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Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates
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Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates

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  • 1. knobbe.com 2:10-cv-01823-JLR Presented by: Mauricio A. Uribe Review of Microsoft Corporation v. Motorola Inc.et al.
  • 2. 2© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Breach of Contract Action (W.D. WA) • Breach of Contract Action – Alleged: Motorola had a contractual obligation to license standard essential patents on reasonable and non-discriminatory (RAND) terms – Alleged: Motorola’s offer of a standard royalty rate of 2.25% of the net selling price (NSP) for all devices incorporating Motorola's declared standards essential patents related to H.264 and 802.11 is not in compliance with RAND • Decisions to Date: – Partial Summary Judgment: Motorola had a binding contractual obligation to the IEEE and TIA SSOs to license its declared essential patents on RAND terms – Partial Summary Judgment: Microsoft is a third party beneficiary of Motorola’s contractual obligations – Findings of Fact: Impossible to determine whether Motorola breach its RAND terms without first determining a framework for RAND and application to Motorola’s standards essential patents • Pending Issues – Whether Motorola has breached its contraction obligation based on the determined RAND framework (August 26th, 2013)
  • 3. 3© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Summary of April 23, 2013 District Court Findings of Fact • The appropriate framework for determining RAND royalty rates relates to a hypothetical negotiation between the parties incorporating the 15 Georgia- Pacific factors as modified for both patent cases and standards essential patents • Motorola’s RAND royalty rates for each standard should be expressed as a range of values • The RAND royalty rates that apply to Microsoft should be selected from the range of values based on the applicability of the claimed technology to the alleged infringing Microsoft products
  • 4. 4© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Summary of Court’s Suggested RAND Analysis 1. Review of parties and relation to one another 2. Background of standards, SSOs and RAND commitments 3. Develop framework for assessing RAND terms 4. For each applicable standards, analyze the relative importance of each asserted patent with regard to the standards and the accused standards using products 5. Determine appropriate RAND royalty rate based on relative importance and available comparables
  • 5. ©2012 Knobbe Martens, Olson & Bear, LLP all rights reserved.©2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 5 BACKGROUND
  • 6. 6© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Background – Motorola’s Licensing Approach • Motorola actively licenses standards essential patents related to a number of standardized technologies • Motorola’s licensing program corresponds to a 2.25% running royalty of the net selling price (NSP) of any device incorporating covered standardized technologies • If a device incorporates multiple standardized technologies, Motorola maintains a base of the 2.25% running royalty plus some additional incremental percentage • Motorola believes its licensing program complies with its RAND obligation
  • 7. 7© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. ITU/ISO/IEC: H.264 • Standards relate to video encoding techniques utilized in streaming media • SSO patent licensing policy – Encourages early declaration of essential patents – Provides for three licensing commitments • Royalty free • RAND • No licensing commitment • Motorola submitted several disclosures to ITU regarding development of the H.264 standards • Motorola submitted RAND licensing commitment to H.264 standards
  • 8. 8© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. IEEE: 802.11 • Standards relate to wireless communication (aka WLAN or Wi-Fi) • SSO patent licensing policy – Encourages early declaration of essential patents – Provides for licensing commitments • Royalty free/non-enforcement • RAND • Motorola submitted RAND blanket licensing commitments to 802.11 standards
  • 9. ©2012 Knobbe Martens, Olson & Bear, LLP all rights reserved.©2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 9 FUNDAMENTALS OF RAND LICENSING
  • 10. 10© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Purpose of RAND Licensing • Overall purpose of RAND commitment is to encourage widespread adoption of the relevant standards (51) • Once a technology is adopted in a standard (e.g., essential), switching to alternatives is no longer viable or very costly (52) • Ability for patent holder to demand more value from essential patents is referred to as “hold up” (55-61) • Because standards typically encompass a large number of patented technologies, hold up creates risk of excessive cumulative royalties called royalty stacking (62) • RAND licensing commitments address the issue of royalty stacking – Ensures aggregate royalties are reasonable (67) – Accounts for principle of proportionality (68)
  • 11. 11© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Economic Guidance for RAND • RAND royalty rates should be set to promote widespread adoption of the standards (70) • RAND royalty rates should address risks associated with royalty stacking by considering potential aggregate royalties (72) • RAND royalties should provide guarantee of value from patents (73) • RAND royalties should be limited to a reasonable royalty from the economic value of the patented technology apart from the value of the incorporation of patented technology in the standards (74) • Adopted: Judicial simulation of a hypothetical, bilateral negotiation under a RAND obligation will lead to a determination of a reasonable royalty rate (92) – Modification: Patent owners are obligated to license – Modification: Licensee will need to take licenses from all patent holders having essential patents
  • 12. 12© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Hypothetical Negotiation: Georgia Pacific Considerations • Factor 1: Royalties received by the patentee for the licensing of the patent in suit, proving or tending to prove an established royalty • Factor 2: The rates paid by the licensee for the use of other patents comparable to the patents in suit • Factor 3: The nature and scope of the license • Factor 4: The 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 the monopoly • Factor 5: The commercial relationship between the licensor and the licensee, such as, whether they are competitors in the same line of business; or whether they are inventor and promoter
  • 13. 13© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Hypothetical Negotiation: Georgia Pacific Considerations • Factor 6: The effect of selling the patented specialty in promoting sales of other products of the licensee; the existing value of the invention to the licensor as a generator of sales of his non- patented items; and the extent of such derivative or convoyed sale • Factor 7: The duration of the patent and the term of the license • Factor 8: The established profitability of the product made under the patent, its commercial success; and its current popularity • Factor 9: The utility and advantages of the patent property over the old modes or devices, if any, that had been use for working similar results • Factor 10: The nature of the patented invention; the character of the commercial embodiment of its as owned and produced by the licensor; and the benefits to those who have used the invention
  • 14. 14© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Hypothetical Negotiation: Georgia Pacific Considerations • Factor 11: The extent to which the infringer has made use of the invention; and any evidence probative of the value of that use • Factor 12: The portion of the profit or of the selling price that may be customary in the particular business or in the comparable businesses to allow for the use of the invention or analogous inventions • Factor 13: The portion of the realized profit that should be credited to the invention as distinguished from the non-patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer • Factor 14: The opinion testimony of qualified experts • Factor 15: The amount that a licensor and a licensee would have agreed upon (at the time the infringement began) if both had been reasonably and voluntarily trying to reach an agreement
  • 15. 15© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Modifications to Georgia Pacific Factors • Factor 1: Royalties received by the patentee for the licensing of the patent in suit, proving or tending to prove an established royalty – For RAND, licensing royalties must be comparable to RAND licensing circumstances (100) – To prove an established RAND rate, past royalty rates must have been negotiated under a RAND obligation (100) – Patent pools will be relevant to negotiation (100)
  • 16. 16© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Modifications to Georgia Pacific Factors • Factor 4: The 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 the monopoly – Factor 4 is inapplicable because the patent owner has an obligation to license and cannot choose to maintain monopoly right (101) • Factor 5: The commercial relationship between the licensor and the licensee, such as, whether they are competitors in the same line of business; or whether they are inventor and promoter – Factor 5 is inapplicable because patent owner cannot discriminate against competitors (102)
  • 17. 17© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Modifications to Georgia Pacific Factors • Factor 6: The effect of selling the patented specialty in promoting sales of other products of the licensee; the existing value of the invention to the licensor as a generator of sales of his non-patented items; and the extent of such derivative or convoyed sale – Under Factor 6, a reasonable royalty would not take into account the value provided by the existence of the standard itself, but only the contribution to the standard by the patented technology (103-104) • Factor 8: The established profitability of the product made under the patent, its commercial success; and its current popularity – Under Factor 8, a reasonable royalty would not take into account the value provided by the existence of the standard itself, but only the contribution to the standard by the patented technology (103-104)
  • 18. 18© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Modifications to Georgia Pacific Factors • Factor 7: The duration of the patent and the term of the license – The reasonable royalty under RAND is simplified because it will equate to the duration of the patent (105) – Factor 7 may have little influence in the determination of RAND (105)
  • 19. 19© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Modifications to Georgia Pacific Factors • Factor 9: The utility and advantages of the patent property over the old modes or devices, if any, that had been use for working similar results – Factor 9 is applied by consideration of alternative technologies that could have been written into the standard prior to adoption (106) – Factor 9 incorporates the framework proposed by Microsoft (106)
  • 20. 20© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Modifications to Georgia Pacific Factors • Factor 10: The nature of the patented invention; the character of the commercial embodiment of its as owned and produced by the licensor; and the benefits to those who have used the invention • Factor 11: The extent to which the infringer has made use of the invention; and any evidence probative of the value of that use – Factor 10 and 11 focus on the contribution of the patent to the technical capabilities to the standards and the contribution to the implementer’s products (107) – Evidence of the benefit and value of the patent to the owner and implementer is relevant to the contribution of the patent to the standards and applicability to implementer’s products (107)
  • 21. 21© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Modifications to Georgia Pacific Factors • Factor 12: The portion of the profit or of the selling price that may be customary in the particular business or in the comparable businesses to allow for the use of the invention or analogous inventions – Factor 12 must be viewed through the lens of other RAND commitments (108) – Licensing fees for non-RAND committed patents cannot form basis for comparison (108)
  • 22. 22© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Modifications to Georgia Pacific Factors • Factor 13: The portion of the realized profit that should be credited to the invention as distinguished from the non-patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer – Critical to consider the contribution of the patented technology apart from the value of the patent as a result of incorporation into the standards (109) – Rewarding the patent holder with any value of the standards would constitute hold up value and be contrary to purpose behind RAND (109)
  • 23. 23© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Modifications to Georgia Pacific Factors • Factor 15: The amount that a licensor and a licensee would have agreed upon (at the time the infringement began) if both had been reasonably and voluntarily trying to reach an agreement – Parties would examine the contribution of the patented technology apart from the value of the patent as a result of incorporation into the standards (111) – A patent that is extremely important will command a higher royalty than a less important patent (111) – Patents directed toward optional standards not implemented by licensee will have little value (111) – RAND licensing would not be considered in a vacuum (112)
  • 24. 24© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Hypothetical Negotiation: Georgia Pacific Considerations • Factor 1: Royalties received by the patentee for the licensing of the patent in suit, proving or tending to prove an established royalty (Modified) • Factor 2: The rates paid by the licensee for the use of other patents comparable to the patents in suit • Factor 3: The nature and scope of the license • Factor 6: The effect of selling the patented specialty in promoting sales of other products of the licensee; the existing value of the invention to the licensor as a generator of sales of his non- patented items; and the extent of such derivative or convoyed sale (Limited) • Factor 7: The duration of the patent and the term of the license (Minimized) • Factor 8: The established profitability of the product made under the patent, its commercial success; and its current popularity (Limited)
  • 25. 25© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Hypothetical Negotiation: Georgia Pacific Considerations • Factor 9: The utility and advantages of the patent property over the old modes or devices, if any, that had been use for working similar results • Factor 10: The nature of the patented invention; the character of the commercial embodiment of its as owned and produced by the licensor; and the benefits to those who have used the invention • Factor 11: The extent to which the infringer has made use of the invention; and any evidence probative of the value of that use (Limited) • Factor 12: The portion of the profit or of the selling price that may be customary in the particular business or in the comparable businesses to allow for the use of the invention or analogous inventions (Limited) • Factor 13: The portion of the realized profit that should be credited to the invention as distinguished from the non-patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer (Limited) • Factor 14: The opinion testimony of qualified experts • Factor 15: The amount that a licensor and a licensee would have agreed upon (at the time the infringement began) if both had been reasonably and voluntarily trying to reach an agreement
  • 26. ©2012 Knobbe Martens, Olson & Bear, LLP all rights reserved.©2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 26 COURT’S ANALYSIS OF H.264 STANDARDS
  • 27. 27© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. H.264: Introduction • The H.264 standards related to video coding standards referred to as MPEG4 or AVC (Advanced Video Coding) (129) • The H.264 standards can be broken down into three core features (130) – Coding: Transmission of video data (interlaced video compression vs. progressive video compression) (118- 121) – Prediction: Use of predictive algorithms to eliminate redundant data (131) – Transform/Quantization: Conversion of pixel-based data to frequency coefficients for more efficient transmission (132) • H.264 is the most widely used video coding format (133)
  • 28. 28© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. H.264: General Development • Timeline – 1998-2001: Video Coding Experts Group (VCEG) develop initial draft of H.264 standards (135) – 2001: VCEG submits H.264 to MPEG for evaluation (136) – 2003: Finalization of H.264 standards (140) • Contributions and IP – 1,700 entities contributing 2,300 documents (154) – Largest contributor as Telenor Group (developed initial base proposal) (155) – Estimated 360 patents are considered essential to H.264 standards (156) – 33 companies have submitted RAND commitments (157)
  • 29. 29© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. H.264: Contribution of Motorola • Motorola proposed changes to the coding related to the portion of the H.264 standards related to interlaced video in 2001 (128; 158) – 25 total submissions for consideration • 18 interlaced video (adopted) (161) • 7 wavelet coding (not adopted) (161)
  • 30. 30© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Motorola’s H.264 Patents • 16 US patents broken down into 6 “families” (163-164) – Krause Family (1 patent): Directed to prediction – Wu Family (1 patent): Directed to prediction – Eifrig Family (1 patent): Directed to prediction – MBAFF Family (8 patents): Directed to adaptive frame/field coding – PAFF Family (3 patents): Directed to adaptive frame/field coding – Scan Family (2 patents): Directed to transform/quantization
  • 31. 31© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Analysis of Krause Family • Directed toward adaptive video compression (166) • Considered essential to multiple aspects of the H.264 standards (167) • Microsoft provided some evidence that alternatives existed at the time of the adoption of the standard, but no evidence regarding the potential effect of adopting such alternatives (172) • Claims of the patent drafted in a means plus function format. Scope limited by patent specification to hardware implementations (173) • Conclusion: Krause family contributes to standards but limited to implementing standards via hardware (173)
  • 32. 32© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Analysis of Wu Family • Directed toward adaptive video compression (175) • Considered essential to multiple aspects of the H.264 standards (176) • Microsoft provided some evidence that alternatives existed at the time of the adoption of the standard, but no evidence regarding the potential effect of adopting such alternatives (181) • Majority of claims of the patent drafted in a means plus function format. Scope limited by patent specification to hardware implementations (182) • Single claim that is not means plus function (183) • Conclusion: Wu family contributes to standards. The parties may disagree whether the patent is limited to implementing standards via hardware (173)
  • 33. 33© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Analysis of Eifrig Family • Directed predictive motion vectors (186) • Considered essential to multiple aspects of the H.264 standards (187) • Claims apply solely to interlaced video or would be considered less efficient than other tools for progressive video compression (194) • Microsoft provided evidence that similar techniques for prediction may have been already known prior to priority date of Eifrig family (195) • Conclusion: Eifrig family has minimal technical advancements to H.264 standards (196)
  • 34. 34© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Analysis of MBAFF Patent Family • Directed toward adaptive frame/field coding used in combination with other predictive techniques (198) • Considered essential to multiple aspects of the H.264 standards (201) • Microsoft provided some evidence that alternatives existed at the time of the adoption of the standard including previous versions of the standards (204) • Claims apply solely to interlaced video (127; 217) • Conclusion: MBAFF family diminished by applicability to interlaced video and availability of alternative(217) • Conclusion: MBAFF family considered a single invention (218)
  • 35. 35© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Analysis of PAFF Family • Directed to adaptive frame/field coding (222) • Considered essential to multiple aspects of the H.264 standards (224) • Microsoft provided some evidence that alternatives existed at the time of the adoption of the standard including previous versions of the standards (232) • Claims apply solely to interlaced video (126; 237) • Conclusion: PAFF family diminished by applicability to interlaced video and availability of alternative(237) • Conclusion: PAFF family considered a single invention (238)
  • 36. 36© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Analysis of Scan Family • Directed to transforms and optimizations (240-241; 243) • Considered essential to multiple aspects of the H.264 standards (242) • Microsoft provided some evidence that alternatives existed at the time of the adoption of the standard including previous versions of the standards (251) • Claims apply solely to interlaced video (250) • Conclusion: Scan family diminished by applicability to interlaced video and availability of alternative(256)
  • 37. 37© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Applicability of H.264 to Microsoft Products • The negotiation parties would only consider the economic value of the patented technology based on the contribution to the standards (258) • It would be incorrect to consider the value of compliance and interoperability of the standards (258) • Importance of interlaced video to Microsoft Products – Evidence at trial that Microsoft does not support interlaced video (262) – Major content providers do not incorporate interlaced video (264) – Much of the evidence provided by Motorola related to the importance of the H.264 standards in general (268) • Conclusions – Interlaced video is becoming less important (279) – Little evidence that Microsoft products encounter interlaced video (279) – Microsoft does provide for some support for interlaced video (279)
  • 38. 38© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Applicability of Motorola Patents to Microsoft Products • Windows – Software product that lacks hardware structures (286) – Plays DVDs (not H.264 encoded) (287) – Does not receive H.264 feeds (288) – Conclusion: Motorola patents of only minor importance to Windows (289) • Xbox – Xbox games do not incorporate H.264 content (290) – Xbox Live does not support interlaced video (291) – Incorporates Web browser capable of processing interlaced video (293) – Does not include any hardware decoders (294) – Conclusion: Motorola patents of only minor importance to Xbox (299) – Conclusion: Motorola patents only relevant when user selects to play interlaced encoded content (301)
  • 39. ©2012 Knobbe Martens, Olson & Bear, LLP all rights reserved.©2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 39 COURT’S ANALYSIS OF 802.11 STANDARDS
  • 40. 40© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 802.11: Introduction • The 802.11 standards related to wireless communication standards referred to as Wi-Fi or WLAN (308) • The 802.11 standards can be broken down into four core features (326) – Network setup: Initial setup of communications (327) – Channel access management: Creation of communication channel to exchange information (328) – Data modulation: Synchronization and modulation to allow for transmission of data (329) – Security and encryption: Prevent interception (330) • 802.11 is the de facto standards for wireless home networks (308)
  • 41. 41© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 802.11: General Development • Timeline – 1985-1997: Development of first wireless networks and draft 802.11 specifications (311-314) – 1997: IEEE releases first 802.11 standards (315) – 1997-Present: Continuous amendments to 802.11 standards (316) • Contributions and IP – 1,000 entities contributed to 802.11 standards (317) – The development of the 802.11 standards dealt with well- known technologies in the public domain or not covered by patents (321) – Estimated 350 patents are considered essential to 802.11 standards (335) – 92 companies have submitted RAND commitments (335)
  • 42. 42© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Motorola’s 802.11 Patents • Essential to Standards – Motorola asserts that 24 patents are essential to 802.11 standards (339) – Neither party submitted substantive evidence regarding whether Motorola’s patents were in fact essential (340-341) – Conclusion: The parties would disagree whether Motorola’s 802.11 were essential (346) • Applicability to Microsoft Products – Motorola only contends that Xbox utilizes 802.11 (347) – Motorola also contends that Xbox would only practice 11 of the 24 Motorola patents (351) – Conclusion: Microsoft would not take a license under the 13 Motorola patents not practiced by Xbox. The analysis of Motorola’s patents will be limited to the identified 11 patents
  • 43. 43© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Motorola’s 802.11 Patents • 11 patents covering five technology areas (353) – Channel Access Management Patent (1 patent) – Data Modulation Patents (2 patents): Directed to a/g/n subchapters – Network Setup Patents (2 patents) – Data Modulation Patents (3 patents): Directed to b/g subchapters – Security Patents (3 Patents)
  • 44. 44© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Analysis of Channel Access Management Patent • Directed to enhanced distributed channel access functionality and distributed coordinated function (354) • Minimal evidence that the patent is considered essential (355) • However, Microsoft did not contest whether patent was essential (356) • Absolutely no evidence explaining relative importance of patent to other technical contributions (357) • Conclusion: Parties would consider the Channel Access Management Patent of minimal technical contribution (358) • Conclusion: Parties would disagree with Xbox would implement patented feature (363)
  • 45. 45© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Analysis of Data Modulation Patents • Directed to data modulation for 802.11a, 802.11g and 802.11n subchapters (364) • Insufficient evidence provided by the parties to definitively determine essential nature of patents (370) • Absolutely no evidence explaining relative importance of patent to other technical contributions (372) • Conclusion: Parties would consider the Data Modulation Patents of minimal technical contribution (373) • Conclusion: Data Modulation Patents would be relevant to Xbox (364)
  • 46. 46© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Analysis of Network Setup Patents • Directed to initial association of station to wireless access point (375) • Insufficient evidence provided by the parties to definitively determine essential nature of patents (377) • Absolutely no evidence explaining relative importance of patent to other technical contributions (378) • Conclusion: Parties would consider the Network Setup Patents of minimal technical contribution (379) • Conclusion: Parties would disagree whether the Network Setup Patents would be relevant to Xbox (375; 384)
  • 47. 47© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Analysis of Data Modulation Patents • Directed to direct sequence spread spectrum data modulation for 802.11b and 802.11g subchapters (386) • Insufficient evidence provided by the parties to definitively determine essential nature of patents (387) • Absolutely no evidence explaining relative importance of patent to other technical contributions (389) • Conclusion: Parties would consider the Data Modulation Patents of minimal technical contribution (390) • Conclusion: Data Modulation Patents would be relevant to Xbox (385; 394)
  • 48. 48© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Analysis of Security Patents • Directed to four-way handshake used for exchanging secure encryption keys (395) • Insufficient evidence provided by the parties to definitively determine essential nature of patents (397) • Absolutely no evidence explaining relative importance of patent to other technical contributions (399) • Conclusion: Parties would consider the Security Patents of minimal technical contribution (400) • Conclusion: Security Patents would be relevant to Xbox (395; 406)
  • 49. ©2012 Knobbe Martens, Olson & Bear, LLP all rights reserved.©2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 49 ANALYSIS OF RAND RATES RANGES FOR MOTOROLA PATENTS
  • 50. 50© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Motorola Royalty Calculations • Motorola’s RAND rate corresponds to 2.25% of end product price offset by value of Microsoft patent license • 802.11 damage calculations – Xbox: $3.00-$4.50 per unit (net 1.15% to 1.73% royalty) • H.264 damage calculations – Xbox • Total royalties capped at $100M-$125M • Xbox: $.50-$.63 per unit (net .68% to .84%)
  • 51. 51© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Motorola Comparable: VTech • In view of allegation of patent infringement, VTech agreed to a license under Motorola’s H.264 and 802.11 patents for a running royalty of 2.25% NSP (413) • Court views license agreement as a package deal to resolve infringement claims (415) • The threat of a lawsuit (with history of litigation) cannot form the basis for a RAND royalty rate (415) • VTech has not paid any royalties under license (418- 419) • Conclusion: VTech agreement does not establish RAND rate and is not an indicator of appropriate RAND rates (420)
  • 52. 52© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Motorola Comparable: RIM • January 1, 2003 RIM and Motorola entered into a cellular essential cross license agreement with a term of five years (421) • Parties engaged in litigation after expiration and settled by signing a second cellular cross license agreement including 802.11. Included a fixed fee payment and running royalty (423) • Broad cross license incorporates patents related to multiple standards. Value in license agreement may have been dominated by cellular portfolio (424; 430) • No evidence of any apportionment for value of license under 802.11 or H.264 patents or additional value for including 802.11 and H.264 in new agreement (425; 433) • Agreement also provided for settlement of various litigation claims (431) • Capped royalties also indicates no real value for practicing 802.11 or H.264 (432) • Conclusion: RIM agreement does not establish RAND rate and is not an indicator of appropriate RAND rates (435)
  • 53. 53© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Motorola Comparable: Symbol • Motorola acquired Symbol in January 2007 (436) • Prior to acquisition, Symbol had three license agreements including six of Motorola’s 802.11 patents (438) • First agreement with Proxim may not have been under RAND terms and may have been executed under threat of litigation (441-442) • Second agreement with HHP may not have been under RAND terms, may have been executed under threat of litigation and were subject to an annual cap (446-447) • Third agreement with Terabeam specified fixed quarterly payments with a final paid up sum (453) • Conclusion: None of the three Symbol agreement establish a RAND royalty rate (454)
  • 54. 54© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Royalty Stacking • 802.11 – Xbox: $3.00-$4.50 per unit (net 1.15% to 1.73% royalty) (455) – Estimated 92 entities have essential patents (456) – If each entity sought similar royalty percentages, the royalty for 802.11 would exceed the product price (456) – Royalty stacking concerns are heightened in view of the minimal contribution of Motorola’s 802.11 patents to the standards (457) • H.264 – Xbox: $.50-$.63 per unit (net .68% to .84%) (459) – Estimated 52 entities have essential patents (459) – If each entity sought similar royalty percentages, the royalty for H.264 would amount to 35.36% to 43.68% of total price (459) – Royalty stacking concerns are heightened in view of the limited applicability of Motorola’s H.264 patents to interlaced video (459) • Arguments that other essential patent holders may not be offering RAND terms are not persuasive since the Court has been charged with determining RAND rates for Motorola (460)
  • 55. 55© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Microsoft Comparables: Patent Pools • Background – Patent pools are created by two or more essential patent holders that license patents in a single package (462) – Patent pools are voluntary organizations that are separate from the standards setting organizations (463-464) – Patent pools generally distribute licensing royalties on a per patent basis (e.g., patent counting). Equal compensation for any patent in the pool (465) – Licensees are generally not able to negotiate rates or argue scope/applicability of claims (466) • Patent Pools as RAND Indicators – Patent pools produce lower royalty rates than bi-lateral negotiations (499) – Patent counting schemes do not consider importance of specific patents (500) – Patent pools do not consider incremental value provided by individual patents relative to the standards (501) – Patent pool owners also receive benefit of license to pooled patents. The benefit may be as high as double the received royalties (501-505) – Patent pool rate is not a RAND rate, but may be an indicator (508)
  • 56. 56© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Microsoft Comparable: MPEG LA Patent Pool • Background – MPEG LA H.264 patent pool began in June 2003 after standards were adopted (469) – Microsoft and Motorola have both joined the MPEG LA H.264 patent pool (470) – The MPEG LA H.264 patent pool has 275 patents submitted by 26 licensors (488) – There are 1,100 licensees in the MPEG LA H.264 patent pool (489) – The MPEG LA H.264 patent pool has a $.20 per unit license rate with graduated caps (491) • Indicator of RAND – Evidence demonstrates that the MPEG LA H.264 patent pool helped achieve widespread adoption of the standards (509) – The rates adopted by the MPEG LA H.264 patent pool were a balance between licensing revenue to patent owners and implementation of the standards by licensees (510) – Conclusion: The MPEG LA H.264 patent pool is a strong indicator of RAND rates for H.264 standards
  • 57. 57© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Microsoft Comparable: MPEG LA Patent Pool • Three possible interpretations RAND royalties to the MPEG LA H.264 patent pool rates (519) – Equivalent royalty of other licensors – Projected royalty if all patent holders participated – Project royalty if all patent holders participated and patent pool rates were increased accordingly • Conclusion: RAND is based on projected royalty if all patent holders participated, which would correspond to .185 cents per unit (520) • Conclusion: RAND is further adjusted to account for value of reciprocal license equal to double the licensing royalty (e.g., $.00185 + 2*$.00185) (524-526) • Conclusion: RAND Rate from the MPEG LA H.264 patent pool is $.0055 per unit. This represents the low end of the range (526- 527)
  • 58. 58© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Determination of H.264 RAND Rate • Motorola’s comparables were not considered persuasive • The MPEG LA patent pool rate (adjusted) represents the low end of the range • The upper bound for the RAND range corresponds to an originally proposed uncapped rate for MPEG LA of $1.50 (not adopted). Motorola’s share would be $.16389 per unit • However, based on analysis of patent and applicability to Microsoft, no reason for RAND rate to exceed the low end of the range (528-536) • RAND rate is .555 cents per unit for Windows and Xbox (537)
  • 59. 59© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Microsoft Comparable: Via Licensing Pool • Background – Formed between 2003-2005 (548) – Participation in patent pool is substantially lower than MPEG LA patent pool (549) – Microsoft and Motorola did not join Via licensing pool (554-555) – The Via licensing pool has 35 patents submitted by five licensors (549) – There are 11 licensees in the Via licensing pool (549) – The Via licensing pool has a graduated royalty range (552) • Indicator of RAND – The Via licensing pool has not been successful in promoting adoption of the standards (557) – The Via licensing pool include a very small percentage of potential licensors (557) – Conclusion: The Via licensing pool is an indicator of RAND, but not a strong indicator (562)
  • 60. 60© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Microsoft Comparable: Via Licensing Pool • Patent pool participation was adjusted to account for 24 Motorola 802.11 patents and 7 Microsoft 802.11 patents (565-567) • Under patent counting, Motorola’s patent pool rate would correspond to 10.19% of the pool (569) • Conclusion: RAND is based on projected royalty if all patent holders participated, which would correspond to $.02038 per unit • Conclusion: RAND is further adjusted to account for value of reciprocal license equal to double the licensing royalty (e.g., $.02038+ 2*$.020308 (524-526) • Conclusion: RAND Rate from the MPEG LA H.264 patent pool is $.06114 per unit. This represents the high end of the range (571) • Conclusion: Because Motorola’s 802.11 would not be likely applicable to Microsoft’s product, the RAND rate is likely lower (577)
  • 61. 61© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Microsoft Comparable: Marvell • Marvell designs and markets 802.11 chipsets for use in products including the Xbox (579) • Microsoft pays Marvell ~$3.00-$4.00 per chipset (581) • Marvell pays ARM a royalty and licensing fee of 1% that includes patent royalties and technical know-how (582) • Marvell believes that 1% of the chipset is appropriate because paying a royalty on end unit is impractical (583) • Conclusion: 1% of the end price of the chip set ($.03- $.04) is the high indicator of RAND royalty (590)
  • 62. 62© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Microsoft Comparable: InteCap • InteCap developed a patent portfolio valuation business (591) • InteCap evaluated Motorola’s 802.11 patents to determine monetization targets (592) • InteCap based its projected royalties on the product’s end price (594) • InteCap also assumed Motorola held 25% of all 802.11 standards patents (595) • Conclusion: InteCap rate would be equal to .5% of 802.11 chipsets (597) • Conclusion: InteCap rate is indicative of RAND and addresses stacking (605) • Conclusion: InteCap rate is .8 – 1.6 cents per unit (611)
  • 63. 63© 2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. Determination of 802.11 Rate • Motorola’s comparables were not considered persuasive • The Via licensing patent pool and InteCap rates represent the high end of the range and needed to be adjusted downward (613) • Conclusion: The average of the Via, InteCap and Marvell rates is the most reasonable (615) • Conclusion: The RAND royalty rate for 802.11 is 3.471 cents per unit • Conclusion: Upper bound is determined by Via (624) • Conclusion: Lower bound is determined by Court (627)
  • 64. knobbe.com Orange County San Diego San Francisco Silicon Valley Los Angeles Seattle Washington DC Mauricio A. Uribe mauricio.uribe@knobbe.com 206.405.2004

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