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Out of the San Jose spotlight, Apple scores big win in Wisconsin

8/13/2012 COMMENTS (0)

In the smart device patent war, all eyes are on Apple's San Jose federal court trial against Samsung, in which Samsung's lawyers at Quinn Emanuel Urquhart & Sullivan have given courtroom observers lots of opportunity for second-guessing. But another team of Quinn Emanuel lawyers, this one representing Motorola, on Friday received a summary judgment loss from U.S. District Judge Barbara Crabb in Madison, Wisconsin, that could be as important for Apple as the outcome in San Jose.

The Wisconsin litigation grew out of a patent infringement suit Motorola filed against Apple at the U.S. International Trade Commission in October 2010. Apple responded with antitrust, unfair competition and breach of contract counterclaims, asserting that Motorola was abusing its power as the owner of patents adopted by standard-setting bodies, which are supposed to be licensed on fair and reasonable terms. Apple's counterclaims at the ITC were removed to Crabb's federal courtroom in Wisconsin.

The Wisconsin counterclaims, as Crabb's decision recounted, are just one strand in the web of litigation between Apple and Motorola (and, by extension, Google). Apple's allegations, however, go to the core of the smart device IP war. As I've previously explained, both Apple and Microsoft claim that Motorola was obliged to license standard-essential patents under its agreements with the international organizations that determine common technological standards. Motorola, they argue, shouldn't be permitted to sue them for infringing these standard-essential patents but should instead be compelled to license its essential technology on reasonable terms. The same theory underlies the European Union's reported antitrust investigation of Motorola.

Microsoft has already won crucial support for its theory that Motorola breached commitments to license its technology from U.S. District Judge James Robart in Seattle. In a ruling in June, Robart held that Motorola's agreements with the standard-setting bodies require it to license its IP to third parties, including Microsoft. (Robart stopped short of granting Microsoft summary judgment on its claim that Motorola's $4.5 billion licensing offer was unreasonable because he said he didn't have enough information to decide.)

In Friday's decision, Crabb agreed with Robart on the hugely important contractual point. She ruled that Motorola's agreements with the standard-setting bodies are contracts and that Apple is a third-party beneficiary of those agreements. Crabb rejected Motorola's arguments that its agreements didn't constitute contracts because neither the standard-setting bodies nor third parties have the power to enforce Motorola's promises. She said the agreements, on their face, require Motorola to license its technology on reasonable, non-discriminatory terms.

The judge did not decide whether Motorola breached its contracts, writing that Apple must still prove (among other things) that Motorola's opening offer to license its tech to Apple at a 2.25 percent royalty rate was discriminatory and unreasonable. She also granted Motorola summary judgment on Apple's antitrust and unfair competition claims, finding that because they were filed as counterclaims to Motorola's ITC suit, they're barred by the Noerr-Pennington doctrine. (In case you've forgotten, Noerr-Pennington holds that defendants who "petition the government" to seek redress are immune from antitrust claims based on that petition; a patent infringement suit counts as a petition for redress.)

But according to a leading authority on standard-setting patents, Jorge Contreras of American University's Washington College of Law, what's significant is the one-two punch of Robart's and Crabb's rulings that Microsoft and Apple are third-party beneficiaries of Motorola's commitments to the standard-setting bodies. "To say that Apple can enforce these agreements makes the whole world a third party," Contreras said. "It's twisting around traditional contract law."

Contreras said he's not arguing that Motorola should be off the hook if it refused to license standard-essential patents on fair terms, but he's concerned that in searching for a way to hold Motorola responsible -- and to counter Motorola's infringement claims -- lawyers for Microsoft and Apple devised a "strained" theory of Motorola's contract obligations. The endorsement of that theory by judges Robart and Crabb could have unintended consequences for standard-setting bodies, he said, which could affect developing technology. (Contreras argues for a sort of capped royalty system, in which the license fee for essential technology is divided among those who contributed standard-essential patents, but that spins us into the realm of theory.)

I left word for media contacts at Motorola and Apple -- which was represented by Covington & Burling; Weil, Gotshal & Manges; and Tensegrity Law Group -- but didn't hear back.

(This post has been corrected. A previous version misspelled Judge Crabb's name.)

(Reporting by Alison Frankel)

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