, 2012 WL 2376664 at *11 (Posner, J.) (suggesting that
district court could determine RAND royalty by “start[ing] with what the cost to
the licensee would have been of obtaining, just before the patented invention was
25
declared essential to compliance with the industry standard, a license for the
function performed by the patent”); id. at *12 (“Motorola agreed to license its
standards-essential patents on FRAND terms as a quid pro quo for their being
declared essential to the standard. It does not claim to have conditioned agreement
on prospective licensees’ making counteroffers in license negotiations.” (citation
omitted)). Whatever the appropriate method of determining the RAND licensing
rate, it could well be that retrospective payment at the rate ultimately determined
and a determination of the future rate, not an injunction banning sales while that
rate is determined, is the only remedy consistent with the contractual commitment
to license users of ITU standard-essential patents.
We conclude that the district court did not abuse its discretion in
determining that Microsoft’s contract-based claims, including its claim that the
RAND commitment precludes injunctive relief, would, if decided in favor of
Microsoft, determine the propriety of the enforcement by Motorola of the
injunctive relief obtained in Germany.
B. At least two Unterweser factors apply
At the second Gallo step, we look to “whether the foreign litigation would
‘frustrate a policy of the forum issuing the injunction,’” Applied Med., 587 F.3d at
26
913 (quoting Gallo, 446 F.3d at 991), or whether any of the other Unterweser
factors apply. See Gallo, 446 F.3d at 991.
In explaining its rationale for the injunction, the district court made findings
sufficient to establish at least two of the Unterweser factors: that the foreign
litigation is “‘vexatious or oppressive,’” and that the foreign litigation
“‘prejudice[s] . . . equitable considerations.’” Gallo, 446 F.3d at 990 (quoting
Seattle Totems, 652 F.2d at 855); cf. id. at 989 (“Courts derive the ability to enter
an anti-suit injunction from their equitable powers.”). Based on its interactions
with the parties, the district court found that “the timing of the filing of the German
Action raises concerns of forum shopping and duplicative and vexatious
litigation,” particularly since “Motorola’s commitments to the ITU involved
approximately 100 Motorola-owned patents, yet Motorola invoked the German
Action implicating only two . . . of these patents and sought injunctive relief in
Germany before this court could adjudicate that precise issue,” i.e., the propriety of
injunctive relief for infringement of standard-essential patents. In other words, in
the district court’s view, Motorola’s German litigation was “vexatious or
oppressive” to Microsoft and interfered with “equitable considerations” by
compromising the court’s ability to reach a just result in the case before it free of
27
external pressure on Microsoft to enter into a “holdup” settlement before the
litigation is complete.
Motorola contends that the German litigation cannot be described as
“vexatious” because the German court ruled in Motorola’s favor. But litigation
may have some merit and still be “vexatious,” which is defined as “without
reasonable or probable cause or excuse; harassing; annoying.” Black’s Law
Dictionary 1701 (9th ed. 2009). In the midst of litigation over Motorola’s
obligations under Washington state contract law with respect to a portfolio of
patents that includes the two German patents, Motorola initiated separate
proceedings in Germany to enforce those two patents directly. The district court
interpreted this step as a procedural maneuver designed to harass Microsoft with
the threat of an injunction removing its products from a significant European
market and so to interfere with the court’s ability to decide the contractual
questions already properly before it. Although the district court’s interpretation of
Motorola’s litigation decisions may not be the only possible interpretation, it is not
“illogical, implausible, or without support from inferences that may be drawn from
facts in the record.” Hinkson, 585 F.3d at 1251. We therefore cannot hold that the
district court abused its discretion at this stage of the Gallo analysis.
C. The injunction’s impact on comity is tolerable
28
Finally, we assess whether the injunction’s “impact on comity is tolerable.”
Gallo, 446 F.3d at 991.
The particular phrasing is instructive. Gallo requires not that we calculate
the precise quantum of the injunction’s interference with comity, but only that we
estimate whether any such interference is so great as to be intolerable. Such a
flexible, fact- and context-specific inquiry accords both with the posture of
deference to the district court that abuse-of-discretion review requires generally,
and with the resistance of comity in particular to precise measurement. After all,
comity, as many courts have recognized, is “a complex and elusive concept.” Laker
Airways Ltd. v. Sabena, Belgian World Airlines, 731 F.2d 909, 937 (D.C. Cir.
1984) (quoted in Gallo, 446 F.3d at 995); see also Quaak, 361 F.3d at 18
(“[C]omity is an elusive concept.”). It “is neither a matter of absolute obligation,
on the one hand, nor of mere courtesy and good will, upon the other.” Hilton v.
Guyot, 159 U.S. 113, 163-64 (1895).
Nevertheless, our cases, along with instructive authority from other circuits,
do provide some objective guidance as to factors that may inform our comity
inquiry in the anti-suit injunction context. For instance, comity is less likely to be
threatened in the context of a private contractual dispute than in a dispute
implicating public international law or government litigants. See Gallo, 446 F.3d at
29
994; Applied Med., 587 F.3d at 921. At one pole, where two parties have made a
prior contractual commitment to litigate disputes in a particular forum, upholding
that commitment by enjoining litigation in some other forum is unlikely to
implicate comity concerns at all. See Applied Med., 587 F.3d at 921. At the other
pole, if (hypothetically speaking) the State Department represented to the court that
“the issuance of an injunction really would throw a monkey wrench, however
small, into the foreign relations of the United States,” Allendale Mut. Ins. Co. v.
Bull Data Sys., Inc., 10 F.3d 425, 431 (7th Cir. 1993) (Posner, J.), then comity
would presumably weigh quite heavily against an anti-suit injunction. Between
these two poles, courts must in their discretion evaluate whether and to what extent
international comity would be impinged upon by an anti-suit injunction under the
particular circumstances. The order in which the domestic and foreign suits were
filed, although not dispositive, may be relevant to this determination depending on
the particular circumstances. Compare Applied Med., 587 F.3d at 921 (where
“subsequent filing” of foreign action “raises the concern that [party] is attempting
to evade the rightful authority of the district court,” enjoining foreign action would
not “intolerably impact comity”), with Gallo, 446 F.3d at 994 (when parties have
forum-selection clause, “one party’s filing first in a different forum would not
implicate comity at all”).
30
The scope of the anti-suit injunction is another factor relevant to the comity
inquiry. In Laker Airways, which we have recognized as a “seminal case[] on anti-
suit injunctions,” Gallo, 446 F.3d at 994, the D.C. Circuit explained: “Comity
teaches that the sweep of the injunction should be no broader than necessary to
avoid the harm on which the injunction is predicated.” Laker Airways, 731 F.2d at933 n.81. A useful illustration of this teaching is provided by the Second Circuit’s
opinion in Ibeto Petrochemical Indus. Ltd. v. M/T Beffen, 475 F.3d 56 (2d Cir.
2007). In that case, the receiver of an allegedly contaminated oil shipment from
New Jersey to Nigeria sued the shipper in Nigerian court, subsequently demanded
arbitration in London, and then filed an additional suit against the shipper in U.S.
district court. Id. at 59. The U.S. district court found that the parties had an
enforceable contractual agreement to arbitrate any disputes in London, and
accordingly compelled arbitration, stayed the U.S. action pending completion of
the arbitration, and permanently enjoined the litigation in Nigeria. Id. at 60-61. The
Second Circuit concluded that an anti-suit injunction was appropriate but that the
district court’s generally worded, seemingly permanent injunction “cut[] much too
broadly.” Id. at 65. Noting that “principles of international comity and reciprocity
require a delicate touch in the issuance of anti-foreign suit injunctions,” the Second
Circuit remanded to the district court with instructions to modify the injunction
31
into a more tailored order “directed specifically to the parties” and limited in time.
Id.Applying these precepts to our case, we cannot conclude that the district
court abused its discretion in determining that a foreign anti-suit injunction could
issue. At bottom, this case is a private dispute under Washington state contract law,
between two U.S. corporations; it does not raise any “public international issue.”
Gallo, 446 F.3d at 994. Motorola only initiated the German litigation after
Microsoft filed suit in the United States. Moreover, the anti-suit injunction sweeps
“no broader than necessary,” Laker Airways, 731 F.2d at 933 n.81; it bars Motorola
not from pursuing its German patent claims against Microsoft altogether, but only
from posting the bond required to enforce the German injunction. Even that bar
could expire as soon as the district court has had an opportunity to adjudicate the
contractual issues before it.
Motorola argues that the anti-suit injunction offends comity intolerably
because its German patent claims have merit under German law, as evidenced by
the Mannheim Court’s ruling in Motorola’s favor and injunction against the sale of
Microsoft products, and because German courts, unlike some U.S. courts and
commentators, do not interpret the RAND commitment to create a contract
enforceable by third parties or to foreclose injunctive relief. If Motorola is right
32
that the two German patents are essential to implementing the H.264 industry
standard, then it is hardly surprising that the German court found that Microsoft
was using those patents in its H.264-compliant products.
German and U.S. courts may differ as to what legal conclusions follow from
that finding. But the mere fact that different jurisdictions answer the same legal
question differently does not, without more, generate an intolerable comity
problem. If that were the case, then there could virtually never be a foreign anti-
suit injunction: Parallel proceedings in different jurisdictions would have to be
permitted to proceed any time the two jurisdictions had different rules of law,
which is almost always the case.
Again our forum-selection cases prove instructive on this point, even though
this case does not involve a forum-selection clause. In those cases, we have
emphasized that an anti-suit injunction in the service of “enforcing a contract”
between private parties does not “breach[] norms of comity,” even if, absent that
contract, one party might have enjoyed different procedural or substantive
advantages under another country’s law. Gallo, 446 F.3d at 994; see also, e.g.,
Paramedics, 369 F.3d at 649-55 (upholding foreign anti-suit injunction against
Brazilian litigation commenced after U.S. court had ruled the parties’ dispute was
subject to their arbitration agreement and compelled arbitration, even though the
33
Brazilian suit alleged “a tort claim unique to Brazilian law” that the party argued
could not be arbitrated).
In any event, we have never suggested that the propriety of an anti-suit
injunction turns upon the merits of the foreign suit under foreign law. In Applied
Medical, the object of a foreign anti-suit injunction made a similar argument that
its Belgian action could not be enjoined consistent with comity, because the action
was initiated “in good faith and [was] founded on legitimate Belgian law.” 587
F.3d at 921. We rejected this argument. To be sure, in Gallo, we suggested that an
anti-suit injunction may be especially warranted to restrain a party from
“potentially fraudulent” foreign litigation. 446 F.3d at 993. But “we made clear in
Gallo that demonstration of such extreme facts was not necessary to conclude that
an injunction would not have an intolerable impact on comity.” Applied Med., 587
F.3d at 921 (construing Gallo).
Motorola further urges that the anti-suit injunction must be overturned
because it has disabled Motorola from enforcing its German patents in the only
forum in which they can be enforced. This argument exaggerates the scope of the
injunction, which leaves Motorola free to continue litigating its German patent
claims against Microsoft as to damages or other non-injunctive remedies to which
it may be entitled. Indeed, depending on the outcome of the district court litigation,
34
Motorola may well ultimately be able to enforce the German injunction too. It was
Motorola that offered to license the German patents to Microsoft in its October 29,
2010, letter, confirming that those patents are implicated in its RAND contractual
agreement. If Motorola wishes to challenge the district court’s interpretation of that
agreement, it will have to do so on final appeal, after this case is fully resolved. In
the meantime, we cannot say that the district court’s limited anti-suit injunction to
protect its ability to reach that final resolution enacts any intolerable incursion into
Germany’s sovereignty.
However elusive it may be, comity is not, of course, to be contemplated
lightly. Foreign anti-suit injunctions should not be issued routinely. But the record
makes clear that the district court gave thoughtful consideration to the importance
of international comity and nevertheless determined that under the unique
circumstances of this case, an anti-suit injunction was proper. Reviewing that
determination for an abuse of discretion, we cannot say that it rested upon an
erroneous view of the law or a clearly erroneous view of the facts. “At most, there
are competing comity concerns, so it cannot fairly be said” that the district court’s
preliminary injunction “would have an intolerable impact on comity.” Applied
Med., 587 F.3d at 921.
V. CONCLUSION
35
Under the unique circumstances of this case, the district court’s narrowly
tailored preliminary injunction was not an abuse of discretion. We AFFIRM.
36
Counsel
Derek L. Shaffer, Quinn Emanuel Urquhart & Sullivan, LLP, Washington D.C.;
Kathleen M. Sullivan, Quinn Emanuel Urquhart & Sullivan, LLP, New York, NY,
attorneys for Appellants.
Arthur W. Harrigan, Jr., Christopher Wion, Shane P. Cramer, Danielson Harrigan
Leyh & Tollefson LLP, Seattle, WA; David T. Pritikin, Constantine L. Treta, Jr.,
Richard A. Cederoth, Robert N. Hochman, Nathaniel C. Love, Sidley Austin LLP,
Chicago, IL; Carter G. Phillips, Sidley Austin LLP, Washington, D.C.; T. Andrew
Culbert, David E. Killough, Microsoft Corporation, Redmond, WA, attorneys for
Appellee.
37