United States: Ninth Circuit Upholds Landmark FRAND Decision And Jury Verdict

On July 30, 2015, the Ninth Circuit issued one of the most significant appellate opinions regarding standard essential patents (SEPs) subject to commitments to license on fair, reasonable and non-discriminatory (FRAND, or simply RAND) terms.  In Microsoft Corp. v. Motorola, Inc. (Case No. 14-35393), the Court upheld determinations by U.S. District Court Judge James Robart (W.D. Wash.) as to (i) when a member of a Standard Setting Organization (SSO) is obligated to license that member's SEP on FRAND terms, (ii) what the proper methodology is for calculating a FRAND royalty rate, and (iii) what remedies are available for breach of an obligation to license a SEP on FRAND terms.  The affirmance represents a major victory for Microsoft and other SEP licensees, and provides significant guidance regarding future FRAND disputes.


The Microsoft v. Motorola case involves a breach of contract action, filed by Microsoft after it concluded that Motorola's proposed licensing terms under the Motorola IEEE 802.11 and ITU-T H.264 SEP patent portfolios (respectively covering wireless local area network standards and video compression standards) were excessive and violated the FRAND obligations for SEPs, which obligations Motorola assumed as a member of the IEEE and ITU-T.  Motorola initially sent Microsoft two letters offering to license its SEPs for 2.25% of the price of the end product incorporating each standard. (The end products included Microsoft's xBox game consoles and PCs running Microsoft Windows.)  Microsoft claimed that Motorola's license offer—which amounted to over $4 billion per year—was in breach of Motorola's obligation to license its SEPs on FRAND terms.  Shortly thereafter, Motorola initiated patent infringement proceedings in U.S. District Court, the International Trade Commission, and Germany seeking injunctions to exclude Microsoft's allegedly infringing products incorporating certain of those SEPs.

Microsoft prevailed at the district court, where Judge Robart conducted an initial bench trial on FRAND.  After modifying several factors in the Georgia-Pacific analysis for determining reasonable royalty patent damages to account for the special circumstances surrounding FRAND-encumbered SEPs, Judge Robart calculated a FRAND royalty rate well below 2.25% per unit, resulting in a royalty amount of only $1.8 million per year.  Microsoft's breach of contract claim was then tried to a jury, and Judge Robart's FRAND royalty calculations and underlying findings of fact were introduced as evidence at the jury trial.  Microsoft argued to the jury that Motorola's initial licensing offer, as well as Motorola's conduct in seeking injunctions after Microsoft filed suit, were breaches of the implied covenant of good faith and fair dealing imposed on SEP owners.  The jury returned a verdict in favor of Microsoft, and awarded $14.52 million dollars in damages.  (The damages represented costs incurred by Microsoft in defending against the injunction actions, and moving Microsoft's European distribution center out of Germany to avoid any injunctive consequences.)

Motorola appealed, challenging the methodology Judge Robart used to reach his FRAND calculation, the sufficiency of the evidence for the jury's finding, and the procedural mechanisms Judge Robart used to decide the FRAND and breach of contract issues.

Summary of Appellate Opinion

The Court's analysis opened by discussing the benefits and risks of the standardization process.  The Court noted the "opportunity for companies to engage in anti-competitive behavior" following formal adoption of the standard by "demand[ing] more for a license than the patented technology, had it not been adopted by the SSO, would be worth."  That risk is known as patent hold-up.  "To mitigate the risk that a SEP holder will extract more than the fair value of its patented technology, many SSOs require SEP holders to agree to license their patents on 'reasonable and nondiscriminatory' or 'RAND' terms."  The purpose of that FRAND commitment is to prevent a SEP owner from attempting to use its SEPs to exclude competitors from the market or to obtain more favorable licensing terms than it could have obtained absent the patent's inclusion in the standard.

Moving to Microsoft's claim that Motorola's breach of its FRAND commitment constituted a breach of contract, the Ninth Circuit first concluded it, as opposed to the Federal Circuit, had appellate jurisdiction to resolve the issues related to the FRAND rate, notwithstanding that the underlying dispute arose in the context of licensing and evaluation of the value of patents.  Critical to the Ninth Circuit's conclusion were the facts that (i) Motorola had taken an earlier interlocutory appeal to the Ninth Circuit, and (ii) Motorola had tried to appeal the district court's FRAND calculations and jury verdict to the Federal Circuit, and the Federal Circuit had transferred the appeal back to the Ninth Circuit.  The Ninth Circuit also ruled that Motorola had consented to Judge Robart's bench trial to calculate the underlying FRAND royalty rate for submission to the jury in the breach of contract action, while being careful not to rule "whether, absent consent, a jury should have made the RAND determination."

On questions of substantive law, the Ninth Circuit found that Judge Robart's FRAND analysis in the bench trial was consistent with Federal Circuit law on patent damages.  The Court first affirmed Judge Robart's approach to framing a hypothetical negotiation, and particularly the "factors an [sic] SEP owner and implementer would consider in an actual negotiation directed at licensing a patent subject to RAND commitments," such as "the objective value each contributed to each standard, given the quality of the technology and the available alternatives as well as the importance of those technologies to Microsoft's business."

Specifically, the Court rejected Motorola's argument that Judge Robart misapplied the Georgia-Pacific royalty factors when he modified, and outright discarded, a number of factors that he determined were inapplicable to a FRAND commitment.  For example, the Court stated that "factor fifteen" —setting the hypothetical negotiation at "the time the infringement began" —requires modification in the FRAND context, and that Georgia-Pacific offered flexibility in application of its factors.  The Court also noted that what date the infringement began was an unclear point in this breach-of-contract action—as opposed to a patent infringement action—making it impracticable to consider only evidence that pinpointed the value of Motorola's patents to Microsoft at a particular moment in time.

In another significant part of the opinion, the Court fully endorsed Judge Robart's reliance on patent pools rather than Motorola's historical license agreements, as more relevant indicators of the FRAND rate.  The Court noted that patent pools were similar enough to FRAND agreements and "mirrored the objectives of FRAND agreements, namely including advanced technology to create valuable standards, while at the same time ensuring widespread adoption" of the standards.  Motorola's past licenses, in contrast, were not probative because they either encompassed much more than the SEPs at issue here (which made it impossible "to isolate, or apportion the value" attributable to the SEPs), or they were formed under threat of litigation, which is inconsistent with the underlying purpose of FRAND commitments.  The Court noted that it "holds only that licenses should be considered when comparable; it does not in any respect impugn the district court's reasoning as to why the proffered licenses were not comparable."

Turning to the jury verdict, the Court found that Judge Robart's denial of Motorola's motion for judgment as a matter of law at the close of Microsoft's case-in-chief (and again at the conclusion of the trial) was proper.  According to the Court, the jury had sufficient evidence to find that Motorola breached its duty of good faith and fair dealing with respect to its FRAND obligations.  In reaching this finding, the Court noted the danger of and need to prevent patent hold-up by a SEP owner who refuses to license technology essential to practicing a standard unless the licensee pays exorbitant royalty rates.  The Court also held that a jury could have found that Motorola sought to leverage the "crippling consequences" of the injunction it attempted to obtain against Microsoft in order "to capture more than the value of its patents."  The Court observed that Motorola pursued injunctive relief even after it knew its suit against Microsoft could establish FRAND rates, meaning Motorola should have known that it could not show the irreparable harm necessary for injunctive relief.

Finally, in affirming the award of damages for Microsoft's attorneys' fees to defend against Motorola's pursuit of an injunction, the Court concluded that Motorola's Noerr-Pennington/First Amendment defense was inapplicable to suits for breach of contract because a FRAND commitment amounts to a voluntary waiver of the right to seek injunctive relief in certain circumstances.  The Court also emphasized that awarding attorneys' fees under the circumstances would decrease the risk of patent hold-up by encouraging SEP owners to negotiate FRAND licenses rather than seek injunctions.

Implications of the Opinion for Future FRAND Disputes

Some portions of the Ninth Circuit's decision, such as jurisdiction and the right to a jury trial, are unique to the underlying factual circumstances of this particular dispute.  But there are several key takeaways that SEP owners and potential licensees should be mindful of in future FRAND disputes:

  1. The Court has provided an endorsed framework for determining FRAND royalties.  Judge Robart's modified use of the Georgia-Pacific factors for calculating FRAND-encumbered SEP royalty rates, which was earlier cited with approval by the Federal Circuit in its Ericsson decision, has now been endorsed by two Courts of Appeals.  As such, that modified framework is likely to be the primary benchmark going forward in judicial determinations of FRAND royalty rates in patent infringement and FRAND licensing disputes.
  2. In upholding the jury's verdict that Motorola violated an implied contractual covenant of good faith and fair dealing, the Court found the mere fact that Motorola filed a patent infringement lawsuit seeking injunctive relief after Microsoft filed suit seeking a judicial determination of FRAND royalty rates was sufficient evidence supporting the verdict.  The Ninth Circuit has thus joined the growing list of authorities worldwide who have concluded that seeking injunctions against willing licensees for FRAND-encumbered SEPs is unlawful.
  3. The decision also adds to the growing list of authority holding that the Noerr-Pennington doctrine does not immunize a company for breaching a FRAND commitment.  "Enforcing a contractual commitment to refrain from litigation does not violate the First Amendment; if it did, every settlement of a lawsuit would be unenforceable as a Noerr-Pennington violation."  This reflects the practical reality that if SEP owners were allowed to use the doctrine as a shield when seeking injunctions against willing licensees, the FRAND commitment process relied upon by so many SSOs would become meaningless.
  4. Building upon recent Federal Circuit precedent concerning the need to use comparable licenses as benchmarks in calculating reasonable royalty rates for patent damages, the Court endorses the exclusion of licenses as FRAND benchmarks when those licenses are entered into under threat of injunction.  This is because such licenses likely exceed the value of the underlying technology due to the fact that they were entered into under the risk of a product being excluded, which is inconsistent with the purpose of a FRAND commitment.

As a final and fundamental matter, the Ninth Circuit in Microsoft v. Motorola ultimately affirms a FRAND calculation methodology that should be viewed as pro-SEP licensee.  The Court's tendency can be seen in its repeated mention of the risk of patent hold-up for SEPs and suggestion that FRAND royalties based on end product calculations are inappropriate, absent proof that both the SEP and the standard itself relate to the functionality of the end product.  Of course, what an ultimate FRAND royalty equates to in a particular case will be heavily dependent upon the facts of the case, including the comparability of prior licenses and the relative technological importance of particular patents to the functionality of the underlying standard.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions