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

knobbe.com
2:10-cv-01823-JLR
Presented by:
Mauricio A. Uribe
Review of Microsoft Corporation v. Motorola Inc.et al.

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)

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

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

©2012 Knobbe Martens, Olson & Bear, LLP all rights reserved.©2014 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 5
BACKGROUND

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

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

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

FUNDAMENTALS OF RAND
LICENSING

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)

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

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

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

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

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)

• 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)

• 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)

• 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)

• 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)

• 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)

• 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)

• 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)

• 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)

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)

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

COURT’S ANALYSIS OF H.264
STANDARDS

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)

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)

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)

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

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)

Analysis of Wu Family
• Directed toward adaptive video compression (175)
standards (176)
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)

Analysis of Eifrig Family
• Directed predictive motion vectors (186)
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)

Analysis of MBAFF Patent Family
• Directed toward adaptive frame/field coding used in
combination with other predictive techniques (198)
standards (201)
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)

Analysis of PAFF Family
• Directed to adaptive frame/field coding (222)
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)

Analysis of Scan Family
• Directed to transforms and optimizations (240-241;
243)
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)

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)

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)

COURT’S ANALYSIS OF
802.11 STANDARDS

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)

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)

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

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)

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)

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)

Analysis of Network Setup Patents
• Directed to initial association of station to wireless
access point (375)
(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)

Analysis of Data Modulation Patents
• Directed to direct sequence spread spectrum data
modulation for 802.11b and 802.11g subchapters (386)
(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)

Analysis of Security Patents
• Directed to four-way handshake used for exchanging
secure encryption keys (395)
(399)
• Conclusion: Parties would consider the Security
Patents of minimal technical contribution (400)
• Conclusion: Security Patents would be relevant to
Xbox (395; 406)

ANALYSIS OF RAND RATES
RANGES FOR MOTOROLA
PATENTS

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%)

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)

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)

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)

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)

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)

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

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)

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)

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)

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)

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)

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)

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)

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

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

Recommended

Recommended

More Related Content

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

Similar to Review of Microsoft Corporation v. Motorola Inc. et al. – A framework for determining RAND rates (20)

More from Knobbe Martens - Intellectual Property Law

More from Knobbe Martens - Intellectual Property Law (20)

Recently uploaded

Recently uploaded (20)

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