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Agreeing to License Standard-Essential Patents on RAND Terms May Bar Foreign Injunctive Relief
Addressing an anti-suit injunction in the context of patent licensing, the U.S. Court of Appeals for the Ninth Circuit affirmed a preliminary injunction issued by a district court temporarily enjoining the enforcement of a German patent injunction. Microsoft Corp. v. Motorola, Inc., Case No. 12-35352 (9th Cir., Sept. 28, 2012) (Berzon, J.).
As a condition of incorporating Motorola’s patented technology into the International Telecommunications Union (ITU) H.264 video compression standard, Motorola submitted declarations to the ITU agreeing to license its patents on reasonable and non-discriminatory (RAND) terms. Motorola subsequently offered to license its H.264 standard-essential patents to Microsoft for a 2.25 percent royalty, “based on the price of the end product” and not on the component software. Microsoft filed a breach-of-contract action against Motorola in Washington. Microsoft asserted that Motorola had breached its contractual RAND obligations to the ITU by proposing unreasonable royalty rates for its H.264 standard-essential patents and that, under Washington contract law, Microsoft was entitled to enforce the agreement as a third-party beneficiary.
While the domestic litigation was pending, Motorola sued Microsoft in Germany, alleging infringement of two European patents included in its H.264 standard-essential portfolio. The German court held that Microsoft had infringed Motorola’s European patents and issued an injunction preventing Microsoft from selling its allegedly infringing products in Germany. In district court in Washington, Microsoft sought and was granted a preliminary injunction barring Motorola from enforcing any injunctive relief it might receive in the German action. Motorola then made an interlocutory appeal to the 9th Circuit.
Employing a three-part inquiry to analyze the propriety of a foreign anti-suit injunction, the 9th Circuit panel focused on the threshold inquiry: whether or not the first action was dispositive of the action to be enjoined. Although acknowledging the territorial nature of patent law, the court found the Washington action dispositive of the German patent action because the district court had based its injunction on Microsoft’s Washington state contract claims. Specifically, because Motorola had included its European patents in its initial licensing offer, a favorable decision to Microsoft in the Washington action would preclude enforcement of the German injunction. Even if Motorola did not breach its RAND commitment, the court noted injunctive relief against infringement was a remedy arguably inconsistent with the licensing commitment.
Concluding its inquiry, the court upheld the injunction, finding no abuse of discretion in the district court’s finding that Motorola’s German action was vexatious and oppressive and that the injunction did not intolerably impact comity norms.
This article was co-written by Darryl Ong.