Microsoft Corporation v. Motorola Mobility, Inc ., No. 12-35352 (9th Cir . April, 2013).

http://docs.justia.com/cases/federal/appellate-courts/ca9/12-35352/12-35352-2012-09-28.pdf

This interlocutory appeal concerns an injunction obtained by Motorola against Microsoft in Germany prohibiting Microsoft from selling infringing product in Germany, and a preliminary injunction issued by the district court for Western Washington (hereafter, district court) enjoining Motorola from enforcing its injunction in Germany. The case is a tangle of contractual rights and obligations involving a standard-setting organization (SSO), the H.264 video coding standards set by the International Telecommunications Union (ITU), and the delicate problem of comity between the courts of different countries.

SSO’s, such as the ITU, attempt to mitigate the threat of patent holdup by owners of standard-setting patents by requiring its members to agree to license those patents to all comers on terms that are “reasonable and nondiscriminatory” or RAND. For purposes of the present case, the ITU has a Common Patent Policy that “a patent embodied fully or partly in a standard must be accessible to everyone without undue constraints,” otherwise the standard shall not include provisions that rely on the patent. Pursuant to these requirements, Motorola submitted numerous declarations to the ITU stating that it will grant licenses on RAND terms for its H.264-related patents.

In October of 2010, Motorola sent Microsoft a letter offering to license certain of patents essential for H.264, at a proposed royalty of 2.25% per unit for each standard-compliant product. The letter included a list of about 100 U.S. and foreign patents owned by Motorola essential for H.264 compliance, and gave Microsoft a 20-day acceptance period.

In November, Microsoft filed a breach-of-contract suit against Motorola in the district court under Washington state contract law. Microsoft’s theory of liability was that Motorola’s proposed terms were unreasonable, and that therefore Motorola’s offer letter breached its contractual RAND obligations to the ITU, to which Microsoft was a third party beneficiary. A breach of contract action and a patent infringement suit filed by Motorola against Microsoft the next day were consolidated at the district court, which granted partial summary judgment for Microsoft on its contract claims, holding that Motorola entered into a binding contractual obligation with the ITU, and that Microsoft is a third-part beneficiary of Motorola’s commitments.

In July, 2011, Motorola sued Microsoft in a German Regional Court, alleging infringement of two of the patents listed in Motorola’s earlier offer letter to Microsoft. The German Court ruled on May 2, 2012 that Microsoft did not have a license to use Motorola’s patents, rejecting Microsoft’s argument that Motorola’s RAND commitment to the ITU created a contract enforceable by Microsoft, because German law does not recognize third-party contractual rights. The German Court then held that Microsoft had infringed the two specified Motorola patents, and enjoined Microsoft from any activity involving infringing products in the Federal Republic of Germany.

Following unproductive communications between the parties, and before the German Court issued its decision, Microsoft moved the district court for a temporary restraining order and preliminary injunction to enjoin Motorola from enforcing any injunctive relief it might obtain in the German action. On May 14, 2012, the district court granted a preliminary injunction barring Motorola from enforcing any injunctive relief it might receive.

The district court gave the following rationale for its decision to trump any German court decision. First, the district court concluded that the pending contract action before it would be dispositive of the German patent action, because the European patents at issue in German were included in Motorola’s original offer letter to Microsoft, and because Motorola contracted with the ITU to license European patents on RAND terms to all customers. Second, the court determined that the German action raised concerns of inconsistent judgments, particular in that Motorola’s commitments to the ITU involved approximately 100 patents, and the German action invoked only two of these. Finally, the district court concluded that the impact of the anti-suit injunction on comity would be tolerable, because the German action was filed after the U.S. action.

The 9th Circuit Court of Appeals, which heard the interlocutory appeal, relied heavily on E & J Gallo Winery v. Andina Licores, S.A., 226 F.3d 989 (9th Circuit 2006) and Applied Med. Distrib. Corp. v. Surgical Co., 587 F.3d 909 (9th Cir. 2009), which together establish a three-part inquiry for assessing the propriety of an anti-suit injunction involving a foreign court. Applying the three-part test, the appeals court concluded that:

  1. The parties and the issues are the same in both actions, and all of the issues in the German patent action can be resolved by the U.S. contract action.
  2. The foreign litigation would frustrate the ability of the domestic court to reach a just result. Here the appeals court agreed with the district court “the timing of the filing of the German action raises concerns of forum shopping and duplicative and vexatious litigation,” particular since the German action involved only two of the approximately 100 patents potentially at issue in the U.S. action.
  3. The injunction’s impact on comity is tolerable. The fact that the matter at hand was a private contractual dispute rather than a dispute involving public international law of government litigants weighed favorably in this conclusion, as did the order in which the suits were filed, and the limited scope of the injunction, which the appeals court considered “no broader than necessary to avoid the harm on which the injunction is predicated.”