Lessons from Apple v. Motorola in Wisconsin

The FTC’s recent consent order in its merger review in In the Matter of Robert Bosch GmbH – a combination of manufacturing companies that make air conditioning recycling, recovery, and recharge products that are essential for repairing and servicing the coolant systems on motor vehicles – contained an interesting twist.  While reviewing the merger, the FTC discovered that the target company SPX held patents that were likely standards essential as part of SPX’s participation in the SAE International standards setting process.  The FTC concluded that “SPX continued to seek previously initiated injunction actions against competitors using those patents to implement the SAE International standards” and required Bosch to consent to offering these patents on royalty-free terms as a condition of approving the merger.

As part of this review, the FTC had the opportunity to opine on standard essential patents (SEPs), FRAND commitments, and their impact on competition at a time when the issue is gaining much attention.  The tie-in to patents in the high-tech world is obvious.  There are many high-profile cases currently in litigation or appeals for which SEPs and FRAND commitments are prominent, including (but not limited to):

The SEP debate is rife with questions, both on fact and law, and the smartphone wars may be the venue where some answers are given.  However, the FTC’s approach is not the only analysis out there.  In the recently dismissed case between Apple and Motorola in the Western District of Wisconsin, Judge Crabb had the opportunity to weigh in on several of the questions presented in the SEP/FRAND issue.  Whether right or wrong, some of the conclusions reached in the Western District of Wisconsin may help guide future analysis.

From Summary Judgment (Filing #194)

  • The Noerr-Pennington Doctrine precludes antitrust claims – Judge Crabb reasoned at Summary Judgment “the Noerr-Pennington doctrine provides Motorola immunity from Apple’s antitrust and unfair competition claims premised on Motorola’s patent infringement litigation and from Apple’s claims for declaratory judgment, to the extent that those claims are premised on a theory of antitrust or unfair competition.”
  • “Pop-Out” Counterclaims from the ITC are not subject to claim preclusion – Judge Crabb reasoned at Summary Judgment that when a defendant in an ITC investigation files a counterclaim, it does not continue at the ITC, but rather is subject to mandatory removal to federal court.  The ITC defendant/counterclaim plaintiff will not be barred from asserting these claims through res judicata.  This includes scenarios in which the same claims have been made affirmatively by ITC defendant in other jurisdictions.
  • A FRAND commitment to a standard setting body creates a contract under Wisconsin law – Judge Crabb reasoned at Summary Judgment that a standard setting body’s Intellectual Property Rights policies constitute an offer of membership, and that choosing to join the standard setting body constitutes acceptance of that offer.  Furthermore, all participants benefit.
  • Whether a contract exists and whether this contract is breached are separate questions, and the question of breach requires a piercing factual inquiry – Though Judge Crabb found that a contract existed, she did not rule on whether this contact was breached as a result of the SEP holder’s negotiations with licensees.  The court held that Apple must show that “Motorola breached a contract…by failing to offer a license to its essential patents to Apple on fair, reasonable, and nondiscriminatory terms.  As to the licensing offer, Apple must prove that Motorola’s initial offer of a 2.25% royalty rate and attempts to negotiate were unfair, unreasonable or discriminatory and violated Motorola’s commitments to ETSI and IEEE.”
  • Other standard setting body members are third party beneficiaries to the contract between the SEP holder and the standards body – Judge Crabb explained “As a potential user of the standards at issue and a prospective licensee of essential patents, Apple is a third party beneficiary of the agreements between Motorola” and the standards setting bodies.

From October & November Orders

  • Specific performance may be an appropriate remedy – the court holds that it would be “highly inefficient” for a licensee to have to go to court for a FRAND license every time a patentee sues for infringement over an SEP (Filing #424).  The court reasoned that requiring the patentee to offer a license on certain terms may be the only way to deter future litigation.  The court also suggested it would be reasonable for the court to determine the FRAND terms, including both the base and rate.
  • Specific performance is not an appropriate remedy if it will not solve the problem, and it will not solve the problem if the licensee does not commit to the FRAND rate – Despite the court’s rationale in Filing #424, Judge Crabb backtracked and dismissed the case after Apple declared it would not agree to pay anything more than $1 per device (Filing #448).  It is not appropriate for the court to declare a FRAND rate and enforce specific performance on the patentee if the licensee is not also bound by the FRAND rate determined by the court.  Judge Crabb recognized that this would not end litigation, but merely reposition it.
  • Whether mandatory cross-licenses may be part of a FRAND license is an open question – Judge Crabb described the ambiguity of mandatory cross-licenses “[The ETSI IPR policy] does suggest that Motorola cannot be found to have made an unreasonable or discriminatory offer simply because it demanded that Apple provide a reciprocal license to Apple’s standards-essential patents.  Additionally, this provision suggests that Apple may have been required to engage in licensing negotiations related to its own patents. In other words, evidence that Apple refused to provide a license to its own patents or refused to engage in negotiations related to its own patents would be relevant to whether Motorola breached its contract with ETSI.”  The court noted that the parties had not yet addressed his question, and instructed them to be prepared to address it at trial.
  • Dismissal with prejudice is not appropriate if the court does not reach a decision on the merits – Judge Crabb held that all of Apple’s claims that were discussed at the Summary Judgment stage (Filing #194) shall be dismissed with prejudice.  This includes Sherman Act claims, California Unfair Trade Practices claims, and tortious interference of contracts claims.  Judge Crabb holds that Apple’s claims for equitable estoppel, breach of contract, and declaratory judgment are dismissed without prejudice.  The court reasoned that these claims were dismissed without reaching a decision on the merits, but rather on permanent injunction standards.