Microsoft Corporation v. Motorola Mobility

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

MICROSOFT CORPORATION, a No. 14-35393

Washington corporation,

Plaintiff-Appellee, D.C. Nos.

2:10-cv-01823-JLR

v. 2:11-cv-00343-JLR

MOTOROLA, INC.; MOTOROLA

MOBILITY, INC.; GENERAL OPINION

INSTRUMENT CORPORATION,

Defendants-Appellants.

Appeal from the United States District Court

for the Western District of Washington

James L. Robart, District Judge, Presiding

Argued and Submitted

April 8, 2015—San Francisco, California

Filed July 30, 2015

Before: Sidney R. Thomas, Chief Judge, and J. Clifford

Wallace and Marsha S. Berzon, Circuit Judges.

Opinion by Judge Berzon

2 MICROSOFT CORP. V. MOTOROLA, INC.

SUMMARY*

Patent Licensing

The panel affirmed the district court’s judgment in favor

of Microsoft Corporation in an action brought by Microsoft,

a third-party beneficiary to Motorola, Inc.’s reasonable and

non-discriminatory (“RAND”) commitments, alleging

Motorola breached its obligation to offer RAND licenses to

certain of its patents in good faith.

At issue in the appeal were two patent portfolios, formerly

owned by Motorola, both of which were subject to RAND

agreements. The court previously upheld, in an interlocutory

appeal, an anti-suit injunction preventing Motorola from

enforcing in a German action any injunction it might obtain

against Microsoft’s use of certain contested patents.

Microsoft Corp. v. Motorola, Inc., 696 F.3d 872 (9th Cir.

2012). Following that prior decision, a jury determined that

Motorola had breached its RAND good faith and fair dealing

obligations in its dealings with Microsoft.

The district court conducted a bench trial to determine a

RAND rate and range for Motorola’s patents. The case then

proceeded to a jury trial on the breach of contract claim, and

the jury returned a verdict for Microsoft in the amount of

$14.52 million. The district court denied Motorola’s motions

for judgment as a matter of law.

*

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

MICROSOFT CORP. V. MOTOROLA, INC. 3

The panel held that this court had jurisdiction. The panel

held that this court’s exercise of jurisdiction over the case in

the prior interlocutory appeal, and the Federal Circuit’s

decision to transfer the instant appeal to this court because

this court had jurisdiction, were both law of the case. The

panel further held that the earlier jurisdictional determinations

were not clearly erroneous.

The panel rejected Motorola’s two merits challenges to

the RAND bench trial, specifically, that the district court

lacked the legal authority to decide the RAND rate issue in a

bench trial, and that the RAND rate analysis was contrary to

Federal Circuit precedent. First, the panel did not consider

whether, absent consent, a jury should have made the RAND

determination, because Motorola was aware that the RAND

determination was being made to set the stage for the breach

of contract jury trial, nor did Motorola ever withdraw its

affirmative stipulation to a bench trial for that purpose.

Second, the panel held that the district court’s RAND analysis

did not violate Federal Circuit patent damages law because

this was not a patent law action. The panel held, however,

that the district court’s analysis properly adapted the Federal

Circuit’s patent law methodology as guidance in this contract

case concerning the questions of patent valuation. The panel

concluded that the district court’s RAND determination was

not based on a legal error or on a clearly erroneous view of

the facts in light of the evidence.

Concerning the jury trial and verdict, the panel held that

the record provided a substantial basis on which the jury

could have based a verdict favoring Microsoft.

Concerning the motion for judgment as a matter of law,

the panel rejected Motorola’s two challenges to the damages

4 MICROSOFT CORP. V. MOTOROLA, INC.

sought for attorneys’ fees and litigation costs incurred in

defending the injunctive actions. First, Motorola raised the

Noerr-Pennington doctrine, which shields individuals from,

inter alia, liability for engaging in litigation. The panel noted

that the doctrine does not immunize a party from actions that

amount to a breach of contract. The panel held that enforcing

a contractual commitment to refrain from litigation does not

violate the First Amendment. The panel further noted that the

jury concluded that seeking injunctive relief violated

Motorola’s contractual RAND obligations. The panel

concluded that the Noerr-Pennington doctrine did not

immunize Motorola from liability for that breach of its

promise. Second, Motorola alleged that Microsoft was not

entitled to attorneys’ fees as damages under Washington law.

The panel held that where a party’s injunctive actions to

enforce a RAND-encumbered patent violated the duty of

good faith and fair dealing, Washington courts would allow

the damages awarded to include the attorneys’ fees and costs

expended to defend against the injunction action.

Finally, the panel rejected Motorola’s allegations that the

district court abused its discretion in making two evidentiary

rulings. First, concerning RAND rates and ranges submitted

to the jury, the panel held that Motorola consented to

admission of the facts underlying the RAND rates and ranges

to the jury. The panel agreed with the district court that

Motorola’s consent to the RAND bench trial encompassed

introducing the court’s findings of fact to the jury in the

breach of contract trial. Second, Motorola objected to the

admission of evidence of a Federal Trade Commission

investigation into Motorola’s enforcement policies, including

its seeking of injunctions. The panel held that the district

court did not abuse its discretion in admitting the evidence

because the danger of prejudice in admitting limited

MICROSOFT CORP. V. MOTOROLA, INC. 5

testimony about the FTC investigation did not so manifestly

outweigh the testimony’s probative value.

COUNSEL

Kathleen M. Sullivan (argued), Quinn Emanuel Urquhart &

Sullivan, LLP, New York, New York; Brian C. Cannon,

Quinn Emanuel Urquhart & Sullivan, LLP, Redwood Shores,

California, for Defendants-Appellants.

Carter G. Phillips (argued), Sidley Austin LLP, Washington,

D.C.; David T. Pritikin, Sidley Austin LLP, Chicago, Illinois;

Arthur W. Harrigan, Jr., Calfo Harrigan Leyh & Eykes LLP,

Seattle, Washington; T. Andrew Culbert, Microsoft

Corporation, Redmond, Washington, for Plaintiff-Appellee.

Wayne P. Sobon, Arlington, Virginia, and and for Amicus

Curiae American Intellectual Property Law Association.

Richard S. Taffet, Bingham McCutchen LLP, New York,

New York; Patrick Strawbridge, Bingham McCutchen LLP,

Boston, Massachusetts; Stephanie Schuster, Bingham

McCutchen LLP, Washington, D.C., for Amicus Curiae

Qaulcomm Incorporated.

Xavier M. Brandwajn, Alston and Bird LLP, East Palo Alto,

California, for Amici Curiae Nokia Corporation and Nokia

USA Inc.

Charles Duan, Washington, D.C., as and for Amicus Curiae

Public Knowledge.

6 MICROSOFT CORP. V. MOTOROLA, INC.

Mark S. Davies, Orrick, Herrington & Sutcliffe LLP,

Washington, D.C.; Christopher J. Cariello, Orrick, Herrington

& Sutcliffe LLP, New York, New York, for Amicus Curiae

Apple Inc.

Lauren B. Fletcher, William F. Lee, Joseph J. Mueller,

Timothy D. Syrett, Wilmer Cutler Pickering Hale and Dorr

LLP, Boston, Massachusetts; James L. Quarles III, Brittany

Blueitt Amadi, Wilmer Cutler Pickering Hale and Dorr LLP,

Washington, D.C.; Matthew R. Hulse, Intel Corporation,

Santa Clara, California, for Amici Curiae Intel Corporation,

Aruba Networks Inc., Dell Inc., Hewlett-Packard Company,

Newegg Inc., SAS Institute Inc., VIZIO, Inc., and Xilinx, Inc.

Robert F. Krebs, Ronald F. Lopez, Karl Belgum, Nixon

Peabody, LLP, San Francisco, California, for Amicus Curiae

Sierra Wireless Inc.

Christy G. Lea, Knobbe, Martens, Olson & Bear, LLP, Irvine,

California; Christopher C. Kennedy, Knobbe, Martens, Olson

& Bear, LLP, Washington, D.C.; Mauricio A. Uribe, Knobbe,

Martens, Olson & Bear, LLP, Seattle, Washington; Alice C.

Garber, John J. Murphy, T-Mobile USA, Inc., Bellevue,

Washington, for Amicus Curiae T-Mobile USA, Inc.

OPINION

BERZON, Circuit Judge:

We live in an age in which the interconnectivity of a wide

range of modern technological products is vital. To achieve

that interconnection, patent-holders often join together in

compacts requiring licensing certain patents on reasonable

MICROSOFT CORP. V. MOTOROLA, INC. 7

and non-discriminatory (“RAND”) terms. Such contracts are

subject to the common-law obligations of good faith and fair

dealing.

At issue in this appeal are two patent portfolios, formerly

owned by Appellants Motorola, Inc., Motorola Mobility, Inc.,

and General Instrument Corp., (“Motorola”), both of which

are subject to RAND agreements.1 Appellee Microsoft, a

third-party beneficiary to Motorola’s RAND commitments,

sued Motorola for breach of its obligation to offer RAND

licenses to its patents in good faith. Motorola, meanwhile,

brought infringement actions in a variety of fora to enjoin

Microsoft from using its patents without a license.

We previously upheld, in an interlocutory appeal, an anti-

suit injunction preventing Motorola from enforcing in a

German action any injunction it might obtain against

Microsoft’s use of certain contested patents. Microsoft Corp.

v. Motorola, Inc., 696 F.3d 872 (9th Cir. 2012) (“Microsoft

I”). We did so after determining that there was, in the

“sweeping promise” of Motorola’s RAND agreements, “at

least arguably[] a guarantee that the patent-holder will not

take steps to keep would-be users from using the patented

material, such as seeking an injunction, but will instead

proffer licenses consistent with the commitment made.” Id.

at 884.

After our decision, a jury determined that Motorola had

indeed breached its RAND good faith and fair dealing

obligations in its dealings with Microsoft. In this appeal, we

1

Patents owned by Motorola Mobility and General Instrument are now

owned by Google Technology Holdings, LLC, a wholly owned subsidiary

of Google Inc.

8 MICROSOFT CORP. V. MOTOROLA, INC.

address (1) whether the district court overstepped its bounds

by determining, at a bench trial preceding the jury trial on

breach of contract, a reasonable and non-discriminatory rate,

as well as a range of rates, for Motorola’s patents; (2) whether

the court erred in denying Motorola’s motions for judgment

as a matter of law on the breach of contract issue; (3) whether

the court erred in awarding Microsoft attorneys’ fees as

damages in connection with Motorola’s pursuit of injunctions

against infringement; and (4) whether the district court

abused its discretion in two contested evidentiary rulings.

I. BACKGROUND

A. Standard-Setting Organizations and Standard-

Essential Patents

When we connect to WiFi in a coffee shop, plug a

hairdryer into an outlet, or place a phone call, we owe thanks

to standard-setting organizations (“SSOs”). See generally

Mark A. Lemley, Intellectual Property Rights and

Standard-Setting Organizations, 90 Calif. L. Rev. 1889

(2002). SSOs set technical specifications that ensure that a

variety of products from different manufacturers operate

compatibly. Without standards, there would be no guarantee

that a particular set of headphones, for example, would work

with one’s personal music player. See id. at 1896.

Standardization provides enormous value to both

consumers and manufacturers. It increases competition by

lowering barriers to entry and adds value to manufacturers’

products by encouraging production by other manufacturers

of devices compatible with them. See id. at 1896–97; Amicus

Br. of American Intellectual Property Law Ass’n (“IPLA”) at

6; Amicus Br. of Apple Inc. at 2. But because SSO standards

MICROSOFT CORP. V. MOTOROLA, INC. 9

often incorporate patented technology, all manufacturers who

implement a standard must obtain a license to use those

standard-essential patents (“SEPs”).

The development of standards thereby creates an

opportunity for companies to engage in anti-competitive

behavior. Most notably, once a standard becomes widely

adopted, SEP holders obtain substantial leverage over new

product developers, who have little choice but to incorporate

SEP technologies into their products. Using that standard-

development leverage, the SEP holders are in a position to

demand more for a license than the patented technology, had

it not been adopted by the SSO, would be worth. The tactic

of withholding a license unless and until a manufacturer

agrees to pay an unduly high royalty rate for an SEP is

referred to as “hold-up.” Ericsson, Inc. v. D-Link Sys., Inc.,

773 F.3d 1201, 1209 (Fed. Cir. 2014). “Royalty stacking”

refers to the risk that many holders of SEPs will engage in

this behavior, resulting in excessive royalty payments such

that (1) the cumulative royalties paid for patents incorporated

into a standard exceed the value of the feature implementing

the standard, and (2) the aggregate royalties obtained for the

various features of a product exceed the value of the product

itself. Id.; see also Mark A. Lemley & Carl Shapiro, Patent

Holdup and Royalty Stacking, 85 Tex. L. Rev. 1991, 2010–13

(2007); Amicus Br. of Public Knowledge at 11–20.

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

10 MICROSOFT CORP. V. MOTOROLA, INC.

“reasonable and nondiscriminatory” or “RAND” terms.2

Under these agreements, an SEP holder cannot refuse a

license to a manufacturer who commits to paying the RAND

rate.

For example, International Telecommunications Union

(“ITU”), one of the SSOs at issue in this case, has established

a Common Patent Policy. That Policy provides that “a patent

embodied fully or partly in a [standard] must be accessible to

everybody without undue constraints.” ITU, Common Patent

Policy for ITU-T/ITU-R/ISO/IEC, http://www.itu.int/en/ITU-T/

ipr/Pages/policy.aspx (last visited June 15, 2015) [hereinafter

ITU, Common Patent Policy]. Any holder of a patent under

consideration for incorporation into an ITU standard is

required to submit a declaration of its commitment to

“negotiate licenses with other parties on a non-discriminatory

basis on reasonable terms and conditions.” Id.; see also

Microsoft I, 696 F.3d at 876. “If a ‘patent holder is not

willing to comply’ with the requirement to negotiate licenses

with all seekers, then the standard ‘shall not include

provisions depending on the patent.’” Microsoft I, 696 F.3d

at 876 (quoting ITU, Common Patent Policy).

The two standards underlying this case are the H.264

video-coding standard set by the ITU and the 802.11 wireless

local area network standard set by the Institute of Electrical

and Electronics Engineers (“IEEE”). The H.264 standard

pertains to an efficient method of video compression. The

802.11 standard regards the wireless transfer of information

2

The parallel terms of some SEP licensing agreements require fair,

reasonable, and nondiscriminatory, or “FRAND” rates. FRAND and

RAND have the same meaning in the world of SEP licensing and in this

opinion.

MICROSOFT CORP. V. MOTOROLA, INC. 11

using radio frequencies, commonly referred to as “WiFi.”

The H.264 standard is incorporated into Microsoft’s

Windows operating system and into its Xbox video game

console. The 802.11 WiFi network standard is incorporated

into Xbox.

B. History of the Present Dispute

In October 2010, Microsoft sued Motorola in both the

U.S. International Trade Commission (“ITC”)3 and the

Western District of Washington for alleged infringement of

certain smartphone patents. The parties thereupon engaged

in a series of discussions concerning, among other matters,

the possibility of a cross-licensing agreement granting

Motorola licenses to Microsoft’s smartphone patents in

exchange for licenses to any of Motorola’s patents

Microsoft’s products may have been infringing.

On October 21st and 29th, Motorola sent Microsoft two

letters offering to license its 802.11 and H.264 SEP portfolios

at 2.25% of the price of the end product—no matter the

manufacturer—incorporating the patents. In other words,

Microsoft would pay Motorola 2.25% of the selling price of

an Xbox game console or of any computer running Microsoft

Windows. The two offer letters, identical in all material

3

The ITC is “a quasi-judicial federal agency that adjudicates and

enforces intellectual property rights in international trade through Section

337 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1337.” Patricia

Larios, The U.S. International Trade Commission’s Growing Role in the

Global Economy, 8 J. Marshall Rev. Intell. Prop. L. 290, 294 (2009); see

U.S. Int’l Trade Comm’n, About the USITC, http://www.usitc.gov/press_

room/about_usitc.htm (last visited Apr. 21, 2015).

12 MICROSOFT CORP. V. MOTOROLA, INC.

terms, represented that the offer was in keeping with

Motorola’s RAND commitments.4

Soon after receiving Motorola’s letters, in November

2010, Microsoft filed a diversity action in the Western

District of Washington, alleging that Motorola had breached

its RAND commitments to the IEEE and ITU.5 Microsoft

4

The letter referring to the H.264 SEPs is substantially the same as that

referring to the 802.11 SEPs, and reads:

This letter is to confirm Motorola’s offer to grant

Microsoft a worldwide nonexclusive license under

Motorola’s portfolio of patents and pending

applications covering the subject matter of ITU-T

Recommendation H.264 . . . .

Motorola offers to license the patents on a non-

discriminatory basis on reasonable terms and conditions

(“RAND”), including a reasonable royalty of 2.25% per

unit for each H.264 compliant product, subject to a

grant back license under the H.264 patents of Microsoft

. . . . As per Motorola’s standard terms, the royalty is

calculated based on the price of the end product (e.g,

each Xbox 360 product, each PC/laptop, each

smartphone, etc.) and not on component software (e.g.,

Xbox 360 system software, Windows 7 software,

Windows Phone 7 software, etc.).

....

Motorola will leave this offer open for 20 days.

5

Microsoft’s complaint also pleaded claims of promissory estoppel,

waiver, and declaratory judgment. The waiver and declaratory judgment

actions were dismissed in June 2011. The promissory estoppel claim, and

Motorola’s counterclaim for declaratory judgment that it had not violated

its RAND obligations, are still pending.

MICROSOFT CORP. V. MOTOROLA, INC. 13

alleged that Motorola’s offer letters constituted a refusal to

license Motorola’s SEPs on RAND terms. The next day,

Motorola filed suit against Microsoft in the Western District

of Wisconsin seeking to enjoin Microsoft from using its

H.264 patents. The cases were consolidated before Judge

James Robart in the Western District of Washington.

Motorola also filed patent-enforcement suits with the ITC,

seeking an exclusion order against importing Microsoft’s

Xbox products into the United States, and with a German

court, seeking an injunction against sales of Microsoft’s

H.264-compliant products. The German action was

particularly threatening to Microsoft, as its European

distribution center for all Windows and Xbox products was

in Germany. To guard against the economic loss that would

result if an injunction against use of Motorola’s two German

H.264 patents were granted, Microsoft swiftly relocated its

distribution center to the Netherlands. At the same time,

Microsoft sought and obtained from the district court, in

April 2012, an “anti-suit injunction” barring Motorola from

enforcing any injunction it might obtain in a German court

against Microsoft’s use of Motorola’s H.264 SEPs until the

district court could “determine whether injunctive relief is an

appropriate remedy for Motorola to seek.” Microsoft I,

696 F.3d at 880. We affirmed the anti-suit injunction order

in September 2012. Id. at 889. Meanwhile, the German court

had ruled that Motorola was entitled to an injunction. Id. at

879.6

6

The German injunction is not self-enforcing. To enforce it, Motorola

must first post a bond securing Microsoft against damage if the ruling is

overturned on appeal. Microsoft could then file a motion to stay the

injunction. Microsoft I, 696 F.3d at 879.

14 MICROSOFT CORP. V. MOTOROLA, INC.

Proceedings in the district court continued apace.

Microsoft amended its complaint to allege that Motorola’s

filing of injunctive actions constituted a breach of contract,

because the obligation to offer RAND licenses to all seekers

prohibited Motorola from seeking injunctions for violations

of patents subject to that obligation.7 The court granted a

joint motion to stay all the patent-infringement claims in the

consolidated cases pending the outcome on the RAND issues.

In a series of orders, Judge Robart held that (1) “RAND

commitments create enforceable contracts between Motorola

and the respective SSO”; (2) “Microsoft—as a standard-

user—can enforce these contracts as a third-party

beneficiary”; (3) “Motorola’s commitments to the ITU and

IEEE . . . requir[e] initial offers by Motorola to license its

SEPs to be made in good faith,” but that “initial offers do not

have to be on RAND terms so long as a RAND license

eventually issues”; and (4) Motorola was not entitled to

injunctive relief on its H.264 or 802.11 patents.8

In November 2012, Judge Robart conducted a bench trial

to determine a RAND rate and range for Motorola’s H.264

7

Microsoft’s amended complaint pointed to the infringement actions in

Wisconsin district court and before the ITC as the source of the breach.

Microsoft did not formally further amend the complaint to include the

German infringement action, initiated several months later. The theory

that the German injunctive suit breached Motorola’s contractual

commitments was argued before the jury, without objection, however, and

was a focus of the jury instructions.

8

Having so ruled, the district court dissolved the anti-suit injunction,

ruling that the holding as to whether Motorola was entitled to an

injunction on its H.264 patents was “dispositive of the propriety of

injunctive relief in the German action.”

MICROSOFT CORP. V. MOTOROLA, INC. 15

and 802.11 patents. Such determination was necessary, the

court reasoned, because “[w]ithout a clear understanding of

what RAND means, it would be difficult or impossible to

figure out if Motorola breached its obligation to license its

patents on RAND terms.” After taking testimony from

eighteen witnesses, the court issued a 207-page order setting

forth its findings of fact and conclusions of law on RAND-

rate-related issues. The court concluded that the RAND

royalty for Motorola’s H.264 portfolio was .555 cents per

end-product unit, with an upper bound of 16.389 cents per

unit, and that the rate for Motorola’s 802.11 portfolio was

3.71 cents per unit, with a range of .8 cents to 19.5 cents.9

The case then proceeded to a jury trial on the breach of

contract claim. Over Motorola’s objection, Microsoft was

permitted to introduce the RAND rates determined at the

bench trial through witness testimony. Microsoft also

introduced, again over Motorola’s objection, testimony that

the FTC had previously investigated Motorola and its then-

parent company, Google Inc., for failing to license patents

relating to smartphones, tablets, and video gaming systems on

RAND terms. As damages for the asserted breach of

contract, Microsoft sought its attorneys’ fees and costs in

defending the injunctive actions Motorola had brought.

Microsoft also sought as damages the cost of relocating its

distribution facility from Germany to the Netherlands.

In September 2013, the jury returned a verdict for

Microsoft in the amount of $14.52 million: $11.49 million for

relocating its distribution center and $3.03 million in

9

Based on these rates, Microsoft tendered $6.8 million to compensate

for its past use of Motorola’s patents. Motorola did not accept the

payment.

16 MICROSOFT CORP. V. MOTOROLA, INC.

attorneys’ fees and litigation costs. The verdict form asked

both the general question whether Motorola “breached its

contractual commitment[s]” to the IEEE and ITU and,

specifically, for the purpose of damages, whether Motorola’s

“conduct in seeking injunctive relief, apart from Motorola’s

general course of conduct, violated Motorola’s dut[ies] of

good faith and fair dealing with respect to Motorola’s

contractual commitment[s].” The jury answered “yes” to all

questions, unanimously.

Motorola moved for judgment as a matter of law both at

the close of evidence and at the close of Microsoft’s case-in-

chief. See Fed R. Civ. P. 50(a). After the jury’s verdict, the

court denied Motorola’s motions in a joint order, concluding

that (1) the evidence was sufficient for the jury reasonably to

conclude that Motorola breached its duty of good faith and

fair dealing by making offers far above the RAND rates and

by seeking injunctions against Microsoft, and (2) the damages

award was proper. The court granted Microsoft’s motion for

entry of final judgment on the breach of contract jury verdict.

See Fed. R. Civ. P. 54(b).

Motorola then appealed from the judgment on the breach

of contract claim to the Federal Circuit. On Microsoft’s

motion, the Federal Circuit transferred the appeal to this

court. Microsoft Corp. v. Motorola, Inc., 564 F. App’x 586

(Fed. Cir. 2014).

II. DISCUSSION

A. Jurisdiction

In 2012, Motorola appealed to this court to review the

district court’s grant of a preliminary anti-suit injunction. See

MICROSOFT CORP. V. MOTOROLA, INC. 17

Microsoft I, 696 F.3d 872. In that appeal, Motorola

maintained that this court, not the Federal Circuit, had

jurisdiction, “[b]ecause Microsoft’s complaint is pleaded in

terms of contractual rather than patent rights.” Opening Br.

of Defs.-Appellants, Microsoft I, 696 F.3d 872, No. 12-

35352, 2012 WL 2132503, at *2. Upon entry of judgment in

the district court on the breach of contract claim, however,

Motorola switched gears and appealed to the Federal Circuit,

which has jurisdiction over cases “arising under” federal

patent law—that is, “those cases in which a well-pleaded

complaint establishes either that federal patent law creates the

cause of action or . . . that patent law is a necessary element

of one of the well-pleaded claims.” Christianson v. Colt

Indus. Operating Corp., 486 U.S. 800, 808–09 (1988) (citing

28 U.S.C. § 1338(a)). The Federal Circuit then transferred

the case here. See Microsoft, 564 F. App’x 586.

Our exercise of jurisdiction over this very case on an

interlocutory appeal, and the Federal Circuit’s decision to

transfer the instant appeal to this circuit because we have

jurisdiction, are both the law of the case. See Christianson,

486 U.S. at 817. Accordingly, we may now decline

jurisdiction only if “(1) the [earlier] decision[s] w[ere] clearly

erroneous; (2) there has been an intervening change in the

law; (3) the evidence on remand is substantially different;

(4) other changed circumstances exist; or (5) a manifest

injustice would otherwise result.” United States v. Renteria,

557 F.3d 1003, 1006 (9th Cir. 2009). Motorola’s argument

that the district court “constructively amended” the complaint

by holding a bench trial on the RAND rate tacitly invokes the

“changed circumstances” exception, although Motorola does

not so specify. But because our jurisdictional determination

on the interlocutory appeal was made knowing the RAND

bench trial would occur and the Federal Circuit’s decision to

18 MICROSOFT CORP. V. MOTOROLA, INC.

transfer the case was made after the bench trial, we conclude

that no changed circumstances are present. As the earlier

jurisdictional determinations were not clearly erroneous, we

have jurisdiction.

1. The Interlocutory Appeal

As we explained in the interlocutory appeal opinion in

this case, “‘[n]ot all cases involving a patent-law claim fall

within the Federal Circuit’s jurisdiction.’” Microsoft I,

696 F.3d at 881 (quoting Holmes Grp., Inc. v. Vornado Air

Circulation Sys., Inc., 535 U.S. 826, 834 (2002)). The

Federal Circuit, we noted, would have jurisdiction over

Motorola’s appeal of the anti-suit injunction “only if it would

have jurisdiction over a final appeal in the case under

28 U.S.C. § 1295.” Id. (citing 28 U.S.C. § 1292(c)(1)).

Looking to Microsoft’s complaint, we explained that this

action is not one “arising under any Act of Congress relating

to patents,” 28 U.S.C. § 1338(a), but rather “sounds in

contract and involves the district court’s diversity

jurisdiction.” Microsoft I, 696 F.3d at 881. We therefore

concluded that we had jurisdiction over the interlocutory

appeal, thereby necessarily deciding also that we would have

jurisdiction over a final appeal of the breach of contract

claim. Id.

2. The Federal Circuit’s Transfer

Motorola nevertheless appealed from the final judgment

in this case to the Federal Circuit. In support of Federal

Circuit jurisdiction, Motorola maintained that the district

court’s consolidation of Microsoft’s breach of contract case

with Motorola’s patent infringement suit—the latter of which

would fall within the Federal Circuit’s jurisdiction on

MICROSOFT CORP. V. MOTOROLA, INC. 19

appeal—conferred Federal Circuit appellate jurisdiction over

both cases. See Microsoft, 564 F. App’x at 589.

Applying law-of-the-case deference to our prior opinion,

the Federal Circuit rejected that argument.10 It noted that the

district court did consolidate the two cases under Federal

Rule of Civil Procedure 42(a) in the interest of “judicial

economy,” but denied a motion to dismiss Motorola’s patent-

infringement claims and re-file them as compulsory

counterclaims in the contract case. Id. at 588. In so ruling,

the district court reasoned that the facts of the two cases were

“not so intertwined and logically connected that

considerations of judicial economy and fairness dictate that

the issues be resolved in one lawsuit.” Id. Given that ruling,

the Federal Circuit held, it was “plausible to conclude, as the

Ninth Circuit seems to have done here, that the act of

‘consolidation did not merge the suits into a single cause, or

change the rights of the parties.’” Id. at 589 (quoting Johnson

v. Manhattan Ry., 289 U.S. 479, 496–97 (1933)) (internal

alterations omitted). Because the Federal Circuit found our

decision not “clearly erroneous,” it transferred the case. Id.

at 589.

10

Motorola had argued that law-of-the-case principles should not apply

because “‘neither party nor the Ninth Circuit realized the implications of

the consolidation of Motorola’s patent infringement claim with

Microsoft’s contract claim’ at the earlier stages of this litigation.”

Microsoft, 564 F. App’x at 589. As the Federal Circuit recognized,

however, our earlier opinion makes clear that we were quite aware of the

consolidation of the cases when we heard the interlocutory appeal and

nonetheless determined that we had jurisdiction. See id. (citing Microsoft

I, 696 F.3d at 878).

20 MICROSOFT CORP. V. MOTOROLA, INC.

3. Law of the Case, Applied

We, too, apply law-of-the-case deference to our previous

jurisdictional determination, as well as to that of the Federal

Circuit. In doing so, we are guided by the Supreme Court’s

holding in Christianson, which in very similar circumstances

highlighted the importance of deferring to prior jurisdictional

determinations.

Christianson came before the Supreme Court after both

the Federal Circuit and the Seventh Circuit had declined to

exercise jurisdiction over an antitrust suit with embedded

questions of patent validity. Christianson, 486 U.S. at

803–07. Review was initially sought in the Federal Circuit.

See id. at 806. That Circuit concluded that it lacked

jurisdiction and transferred the case to the Seventh Circuit.

See id. The Seventh Circuit then, sua sponte, addressed its

own jurisdiction, concluded that the Federal Circuit was

“clearly wrong” in transferring the case, and transferred it

back. Id. at 806 (quoting 798 F.2d 1051, 1056–57 (7th Cir.

1986)). The Federal Circuit, in turn, stated that it was the

Seventh Circuit that was “clearly wrong,” and had “exhibited

‘a monumental misunderstanding of the [Federal Circuit’s]

patent jurisdiction.’” Id. at 807 (quoting 822 F.2d 1544,

1547, 1551 n.7 (Fed. Cir. 1987)). Nevertheless, in the

“interest of justice,” the Federal Circuit addressed the merits

of the case. Id. (quoting 822 F.2d at 1559–60).

Faced with this intercircuit jurisdictional standoff, the

Supreme Court held, first, that the Seventh Circuit erred in

failing to adhere to the Federal Circuit’s jurisdictional

determination, and, second, that the Federal Circuit erred in

addressing the merits of the case after having determined that

it lacked jurisdiction. While a court always has the authority

MICROSOFT CORP. V. MOTOROLA, INC. 21

to revisit a prior jurisdictional determination of its own or of

a coordinate court, Christianson explained, “as a rule courts

should be loathe to do so in the absence of extraordinary

circumstances such as where the initial decision was clearly

erroneous and would work a manifest injustice.” Id. at 817

(internal quotation marks omitted). Otherwise, “every

borderline case [could] culminate in a perpetual game of

jurisdictional ping-pong . . . . Such a state of affairs would

undermine public confidence in our judiciary, squander

private and public resources, and commit far too much of

[the] Court’s calendar to the resolution of fact-specific

jurisdictional disputes that lack national importance.” Id. at

818–19. Christianson concluded that because the Federal

Circuit’s initial jurisdictional determination was “plausible,”

the Seventh Circuit, and the Federal Circuit on its second

review, should have adhered to it. Id. at 819.

Motorola maintains that Christianson’s firm admonition

does not cover the present circumstances. We owe no

deference to our earlier opinion, Motorola argues, because the

jurisdictional question is different now than it was when this

case was previously before the panel. The bench trial on the

RAND rate “constructively amended” the complaint, it

contends, so that what was once a simple breach of contract

case has morphed into a case necessarily requiring the

determination of a “substantial question of federal patent

law.” Id. at 809.

We disagree. The district court’s decision to hold a trial

on the RAND rate, whether or not doing so constituted a

constructive amendment of the complaint, does not in any

manner affect the application of law-of-the-case deference to

this appeal. We were aware of the district court’s plans to

determine the RAND rate in Microsoft I; indeed, that

22 MICROSOFT CORP. V. MOTOROLA, INC.

proceeding-to-come was a major subject of Motorola’s

briefing. See Microsoft I, 696 F.3d at 879; Opening Br. of

Defs.-Appellants, Microsoft I, 696 F.3d 872, No. 12-35352,

2012 WL 2132503, at *29–32. Yet, we determined that we

would have jurisdiction over the final appeal in the anti-suit

injunction appeal. Furthermore, as we have indicated, we

owe law-of-the-case deference as well to the Federal Circuit’s

decision to transfer the case, a decision made after the district

court held the RAND bench trial.

4. “Clear Error” or “Manifest Injustice”

Finally, looking briefly at the merits of Motorola’s current

jurisdictional argument, there was no “clear error” or

“manifest injustice” in concluding that the RAND bench trial

did not transform this case into a matter necessarily requiring

the resolution of a substantial question of federal patent law.

See Christianson, 486 U.S. at 809, 817; Arizona v. California,

460 U.S. 605, 618 n.8 (1983).

A complaint that alleges breach of contract and seeks

damages sounds in contract; its nature “does not change

because the contract is a patent license.” See Bonzel v. Pfizer,

Inc., 439 F.3d 1358, 1363 (Fed. Cir. 2006); see also Barnhart

v. W. Md. Ry. Co., 128 F.2d 709, 714 (4th Cir. 1942)

(collecting Supreme Court cases). Even if a court, in

interpreting a contract and assessing damages, “deems it

appropriate to apply the law of patent infringement, that of

itself does not change the complaint into one arising under the

patent law.” Bonzel, 439 F.3d at 1363; see also Complex

Litigation Committee of the American College of Trial

Lawyers, Anatomy of a Patent Case Ch.16.I.A.1. (2d ed.

2012) (“Anatomy of a Patent Case”) (explaining that

application of patent law for purposes of determining

MICROSOFT CORP. V. MOTOROLA, INC. 23

damages “does not by itself present a substantial issue of

patent law”).

Motorola points out that the Federal Circuit has exercised

jurisdiction in some breach-of-contract cases. See Parental

Guide of Tex., Inc. v. Thomson, Inc., 446 F.3d 1265 (Fed. Cir.

2006); U.S. Valves, Inc. v. Dray, 212 F.3d 1368 (Fed. Cir.

2000); Portney v. CIBA Vision Corp., 401 F. App’x 526 (Fed.

Cir. 2010). But those cases involved questions of patent

infringement, patent validity, or claim construction, or

included an embedded, outcome-determinative interpretation

of a patent law statute. See Anatomy of a Patent Case

Ch.16.I.A.1. (2d ed. 2012). This case, in contrast, is a straight

breach of contract action.

Calculation of appropriate royalty amounts in contractual

patent license cases involves similar determinations to those

that arise when calculating damages in patent infringement

cases. So there is some overlap in that regard between breach

of patent license cases and Federal Circuit patent

infringement cases. But Motorola has cited no case in which

the Federal Circuit has exercised jurisdiction over a breach of

contract claim for damages where the mode of calculating

contract damages, not any pure patent issue, was at stake.

In sum, there was no “clear error[]” or “manifest

injustice” that would justify disrupting ours and the Federal

Circuit’s prior determinations that we have jurisdiction.

Christianson, 486 U.S. at 817. Nor is any other exception to

the law-of-the-case doctrine applicable. We therefore reject

Motorola’s challenge to our jurisdiction.

24 MICROSOFT CORP. V. MOTOROLA, INC.

B. The RAND Bench Trial

We now turn to the first of two intertwined merits

challenges to the district court’s judgment—the assertions

that (1) the district court lacked the legal authority to decide

the RAND rate issue in a bench trial, severing it from the

ultimate breach of contract issue tried to the jury; and (2) the

court’s legal analysis in determining the RAND rate was

contrary to Federal Circuit precedent.11 In considering those

rulings, we review the district court’s findings of fact for

clear error and its conclusions of law de novo. See Teva

Pharm. USA, Inc. v. Sandoz, Inc., 135 S. Ct. 831, 841 (2015).

1. Motorola’s Consent to the Bench Trial

Judge Robart began by determining, quite reasonably, that

the true RAND royalty rate for Motorola’s SEPs was an

important fact for the jury to consider in determining whether

Motorola breached it good faith obligations under the RAND

agreements. After soliciting input from the parties as to how

the RAND rate determination should be made, he ordered a

bench trial as to that issue.

Microsoft contends that Motorola affirmatively consented

to a bench-trial determination of the RAND royalty rate for

each SEP portfolio, thereby waiving any argument that the

court lacked the authority to decide the RAND rate itself. We

agree.

11

Motorola did not raise before the district court a Seventh Amendment

claim with respect to the RAND rate bench trial itself, nor has it made that

argument on appeal.

MICROSOFT CORP. V. MOTOROLA, INC. 25

Motorola expressed its consent to a bench trial on the

RAND rate at a June 14, 2012 status conference. During that

proceeding, Motorola’s counsel informed the court that the

parties had agreed “that the court [will] decide all the material

terms of the RAND license.” After Microsoft’s counsel

confirmed the agreement, counsel for Motorola repeated that

the “agreement is that the court w[ill] decide all the material

terms of the RAND license.” The parties left open at that

hearing whether the question of Motorola’s breach of its

contractual obligation of good faith and fair dealing would be

determined by a jury or at a bench trial. Motorola requested

a jury trial on that issue shortly thereafter.

Motorola now protests that counsel’s June 14, 2012

statements consenting to a RAND-rate bench trial were

“taken out of context,” and “equivocal,” and did not amount

to consent. Specifically, Motorola contends that its consent,

if any, was limited to a bench-trial determination of the terms

of an agreement the court was planning to craft between the

parties. At the oral argument on this appeal, counsel

explained Motorola’s position:

We agreed that the court could set the terms

of a [RAND] license. The court later

abandoned the quest to set the terms of the

license . . . [H]e changed the basis on which

he was finding the RAND rate. He said, ‘I’m

not going to set a license; I now think it’s

necessary for the fact-finder to know the true

RAND rate in order for us to decide breach.’

That is a change of litigation parameters. We

are no longer setting a license, which is all we

conceivably could have agreed to.

26 MICROSOFT CORP. V. MOTOROLA, INC.

That contention is unpersuasive, for two reasons.

First, Motorola was not misled as to the connection

between the RAND determination and the breach-of-contract

trial, and did not cabin its consent to a license-setting

scenario. Judge Robart alerted the parties on several

occasions, long before the June 14, 2012 status conference,

that a determination of the RAND royalty rate would be used

“as guidance” in adjudicating the breach of contract claim.

For example, in an order on the parties’ cross motions to

dismiss filed June 1, 2011, Judge Robart indicated that

determination of the RAND rate was a necessary predicate to

adjudicating the breach of contract claim. Months later, in a

February 2012 telephone conference, he reiterated that he was

being asked “to determine what the RAND terms and

conditions . . . are so that [the factfinder] may then attempt to

determine if Motorola’s offer to Microsoft was within that

range.” And just days before the hearing in which Motorola

explicitly consented to a bench trial on the RAND rate, Judge

Robart, in denying Microsoft’s motion for summary judgment

on the breach of contract issue, stated that summary

judgement was inappropriate because before it could “[be]

determine[d] whether Motorola breached its duty to make

good faith offers by its October 21 and 29 Letters, the court

must first determine the RAND terms of an agreement

between Motorola and Microsoft for Motorola’s relevant

portfolios of standard essential patents.”

It was at that point that the court requested input from the

parties as to the structure of the trial—to which request the

parties responded they had agreed that the RAND rate

adjudication would be a bench trial. So Motorola was amply

aware before the June 14, 2012 hearing that Judge Robart

MICROSOFT CORP. V. MOTOROLA, INC. 27

believed the RAND rate determination was an essential

precursor to the breach-of-contract trial.

Second, Motorola’s contention on appeal that it consented

to adjudication of the RAND rate only for purposes of a

court-created license is diametrically opposed to its position

before the district court, expressed on several occasions. One

month after its June 14, 2012 consent to the bench trial,

Motorola filed a motion for partial summary judgment,

essentially asking the court not to determine a RAND royalty

rate after all. In that motion, Motorola told the court that it

had become opposed to such a trial once it “fully appreciated

that the Court intended to have a separate trial to determine

the actual terms of a RAND contract, as opposed to

identifying what is RAND for use in evaluating

reasonableness in the context of Motorola’s breach claim.”

In its reply in support of that motion, Motorola further

maintained that

until recently Motorola did not fully

appreciate and focus on—let alone fully

research the authority relevant to—the Court’s

intent to determine the actual terms of a

RAND contract in a separate trial, rather than

(as the Court suggested on Feb 13, 2012 and

in its June 6, 2012 Order) to consider RAND

terms in the context of determining the breach

of contract issues.

(Emphasis added). Motorola’s position at that juncture—that

it consented to a bench trial on the understanding that the

RAND rate would be determined for purposes of the breach

of contract adjudication, and that it was the license creation

28 MICROSOFT CORP. V. MOTOROLA, INC.

it objected to—is precisely the opposite of its current

contention.12

In short, Motorola was quite aware, when it agreed with

Microsoft in June to a RAND determination bench trial, that

the RAND determination was being made to set the stage for

the breach of contract trial. Nor did Motorola ever withdraw

its affirmative stipulation to a bench trial for that purpose.

We therefore do not consider whether, absent consent, a jury

should have made the RAND determination.13

12

Like its contention on appeal, Motorola’s July 18, 2012 argument to

the district court is also rebutted by the record. The court made the parties

aware that the RAND determination would be used both to enable “a jury

to resolve the question of whether Motorola’s October 21 and 29 Letters

breached its duty to make good faith offers,” and for purposes of creating

a license, should that relief be appropriate.

13

Seemingly to avoid the waiver problem through a jurisdictional

argument, Motorola recasts essentially the same challenge to the RAND-

rate bench trial by maintaining that the result was an “advisory opinion,”

and so beyond the district court’s constitutional power under Article III of

the Constitution. See Flast v. Cohen, 392 U.S. 83, 94–97 (1968); Gordon

v. United States, 117 U.S. 697, 702 (1864). The result of the bench trial

was, however, decidedly not advisory: That rate was vigorously disputed

by the parties from the outset of this case and, as the district court’s

observations quoted in the text illustrate, understood by both the court and

the parties as an essential factual aspect of the breach-of-contract

determination. Moreover, as we shall see, far from maintaining the

irrelevance of the RAND-rate determination to the ultimate jury verdict,

Motorola challenges that verdict as impermissibly influenced by Judge

Robart’s RAND-rate determination, going so far as to maintain that its

introduction “effectively directed a verdict for Microsoft.”

MICROSOFT CORP. V. MOTOROLA, INC. 29

2. The District Court’s RAND Determination

Motorola contends that on its merits, the district court’s

RAND analysis violated Federal Circuit patent damages law.

Specifically, Motorola cites to the damages provision of the

Patent Act, 25 U.S.C. § 284, which provides that a court shall

award damages “adequate to compensate for the

infringement, but in no event less than a reasonable royalty

rate for the use made of the invention by the infringer,” and

to Federal Circuit cases calculating damages under that

provision.

We reiterate that this is not a patent law action. Still, the

Federal Circuit’s patent law methodology can serve as

guidance in contract cases on questions of patent valuation.

See Bonzel, 439 F.3d at 1363. The district court’s analysis

properly adapted that guidance to the current context.

a. The Hypothetical Agreement

Neither the IEEE nor the ITU provide a specific formula

for setting the terms of a RAND license. At trial, both parties

offered expert testimony as to the appropriate method for

calculating a RAND rate. After trial, Judge Robart invited

the parties to submit post-trial briefs and proposed findings of

fact and conclusions of law. He then considered each party’s

submissions and adopted a framework sensitive to the

circumstances and objectives of RAND agreements.

The framework settled on was “generally [consistent]

with Motorola’s approach.” Applying that approach, the

district court sought to approximate the royalty rates upon

which the parties would have agreed by setting up a

hypothetical negotiation between the parties. In doing so, the

30 MICROSOFT CORP. V. MOTOROLA, INC.

court carefully thought through the “factors an SEP owner

and implementer would consider” in an actual negotiation

directed at licensing a patent subject to RAND commitments.

The court then discussed each of Motorola’s fifteen H.264

patents and eleven 802.11patents, considering 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.

Finally, the court performed a meticulous analysis of the

testimony of eighteen witnesses, including executives,

economists, and technology experts, to sort out which

evidence to rely upon in determining the RAND royalty rate.

Generally, the court credited Motorola’s experts; where it did

not, it provided reasoned explanations for not doing so.

Motorola’s challenge to the district court’s exhaustive

analysis centers on its interpretation of Georgia-Pacific Corp.

v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970),

a patent-infringement case whose hypothetical agreement

framework for determining infringement damages has since

been widely adopted by district courts and “sanctioned” by

the Federal Circuit. See LaserDynamics, Inc. v. Quanta

Computer, Inc., 694 F.3d 51, 60 n.2 (Fed. Cir. 2012).

Georgia-Pacific set out fifteen factors for courts to consider

in arriving at a royalty rate the parties might have agreed

upon in a hypothetical negotiation. See Lucent Techs., Inc. v.

Gateway, Inc., 580 F.3d 1301, 1324–25 (Fed. Cir. 2009)

(citing Georgia-Pacific, 318 F. Supp. at 1120). Factor fifteen

directs courts to set the hypothetical negotiation at “the time

the infringement began.” Georgia-Pacific, 318 F. Supp. at

1120; see Panduit Corp. v. Stahlin Bros. Fibre Works, Inc.,

575 F.2d 1152, 1158 (6th Cir. 1978).

MICROSOFT CORP. V. MOTOROLA, INC. 31

Motorola’s central RAND-rate merits contention is that

Judge Robart’s analysis failed to meet Georgia-Pacific’s

factor fifteen criterion, as interpreted and applied by the

Federal Circuit, and so constituted error. Several portions of

the court’s findings of fact and conclusions of law do indicate

that the court did to an extent take into account the present-

day value to Microsoft of Motorola’s patents. For example,

the court noted that a third-party valuation of Motorola’s

802.11 SEPs was only somewhat probative because, at the

time of the valuation, “Motorola’s 802.11 SEP portfolio” was

much larger than the portfolio “as it exists today.”

This partial present-day focus did not, however, render

the district court’s RAND-rate determination invalid. First,

the Federal Circuit has “never described the Georgia-Pacific

factors as a talisman for royalty rate calculations.” Ericsson,

773 F.3d at 1230. Instead, outside the RAND context, the

Federal Circuit has recognized that, although “courts often

parrot all 15 factors to the jury,” some of the factors “clearly

are not relevant” to every case. Id. And in the context of

RAND agreements, the Federal Circuit in Ericsson cited

Judge Robart’s opinion in support of the proposition that

many of the Georgia-Pacific factors are “contrary to RAND

principles.” Id. at 1229; see also id. at 1230. Ericsson

recognized, for example, as did Judge Robart, that factor

four—“‘[t]he 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 that monopoly’”—is

contrary to the RAND purpose of preventing monopolies. Id.

at 1230 (quoting Georgia-Pacific, 318 F. Supp. at 1120)

(alteration in original).

32 MICROSOFT CORP. V. MOTOROLA, INC.

Factor fifteen is another factor that merits modification in

some RAND contract contexts. An element of Microsoft’s

claim is that Motorola maintained its demand of a 2.25%

royalty rate throughout the proceedings, and also pressed its

injunction suits even after Motorola was on notice that its

actions were in tension with its RAND obligations. Given

Microsoft’s argument that Motorola’s breach was ongoing,

the district court could reasonably have concluded that it was

appropriate to include the present-day value of Motorola’s

SEPs as a factor in calculating the RAND rate-and-range for

use in the breach-of-contract proceeding.

Second, Motorola never specifies the past date the district

court should have used. In pointing to “the time the

infringement began, ” Georgia-Pacific, and subsequent cases

applying its framework, referred to the date of the

manufacturer’s first unlicensed use of the patented

technology. 318 F. Supp. at 1120; see also Lucent Techs.,

580 F.3d at 1324. But, as Motorola acknowledges, the

“infringement” at issue in this case is Motorola’s breach of

contract, not Microsoft’s use of Motorola’s patents. Motorola

mentions both “the date Motorola sent the [offer] letters” and

“the time right before Microsoft’s first [patent] infringement

began” as possible hypothetical negotiation dates the court

could have used, without specifying which is correct.

Motorola did not mention either date in putting forth its

version of the hypothetical negotiation analysis in its post-

trial brief. To assume the correct date would have been the

date the breach of contract began is of no help, as the alleged

breach of contract was not tied to any specific date. The jury

could have found a breach of contract based on Motorola’s

offer letters, its seeking a number of injunctions, or its overall

course of conduct.

MICROSOFT CORP. V. MOTOROLA, INC. 33

Third, it would have been impracticable for the court to

consider only such evidence as could pinpoint the value of

Motorola’s patents to Microsoft at a precise point in time.

Both parties introduced volumes of data—as to, for example,

the parties’ market share and the valuation of similar

patents—all meant to approximate the value of Motorola’s

patents. Notably, Motorola itself urged the district court to

rely on several studies and reports, from 2011 and 2012, that

would not have been available to the parties at an earlier-

dated hypothetical negotiation, and one of the “historical

licenses” Motorola asked the court to consider—and now

argues the court erred in failing to consider—dates from

December 2011. As the data presented was not pinpointed to

a past date, the district court’s approximation from that data

also could not be tied to a specific historical moment.

Finally, Motorola has not shown—nor has it even

argued—that it was prejudiced by the court’s analysis. See

Brown & Williamson Tobacco Corp. v. Philip Morris Inc.,

229 F.3d 1120, 1131 (Fed. Cir. 2000). As Motorola

acknowledges, the purpose of the hypothetical agreement

approach is to take account of the situation of the parties and

of the value each places on the patents in question. Motorola

has pointed to just one material change in the parties’

positions since the dispute began that could be relevant to the

court’s analysis: In 2012, Google bought Motorola.14 Judge

Robart considered Google’s broad commercial interests, not

just Motorola’s, when he estimated as part of his RAND-rate

analysis the likely benefits from inclusion in the patent pools.

But Motorola has not explained how it was prejudiced by

consideration of Google’s interests. In fact, Microsoft

maintains, persuasively, that Motorola benefitted from the

14

Google sold Motorola in 2014.

34 MICROSOFT CORP. V. MOTOROLA, INC.

court’s conflation of Google and Motorola, as Google, a

“sophisticated, substantial technology firm[] with [a] vast

array[] of technologically complex products,” would obtain

more value from the pool than would Motorola as an

independent entity.

In sum, given the need for flexibility in determining a

royalty rate for a RAND-encumbered patent, see Ericsson,

771 F.3d at 1230–31, and given that Motorola has not shown

that the court’s consideration of the companies’

circumstances at the time of the bench trial prejudiced it, see

Brown & Williamson Tobacco Corp., 229 F.3d at 1131, the

district court’s RAND order properly applied the hypothetical

agreement approach.

b. Patent Pools and Historical Licenses as Indicators

In addition to challenging the district court’s legal

analysis, Motorola objects to the court’s factual conclusions

that (a) the rates charged by two patent pools are relevant

indicators of the RAND rate for Motorola’s patents; and

(b) Motorola’s historical licenses are not. Motorola’s

argument is that the district court gave too much weight to the

former evidence and not enough to the latter, leading to a

decision “fatal[ly]” unsupported by the evidence in the

record.

Patent pools are collections of two or more SEP owners

that package and license their SEPs collectively. Royalties

are distributed amongst the contributors to the patent pool on

a per-patent basis, generally by valuing each patent in the

pool equally. Typically, pool members contributing their

patents to the pool also become licensees of the pool’s patent

package.

MICROSOFT CORP. V. MOTOROLA, INC. 35

For Motorola’s 802.11 portfolio, the court regarded the

VIA Licensing 802.11 pool as somewhat probative of the

RAND rate and range. The 802.11 pool did not achieve

widespread use of the covered standard. But it was designed

with that objective in mind and was otherwise a reasonably

reliable indicator of the RAND royalty rate. For Motorola’s

H.264 portfolio, the court found the royalty rate charged by

the MPEG LA H.264 patent pool a reliable indicator of the

RAND rate. That pool’s objectives mirrored the objectives

of RAND agreements, namely “includ[ing] advanced

technology to create valuable standards, while at the same

time . . . ensuring widespread adoption.”

In both instances, the court credited testimony from

Motorola’s experts that patent pools generally license at

lower rates than might be achieved in a bilateral agreement,

because a company receives value from pool membership that

goes beyond royalty payments—principally, grant-back

licenses and promotion of the standard. To account for those

benefits, the court multiplied the pool rates by three.

Motorola contends that a rate set by a pool arrangement

is too different from the rate that might have been agreed

upon bilaterally by the parties to serve as an appropriate

RAND-rate indicator, even if the pool rate is multiplied by

three. For the 802.11 patents, however, the district court used

the pool rate just as one relevant data point in its overall

analysis. The RAND rate the court ultimately settled on was

an amalgamation of a number of considerations, the pool rate

evidence being the most favorable to Motorola.

As to the H.264 patent, the district court provided a

reasoned explanation for its conclusion that the H.264 pool

was a reliable indicator: The pool’s patents and Motorola’s

36 MICROSOFT CORP. V. MOTOROLA, INC.

patents were essential to the same technical standards, and

Motorola provided no evidence that its patents were more

valuable than the other patents in the pool. If anything, the

record indicates that Motorola’s patents were on average less

valuable than other H.264 patents. Many of the Motorola

patents apply only to interlaced rather than (the more

advanced) progressive video. Motorola offered some

evidence suggesting that interlaced video coding was still

valuable to Microsoft, but it did not show that support for

interlaced video was more important to Microsoft than other

video-coding capabilities. Motorola therefore was not

prejudiced by the court’s assumption that its patents were of

roughly equal value to those in the pool, as they probably

were worth less.

Instead of the patent pools, Motorola argues, the court

should have considered several licensing agreements that

included licenses to Motorola’s H.264 and 802.11 patent

portfolios as probative of the RAND rate. The agreements

Motorola put forth provided for royalty rates close or equal to

the 2.25% it offered Microsoft.

Georgia-Pacific suggests that the royalties a patent owner

receives in other licensing agreements for the patents at issue

can be relevant in determining a hypothetical royalty

agreement. See 318 F. Supp. at 1120. In the current context,

however, it was not clear error to reject the past licenses as

too contextually dissimilar to be useful to the RAND rate

calculation.

The district court found Motorola’s license with VTech

Communications, Inc. not probative of a RAND rate for

Motorola’s 802.11 and H.264 patents because those portfolios

were licensed as part of a broader agreement that settled

MICROSOFT CORP. V. MOTOROLA, INC. 37

infringement claims Motorola held against VTech for use of

its cell phone patents. VTech indicated in an email to

Motorola that its interest in taking a license was to avoid a

potential infringement lawsuit, and it paid only trivial

royalties to Motorola under the 802.11 and H.264

licenses—an amount totaling a tiny fraction of the value of

the broader agreement. The district court reasonably

concluded that the 802.11 and H.264 VTech licenses were not

reliable indicators of the RAND royalty rate.

In Motorola’s RIM agreement, the 802.11 and H.264

SEPs were packaged with several other patents. Motorola

and RIM entered into a broad cross-licensing agreement

whereby, in exchange for a license to the Motorola SEPs RIM

used in its mobile devices, RIM provided Motorola a license

to its own SEPs, paid Motorola a large lump sum, and agreed

to pay as a royalty rate a percentage of the net sales price of

any mobile device it sold, subject to an annual royalty cap.

The royalty rate represented a blended rate for all the

Motorola patents included in RIM’s products, including non-

standard-essential patents. The district court concluded that,

for that reason, it would be impracticable to isolate, or

apportion the value of the 802.11 and H.264 SEPs,

particularly given the evidence that Motorola’s cell phone

patent portfolio was highly valuable and likely dictated the

terms of the agreement. In fact, an earlier agreement between

Motorola and RIM provided for the same royalty rate but did

not include rights to Motorola’s 802.11 and H.264 patents,

suggesting that the value of the 802.11 and H.264 patents was

zero or negligible. Finally, the RIM agreement was subject

to a royalty cap and was, like the VTech agreement, entered

into to resolve an ongoing infringement dispute between the

parties, further diminishing its trustworthiness as an indicator

of a free-standing RAND rate.

38 MICROSOFT CORP. V. MOTOROLA, INC.

Lastly, the district court also reasonably concluded that

Motorola’s three license agreements with Symbol

Technologies were not relevant. Two of the agreements were

formed under threat of litigation, included monetary caps, and

provided licenses for Motorola patents that expired before

Motorola and Microsoft’s hypothetical agreement would have

occurred. The third agreement also included patents that

expired before October 2010, and it required a total payment

amount much less than what Motorola would have obtained

in seeking a 2.25% royalty rate from Microsoft.

The district court provided reasonable explanations for

giving the Motorola bilateral licenses little to no weight.

Motorola does not address any of those explanations.

Nor does its citation of the Federal Circuit’s recent

opinion in Apple Inc. v. Motorola, Inc. afford it any help. See

757 F.3d 1286 (Fed. Cir. 2014), overruled on other grounds

by Williamson v. Citrix Online, LLC, No. 2013-1130, 2015

WL 3687459 (Fed. Cir. June 16, 2015). That case 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. Id. at 1323.

In sum, in determining the RAND rate and range for each

SEP portfolio, the district court engaged in a thoughtful and

detailed analysis, giving careful consideration to the parties’

briefing and evidentiary submissions, and to the testimony.

Although Motorola criticizes the district court’s approach, it

provides no alternative other than strict adherence to the

Georgia-Pacific factors, without accounting for the

particulars of RAND agreements—a rigid approach

disapproved of by the Federal Circuit in Ericsson. See

771 F.3d at 1230–31. We conclude that the court’s RAND

MICROSOFT CORP. V. MOTOROLA, INC. 39

determination was not based on a legal error or on a clearly

erroneous view of the facts in light of the evidence. See Teva

Pharm., 135 S. Ct. at 841.

C. The Jury’s Verdict on Breach

At the close of Microsoft’s case-in-chief and again at the

close of evidence, Motorola moved for judgment as a matter

of law (“JMOL”), contending, inter alia, that the evidence

was insufficient to support a finding that it breached its duty

of good faith and fair dealing on any of Microsoft’s theories.

Addressing the motions, Judge Robart concluded that a

reasonable jury could find breach of the good faith duty

arising from either Motorola’s opening offers or its pursuit of

injunctive relief—and that, “[l]ogically, then, a reasonable

jury could also find that these actions combined amount[ed]

to a breach.”15 Motorola appeals from those rulings.

We review the denial of a motion for judgment as a

matter of law de novo and must affirm “where there is

substantial evidence supporting a verdict in favor of the

15

The jury was instructed that it could find “that Motorola breached its

contractual commitment with the ITU in one or more of the following

ways, or a combination thereof: By the terms contained in the October 29,

2010, letter offering to license Motorola’s H.264 standards-essential

patents; by filing lawsuits and seeking injunctive relief based on

standards-essential patents in the ITC, United States District Courts,

and/or Germany,” “or a combination thereof.” The jury was instructed on

the same theories with respect to breach of Motorola’s commitment to the

IEEE, with the additional instruction that they could find breach “by

[Motorola’s] not having executed a license agreement covering its 802.11

standards-essential patents with Marvell, Microsoft’s chip supplier.” The

district court did not reach the Marvell chip theory of breach in its order

on JMOL, finding the other theories sufficient to support the verdict, and

the parties do not address it here.

40 MICROSOFT CORP. V. MOTOROLA, INC.

nonmoving party.” Gillette v. Delmore, 979 F.2d 1342, 1346

(9th Cir. 1992); see also MCH Fin. Ltd. P’ship v. City of San

Rafael, 714 F.3d 1118, 1131–32 (9th Cir. 2013).

Here, the only damages argued for and awarded were tied

to the fees for defending the injunctive actions and the costs

of moving Microsoft’s European distribution facility out of

Germany. Consequently, the jury was instructed that to

award damages, it must find that Motorola’s injunctive

actions, “apart from Motorola’s general course of conduct,

violated Motorola’s duty of good faith and fair dealing.”

Because we conclude that substantial evidence supported the

jury’s verdict on that theory, we do not separately address

two other liability theories presented to the jury. But, because

the jury was instructed in assessing damages to consider “the

circumstances surrounding each lawsuit,” and was further

instructed that seeking injunctive relief was not a per se

violation of the RAND commitment, we address Motorola’s

overall course of conduct, including sending the October

2010 offer letters, as it related to and affected the impact of

the injunctive actions.

To determine whether Motorola’s injunctive actions were

in breach of its RAND commitments, the jury was instructed

to consider the following factors, “alone or in combination”:

(1) Whether Motorola’s actions were contrary

to the reasonable and justified expectations of

other parties to the contract; (2), whether

Motorola’s conduct would frustrate the

purpose of the contract; (3), whether

Motorola’s conduct was commercially

reasonable; (4), whether and to what extent

Motorola’s conduct conformed with ordinary

MICROSOFT CORP. V. MOTOROLA, INC. 41

custom or practice in the industry; (5) to the

extent the contract vested Motorola with

discretion in deciding how to act, whether

Motorola exercised that discretion reasonably;

(6), subjective factors, such as Motorola’s

intent and whether Motorola had a bad

motive.16

Microsoft offered significant evidence upon which the

jury could apply this standard and infer that the injunctive

actions violated Motorola’s good faith and fair dealing

obligations. The district court identified the testimony of five

different experts from which the jury could conclude that

Motorola’s actions were intended to induce hold-up, i.e., to

pressure Microsoft into accepting a higher RAND rate than

was objectively merited, and thereby to frustrate the purpose

of the contract. See Microsoft I, 696 F.3d at 877.

The jury heard, for example, that an injunction against

Microsoft’s use of Motorola’s 802.11 and H.264 SEPs

“[w]ould have [had] crippling consequences, because . . .

[p]eople wouldn’t buy a computer that doesn’t have WiFi . . .

[or] a computer that wouldn’t be able to play back high-

definition video.” The evidence that the rates Motorola

sought were significantly higher than the RAND rate found

by the court suggested that Motorola sought to capture more

than the value of its patents by inducing holdup, and that it

16

Motorola provides no persuasive support for its argument that

instructing the jury to consider the six factors “alone or in combination”

was improper. If anything, the cases it cites tend to dispel Motorola’s

contention that breach must be premised on a variety of factors, as they

focus on a defendant’s bad intent or motives. See, e.g., In re Estate of

Hollingsworth, 560 P.2d 348, 351–52 (Wash. 1977) (en banc); Cavell v.

Hughes, 629 P.2d 927, 929 (Wash. Ct. App. 1981).

42 MICROSOFT CORP. V. MOTOROLA, INC.

filed infringement actions to facilitate that strategy by

preventing Microsoft from using its patents—and therefore

from implementing the 802.11 and H.264 standards—until it

obtained a license at a rate significantly higher than the

RAND rate.

The timing of the injunctive actions was also indicative of

bad faith. In opening arguments, Microsoft’s counsel

suggested that because the injunctions were sought

immediately after the twenty-day acceptance window

provided in the offer letters expired, the offers were no more

than “a prelude to allow Motorola to be able to say, ‘We’ve

made an offer. They didn’t accept it. Now we can sue.’”

Motorola’s injunction suits were also brought after

Microsoft filed its breach of contract lawsuit with the district

court. At that point, Motorola was aware that the present

lawsuit could establish RAND rates. “A patentee subject to

FRAND commitments may have difficulty establishing

irreparable harm.” Apple, Inc., 757 F.3d at 1332; see also

Microsoft I, 696 F.3d at 877.

Here, had Motorola accepted the RAND rates, it would

then be fully compensated for Microsoft’s infringing use.

The jury could have inferred, from that circumstance, that the

injunctive actions were not motivated by a fear of irreparable

harm, as payment of the RAND rate would eliminate any

such harm. In the absence of a fear of irreparable harm as a

motive for seeking an injunction, the jury could have inferred

that the real motivation was to induce Microsoft to agree to

a license at a higher-than-RAND rate.

Finally, as discussed at more length in Part II.E.2, infra,

there was evidence of Motorola’s knowledge that pursuing an

MICROSOFT CORP. V. MOTOROLA, INC. 43

injunctive action could breach its duty of good faith and fair

dealing. In May 2012, Microsoft expressed concern to the

FTC about Motorola’s conduct concerning its RAND

obligations. Shortly thereafter, the FTC initiated an

investigation into whether Motorola and Google had “reneged

on a licensing commitment made to several standard-setting

bodies to license its standards-essential patents relating to

smartphones, tablet computers and video game systems on

FRAND terms by seeking injunctions against willing

licensees of . . . SEPs.” The investigation ultimately resulted

in a consent decree. Around the same time, the FTC

contacted the ITC, before whom Motorola’s action for an

exclusion order was pending, expressing concern that

allowing an SEP holder to obtain an exclusion order against

a license-seeker was “inconsistent with the RAND

commitment.” So Motorola was aware the FTC found its

conduct questionable, yet left its injunctive suits in place.

This sequence provided some evidence that Motorola acted

in bad faith.

The evidence just summarized, discretely and taken as a

whole, is susceptible to contrary interpretations as well. But

it was for the jurors to assess witness credibility, weigh the

evidence, and make reasonable inferences. See United States

v. Sanchez-Lima, 161 F.3d 545, 548 (9th Cir. 1998). The

record provides a substantial basis on which the jury could

have based a verdict favoring Microsoft. See MCH Fin. Ltd.

P’ship, 714 F.3d at 1131–32.

D. Damages

In its JMOL motion, Motorola contended, with respect to

some of the damages sought—the attorneys’ fees and

litigation costs incurred in defending the injunctive

44 MICROSOFT CORP. V. MOTOROLA, INC.

actions—that the Noerr-Pennington doctrine precluded any

award. Additionally, Motorola maintained that Washington

law independently precludes recovery of attorneys’ fees for

defending a separate lawsuit as an element of damages.

1. Noerr-Pennington

The Noerr-Pennington doctrine shields individuals from,

inter alia, liability for engaging in litigation. The doctrine

originated in two Supreme Court antitrust cases holding that

the Petition Clause of the First Amendment prohibits

imposing liability under the Sherman Act for “attempt[ing] to

persuade the legislature or the executive to take particular

action.” E. R.R. Presidents Conference v. Noerr Motor

Freight, Inc., 365 U.S. 127, 136 (1961); see United Mine

Workers of Am. v. Pennington, 381 U.S. 657, 670 (1965).

The Noerr-Pennington principle has since been expanded to

ensure that “those who petition any department of the

government,” including the courts, “are immune from . . .

liability for their petitioning conduct.”17 Theme Promotions,

Inc. v. News Am. Mktg. FSI, 546 F.3d 991, 1006–07 (9th Cir.

2008); see also Cal. Motor Transp. Co. v. Trucking

Unlimited, 404 U.S. 508, 510 (1972).

17

The Noerr-Pennington doctrine creates an exception for “sham”

litigation, defined as “‘private action that is not genuinely aimed at

procuring favorable government action,’ as opposed to ‘a valid effort to

influence government action.’” Prof’l Real Estate Investors, Inc. v.

Columbia Pictures Indus., Inc., 508 U.S. 49, 58 (1993) (quoting Allied

Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 500 n.4

(1988)). We do not here determine whether Motorola’s infringement suits

might properly come within the sham litigation exception, because, as we

explain, the Noerr-Pennington doctrine does not apply in the first place.

MICROSOFT CORP. V. MOTOROLA, INC. 45

The doctrine does not, however, immunize a party from

actions that amount to a breach of contract. See Powertech

Tech., Inc. v. Tessera, Inc., 872 F. Supp. 2d 924, 931 (N.D.

Cal. 2012); Spear Pharm., Inc. v. William Blair & Co., 610 F.

Supp. 2d 278, 288 (D. Del. 2009). A number of courts have

so held, and at least one emphasized that Noerr-Pennington

does not protect patent holders from liability for asserting

rights in violation of a commitment not to enforce those

rights. See, e.g., Powertech Tech., 872 F. Supp. 2d at

931–32; ClearPlay, Inc. v. Nissim Corp., No. 07-81170-civ,

2011 WL 6724156, at *10 & n.10 (S.D. Fla. Dec. 21, 2011),

aff’d, 496 F. App’x 963 (11th Cir. 2012). More specifically,

at least two district court opinions, in addition to Judge

Robart’s, have held that Noerr-Pennington does not protect

a patent holder from liability for filing infringement actions

in violation of its covenant to negotiate with a RAND-rate

license-seeker. See Powertech Tech., 872 F. Supp. at 931;

Apple, Inc. v. Motorola Mobility, Inc., 886 F. Supp. 2d 1061,

1078 (W.D. Wisc. 2012). In resolving a dispute quite similar

to the one here, the Wisconsin district court reasoned:

Although the First Amendment protects

Motorola’s right to petition the courts to

enforce its patents, Apple’s breach of contract

claims are based on the theory that Motorola

agreed by contract that it would not enforce its

patent rights until it offered a license to Apple

on fair, reasonable and nondiscriminatory

terms. In other words, Apple contends that

Motorola waived some of its petitioning rights

through contract. It would be improper to use

the Noerr-Pennington doctrine to bar Apple

from enforcing that contract.

46 MICROSOFT CORP. V. MOTOROLA, INC.

Apple, Inc., 886 F. Supp. 2d at 1078 (citing Powertech Tech.,

872 F. Supp. 2d at 930–32).

Additionally, the FTC recently addressed the Noerr-

Pennington argument in a response to public comment on a

proposed consent agreement with Google and Motorola. See

Letter to Commenters, Motorola Mobility LLC & Google

Inc., FTC File No. 121-0120 at 3, (July 23, 2013), available

at https://www.ftc.gov/sites/ default/files/documents/cases/

2013/07/130724googlemotorolaletter.pdf. Some commenters

were concerned that imposing liability on Google and

Motorola (under Section 5 of the Federal Trade Commission

Act, 15 U.S.C. § 45) for seeking injunctions and exclusion

orders would offend the First Amendment. Id. The FTC

disagreed. Concluding that the (F)RAND commitments in

question “preclude[d] seeking an injunction or exclusion

order against a willing licensee of its SEPs,” the Commission

reasoned that taking action against Google and Motorola was

“simply requir[ing] those making promises to keep them.”

Id. (quoting Analysis of Proposed Consent Order to Aid

Public Comment, Motorola Mobility & Google Inc., FTC File

No. 121-0120 (Jan. 3, 2013), available at

https://www.ftc.gov/sites/default/files/documents/cases/201

3/01/130103googlemotorolaanalysis.pdf) (alterations in

original).18

We agree. “Because the Noerr-Pennington doctrine

grows out of the Petition Clause, its reach extends only so far

as necessary to steer . . . clear of violating the First

Amendment.” Freeman v. Lasky, Haas & Cohler, 410 F.3d

1180, 1184 (9th Cir. 2005). Enforcing a contractual

18

We do not otherwise approve or disapprove of the FTC’s analysis of

its Proposed Consent Order.

MICROSOFT CORP. V. MOTOROLA, INC. 47

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.19

As we explained in Microsoft I, a patent-holder who signs

“such a sweeping promise” as a RAND agreement “at least

arguably . . . guarantee[s] that the patent-holder will not take

steps to keep would-be users from using the patented

material, such as seeking an injunction, but will instead

proffer licenses consistent with the commitment made.”

696 F.3d at 884.

The jury concluded that in these specific circumstances,

seeking injunctive relief violated Motorola’s contractual

RAND obligations. The Noerr-Pennington doctrine does not

immunize Motorola from liability for that breach of its

promise. See ClearPlay, Inc., 2011 WL 6724156, at *10.

2. Washington Law

Motorola contends that Microsoft was not entitled to

attorneys’ fees as damages because “Washington courts

traditionally follow the American rule in not awarding

19

We agree with the Federal Circuit that a RAND commitment does not

always preclude an injunctive action to enforce the SEP. For example, if

an infringer refused to accept an offer on RAND terms, seeking injunctive

relief could be consistent with the RAND agreement, even where the

commitment limits recourse to litigation. See Apple Inc., 757 F.3d at

1331–32. The pertinent question is whether Motorola’s obligation of

good faith and fair dealing under its RAND agreements precluded it from

seeking an injunction in these circumstances. See Realtek Semiconductor

Corp. v. LSI Corp., 946 F. Supp. 2d 998, 1006 (N.D. Cal. 2013) (holding

that an SEP owner’s action in seeking injunctive relief before offering a

license on RAND terms was “inherently inconsistent and a breach of

defendants’ promise to license the patents on RAND terms.”) (citations

omitted). That question was for the jury to decide.

48 MICROSOFT CORP. V. MOTOROLA, INC.

attorney fees as costs absent a contract, statute, or recognized

equitable exception.” The RAND agreements do not

expressly provide for fees; Microsoft has identified no

statutory basis for fees; and Washington courts recognize

only limited equitable exceptions, none of which, Motorola

argues, are applicable here.20

Motorola’s arguments, however, elide a critical factor in

determining the propriety of attorneys’ fees in the damages

award in this case. The fees at issue here were incurred not

in the current breach of contract action but in defending

against the injunctive action found to have breached the

RAND agreement. The fees sought are thus distinct from the

20

The Washington Supreme Court has recognized “four equitable

exceptions to the American rule: (1) the common fund theory; (2) actions

by a third person subjecting a party to litigation; (3) bad faith or

misconduct of a party; and (4) dissolving wrongfully issued temporary

injunctions or restraining orders.” City of Seattle v. McCready, 931 P.2d

156, 160 (Wash. 1997) (en banc) (internal citations omitted).

There are three types of bad faith: (1) prelitigation misconduct,

(2) procedural bad faith, and (3) substantive bad faith. See Rogerson

Hiller Corp. v. Port of Port Angeles, 982 P.2d 131, 135 (Wash. Ct. App.

1999). In responding to Motorola’s arguments before the district court,

Microsoft raised only the exception for procedural bad faith, which is

defined as “vexatious conduct during litigation . . . unrelated to the merits

of the case.” Forbes v. Am. Bldg. Maint. Co. W., 198 P.3d 1042, 1057

(Wash. Ct. App. 2009), aff’d in part, rev’d in part, 240 P.3d 790 (Wash.

2010) (en banc). We agree with the district court that the procedural bad

faith exception does not apply here, because Motorola did not engage in

the kind of tactics—such as “dilatory tactics during discovery, failure to

meet filing deadlines, misuse of the discovery process, and misquoting or

omitting material portions of documentary evidence”—that threaten the

integrity of the court and “the orderly and expeditious disposition of

cases.” See Rogerson Hiller Corp., 982 P.2d at 136 (internal quotation

marks omitted).

MICROSOFT CORP. V. MOTOROLA, INC. 49

same-suit fees generally banned by the American rule. As

losses independent of the current litigation and triggered by

the contract-breaching conduct, they are best characterized as

recoverable consequential contract damages—the kind of

damages ordinarily recoverable in breach of contract suits.

See Eastlake Constr. Co. v. Hess, 686 P.2d 465, 470 (Wash.

1984) (en banc).

Notably, had Microsoft not defended the injunctive

actions and instead acquiesced in a default judgment,

Motorola’s damages in this suit could have been vastly

greater. An injunction against Microsoft in the Wisconsin

district court, for example, would have blocked all U.S. sales

of Microsoft’s Xbox and Windows products. As the jury was

instructed, Microsoft had a duty to mitigate its losses. The

attorneys’ fees and costs incurred in defending the injunctive

actions were, in essence, such mitigation, and so are

recoverable expenses of reasonable mitigating actions. See

Flint v. Hart, 917 P.2d 590, 594, 598 (Wash. Ct. App. 1996)

(allowing a plaintiff to recover attorneys’ fees incurred in

settling a third-party action in which the plaintiff became

involved by virtue of the defendant’s wrongful misconduct,

where the settlement was an attempt by the plaintiff to

mitigate damages); see also, e.g., Jacob’s Meadow Owners

Ass’n v. Plateau 44 II, LLC, 162 P.3d 1153, 1162 (Wash. Ct.

App. 2007).

Moreover, courts routinely award attorneys’ fees as

damages in a number of analogous circumstances, when

attorneys’ fees are a fair measure of the harm impermissibly

caused by the defendant. For example, in an action against a

union for breach of the duty of fair representation, an

employee who proves that his union impermissibly failed to

pursue a grievance on his behalf may recover compensatory

50 MICROSOFT CORP. V. MOTOROLA, INC.

damages, see Vaca v. Sipes, 386 U.S. 171, 195–96 (1967),

such as the attorneys’ fees he expended pursuing his

employer for breach of contract, Dutrisac v. Caterpillar

Tractor Co., 749 F.2d 1270, 1275–76 (9th Cir. 1983). In

Dutrisac, we rejected an argument that awarding the

employee attorneys’ fees as damages for breach of a union’s

duty of fair representation was in violation of the American

rule because there was no statutory or contractual provision

authorizing the award. 749 F.2d 1270, 1275–76 (9th Cir.

1983). Recognizing that “an exception to the American rule

cannot be justified solely on the ground that a losing

defendant’s wrongful conduct forced the plaintiff to resort to

litigation,” we nevertheless upheld the fee award because the

litigation expense incurred in such fair representation cases

“is not merely a result of the harm that [the union] did . . .; it

is the harm itself.”21 Id. at 1275; see also Ames v.

Westinghouse Elec. Corp., 864 F.2d 289, 293–94 (3d Cir.

1988) (“When there is a legal duty to provide representation,

whether that duty arises out of a contractual undertaking or,

as here, by operation of law, if the representation is

wrongfully withheld, the cost of substitute representation

should be recoverable as damages.”). We reaffirmed that

principle several years later, emphasizing that “the traditional

American rule that attorney fees are not ordinarily

recoverable” does not “affect[] those cases in which attorney

fees are not awarded to the successful litigant in the case at

hand, but rather are the subject of the law suit itself.” Zuniga

v. United Can Co., 812 F.2d 443, 455 (9th Cir. 1987) (citing

21

In Dutrisac, we carefully noted that we were not awarding the

employee expenses for prosecuting his claim against the union. 749 F.2d

at 1275 & n.3. Awarding those costs, we said, would raise concerns

about the American-rule principle that a party should not be “penalized

. . . for choosing to defend [a] lawsuit.” Id. at 1276.

MICROSOFT CORP. V. MOTOROLA, INC. 51

First, Fourth, and Sixth Circuit cases elaborating the same

rule).

Similarly, a number of jurisdictions, including

Washington, permit awards of defense costs where an insurer

breaches its duty to defend an insured against claims within

the insurance policy’s coverage. See Woo v. Fireman’s Fund

Ins. Co., 164 P.3d 454, 459–60 (Wash. 2007) (en banc); see

also, e.g., Pac. Hide & Fur Depot v. Great Am. Ins. Co., No.

CV-12-36-BU-DLC, 2014 WL 2159330, at *3 (D. Mont.

May 23, 2014). A breach of the duty to represent an insured

undermines one of the primary purposes of the insurance

contract and the parties’ justified expectations; “[w]hen an

insured purchases a contract of insurance, it seeks protection

from expenses arising from litigation, not ‘. . . time-

consuming, expensive litigation.’” Olympic S.S. Co. v.

Centennial Ins. Co., 811 P.2d 673, 681 (Wash. 1991) (en

banc) (quoting Hayseeds, Inc. v. State Farm Fire & Cas.,

352 S.E.2d 73, 79 (W. Va. 1986)).

Finally, a Washington statutory fee provision illustrates

the sorts of situations in which attorneys’ fees as damages are

consistent with the American rule. Washington law codifies

the common law rule that the victim of malicious prosecution

can recover the reasonable costs he incurred in defending

himself against the false accusations. See Wash. Rev. Code

Ann. § 4.24.350; see also Restatement (Second) of Torts

§ 671 (b) (1977).

The RAND context is analogous to these various

circumstances in which attorneys’ fees expended in earlier

litigation are collectible as damages for a proven legal injury.

As the district court reasoned, treating fees in separate

lawsuits as damages where the RAND commitment is

52 MICROSOFT CORP. V. MOTOROLA, INC.

breached “makes particular sense in light of the purpose of

the RAND commitment, which is to encourage widespread

adoption of the standard.” That purpose would be

substantially defeated if adopting the standard “would expose

[potential implementors] to bad faith injunctive relief claims

and they were forced to absorb the cost of defending

themselves.”

In support of its argument that the fee award was

improper, Motorola cites Gruver v. Midas International

Corp., 925 F.2d 280 (9th Cir. 1991). Gruver addressed

whether an Oregon district court had erred in awarding

attorneys’ fees as damages for one party’s breach of an

agreement to release its fraud claims against another, where

the contract did not expressly provide for fees. Id. at 283.

The fees awarded were those incurred in defending the fraud

claims, not those expended in litigating the breach of the

agreement. On appeal, we recognized that cases from a

number of jurisdictions “support[ed] what the district court

did.” Id. at 284. Relying on a Colorado Supreme Court case,

however, we were persuaded that a majority of jurisdictions

would not have allowed the fees as damages. See id. (citing

Bunnett v. Smallwood, 793 P.2d 157, 161 (Colo. 1990)).

Oregon appellate courts had not addressed the question, but,

in light of those courts’ “repeatedly stressed . . . strict

adherence to the American rule that attorney’s fees are

recoverable in a breach of contract action . . . only where the

contract provides for them,” we reversed the damages award.

Id.

Our estimation of Oregon law in Gruver does not

persuade us to deny Microsoft its defensive attorneys’ fees in

the injunctive actions as damages here. Gruver, like many of

the cases denying attorneys’ fees as damages for breach of a

MICROSOFT CORP. V. MOTOROLA, INC. 53

covenant not to sue, involved a settlement agreement.

925 F.2d at 281–82. The rationale for precluding attorneys’

fees as damages in those circumstances reflects that context.

The Maine Supreme Court, in adopting the same rule as

Gruver did, reasoned that “[i]n logic, attorney’s fees should

be recoverable as damages for breach of a settlement

agreement . . . as arising naturally . . . from such breach of

contract itself.” Dodge v. United Servs. Auto. Ass’n,

417 A.2d 969, 975 (Me. 1980) (internal quotation marks

omitted). Dodge nevertheless denied the fee award for policy

reasons: Awarding fees would discourage “informal

settlement discussions,” as a lawyer might be wary of

subjecting his client to the expense of litigation should such

discussions later be deemed to have reached a binding

agreement. Id. at 976.

Here, that same rationale cuts in the opposite direction.

The prospect of an award of attorneys’ fees for filing an

infringement injunction action would encourage a licensor

instead to negotiate directly with the potential licensee in

furtherance of the public interest in promoting the standard.

See Apple Inc., 757 F.3d at 1332. The very purpose of the

RAND agreement is to promote adoption of a standard by

decreasing the risk of hold-up. See generally Mark A.

Lemley, Ten Things to Do About Patent Holdup of Standards

(And One Not To), 48 B.C. L. Rev. 149 (2001). If every SEP

holder could force standard implementers into court to defend

against injunctive actions without consequence, it would

expose those implementers to a flood of litigation, and could

discourage such implementers from adhering to standards in

the future. See id. at 153–57.

Enforcing the implied covenant of good faith and fair

dealing in commercial contracts through tort-like remedies,

54 MICROSOFT CORP. V. MOTOROLA, INC.

including attorneys’ fees, is appropriate where, as here, the

contract is “characterized by elements of public interest.” See

Matthew J. Barrett, Note, “Contort”: Tortious Breach of the

Implied Covenant of Good Faith and Fair Dealing in

Noninsurance, Commercial Contracts—Its Existence and

Desirability, 60 Notre Dame L. Rev. 510, 518, 528 n.104

(1985).22 Washington courts, for example, award fees for an

insurer’s failure to defend in part because the award “will

encourage the prompt payment of claims.” Olympic S.S. Co.,

811 P.2d at 681. Washington also views breach of the duty

to defend—for which it awards attorneys’ fees as

damages—as essentially a breach of the contractual duty of

good faith and fair dealing. See Edmonson v. Popchoi,

256 P.3d 1223, 1229 (Wash. 2011) (en banc). The purposes

to be served by awarding Microsoft the fees incurred

defending against Motorola’s infringement suits mirror the

purposes for which Washington courts have awarded

attorneys’ fees as damages.

In sum, we agree with the district court that, where a

party’s injunctive actions to enforce a RAND-encumbered

patent violate the duty of good faith and fair dealing,

Washington courts would allow the damages awarded to

include the attorneys’ fees and costs expended to defend

against the injunction action.

22

A RAND commitment “must be construed in the public interest

because it is crafted for the public interest.” Amicus Br. of Public

Knowledge at 4–9; see also Richard A. Lord, Williston on Contracts

§ 32:19 (4th ed. 2012) (“[C]ontracts . . . are to be liberally construed in

favor of the public interest . . . when an agreement between purely private

parties is perceived to entail some benefit to the public at large.”).

MICROSOFT CORP. V. MOTOROLA, INC. 55

E. Evidentiary Rulings

Motorola’s final argument is that the district court abused

its discretion in making two evidentiary rulings. Evidentiary

rulings are reviewed for abuse of discretion. Estate of

Barabin v. AstenJohnson, Inc., 740 F.3d 457, 462 (9th Cir.

2014), cert. denied, 135 S. Ct. 55 (2014). If we determine

that evidence was improperly admitted or excluded, we must

remand for a new trial unless the beneficiary of the error can

prove “that it is more probable than not that the jury would

have reached the same verdict.” Id. at 465.

1. The RAND Findings

At the end of the jury trial on breach of contract, Judge

Robart instructed the jury on the RAND rates and ranges he

had found for Motorola’s 802.11 and H.264 SEP portfolios.

The judge also allowed other findings from his findings of

fact and conclusions of law to be admitted through witness

testimony, as “undisputed facts.” For example, one of

Microsoft’s experts testified that it was undisputed that

Motorola’s H.264 SEPs were “only of minor importance to

the overall functionality of Microsoft’s Windows product . . .

[and] Xbox product,” and “only constitute a sliver of the

overall technology incorporated in the H.264

standard”—conclusions drawn directly from the court’s

RAND order. Similar facts were introduced regarding

Motorola’s 802.11 patents.

Motorola contends that admitting any of the findings from

the court’s RAND order was an abuse of discretion, because

the evidence was not relevant, Fed R. Evid. 401, and was

more prejudicial than probative, Fed. R. Evid. 403. With

respect to findings other than the RAND rates and ranges,

56 MICROSOFT CORP. V. MOTOROLA, INC.

Motorola contends not only that the evidence was irrelevant

and its admission prejudicial but also that admitting it

violated its Seventh Amendment right to a jury trial.

We concluded in Part II.C.1, supra, that Motorola waived

its right to a jury trial on the RAND determination. As we

explained, it did so knowing that the bench trial would

“identify[] what is RAND for use in evaluating

reasonableness in the context of Motorola’s breach claim.”

Motorola’s consent to the bench trial waived any objection to

admission of the RAND rates and ranges at the jury trial.

Admission of the district court’s factual findings

underlying its RAND order presents a closer question.

Undoubtedly, those findings were relevant to the ultimate

breach of contract determination. See Fed. R. Evid. 801. The

fact that Motorola’s patents were of minor import to the

H.264 standard, for example, was evidence from which the

jury could infer that demanding a 2.25% royalty rate was not

a good-faith effort to realize the value of the technology, but

rather an attempt to capitalize on the value of the standard

itself—that is, to obtain the hold-up value. As the district

court reasoned, the findings of fact were the “building

blocks” of the RAND rate and range; if the jury could

reevaluate those “building blocks,” “Motorola would in effect

be allowed a second bite at the apple on the RAND rate and

range.”

On the other hand, the very fact that the court’s findings

of fact and conclusions of law overlap with the issues in the

breach of contract trial could give rise to a Seventh

Amendment problem if Motorola did not waive its right to a

jury trial on those findings. See Toyota Motor Sales, U.S.A.,

Inc. v. Tabari, 610 F.3d 1171, 1184 (9th Cir. 2010) (citing

MICROSOFT CORP. V. MOTOROLA, INC. 57

Dollar Sys., Inc. v. Avcar Leasing Sys., Inc., 890 F.2d 165,

170 (9th Cir. 1989)). Once the court made those findings,

they became law of the case. See id. But a court must

generally avoid ordering proceedings in a manner that creates

“the risk that findings made in the bench trial w[ill] become

the law of the case and prevent a jury from determining the

common issues.” Id.

The district court disposed of Motorola’s Seventh

Amendment claim on the ground that Motorola had waived

any objections to the introduction of the underlying findings

in consenting to the bench trial. As the district court noted,

Motorola did not “qualify” its participation at the bench trial

and “submitted 100 pages of proposed findings of fact and

conclusions of law on these issues, urging the court to decide

the very facts it now seeks to exclude.” But, once the court

decided to hold a bench trial, Motorola had no choice but to

present evidence and try to persuade the court that the facts

weighed in its favor. Cf. Solis v. Cnty. of L.A., 514 F.3d 946,

955–56 (9th Cir. 2008). Further, Motorola objected to

introduction of the court’s underlying findings before the jury

trial, and again objected during the trial to their presentation

as “undisputed facts.”

On the other hand, “knowing participation in a bench trial

without objection may be sufficient to constitute a jury

waiver.” Palmer v. Valdez, 560 F.3d 965, 969 (9th Cir. 2009)

(citation omitted). Motorola did not object to a judicial

determination of the facts underlying the RAND rate and

range until after the bench trial was concluded. Motorola was

necessarily aware the court was going to make such findings,

as the court was required to make factual findings supporting

its decision, on the record. See Fed. R. Civ. P. 52(a)(1).

Without those findings, the court would have had no

58 MICROSOFT CORP. V. MOTOROLA, INC.

foundation on which to determine the RAND rates and

ranges. Had the jury been permitted to come to its own

conclusions on the factual issues underlying the RAND rate,

the court’s findings on the RAND rate and range would

largely be rendered a nullity—a bare set of numbers, divorced

from their context and meaning.

Further, Motorola’s claim that it expected the jury to

make its own determinations of the underlying facts is

unconvincing. The parties agreed to a bench trial in order to

spare the jury from becoming entangled in complicated

technical minutiae. By objecting to introduction of the

underlying facts at the jury trial only after the judge

announced those findings, Motorola was essentially seeking

“to have two bites at the procedural apple.” Fuller v. City of

Oakland, 47 F.3d 1522, 1531 (9th Cir. 1995). A party may

not stand “silently by as the court proceed[s] to try his claim

from the bench,” only later to demand a jury trial “after the

court ha[s] ruled against him.” See id. (citing White v.

McGinnis, 903 F.2d 699, 700, 703 (9th Cir. 1990) (en banc)).

With these considerations in mind, we hold that Motorola

consented to admission of the facts underlying the RAND

rates and ranges to the jury. Motorola knew the district court

would make those foundational findings when it consented to

the bench trial on the RAND rate. See Fed R. Civ. P.

52(a)(1). Motorola was also aware when it consented to the

bench trial that the RAND rates and ranges themselves would

be introduced at the breach of contract trial. Those RAND

rates and ranges would have had little meaning, and indeed

could have been undermined by conflicting findings by the

jury, if the facts supporting them were not also admitted. We

therefore agree with the district court that Motorola’s consent

MICROSOFT CORP. V. MOTOROLA, INC. 59

to the RAND bench trial encompassed introducing the court’s

findings of fact to the jury in the breach of contract trial.

2. The FTC Investigation

In July 2013, the FTC and Motorola settled an

investigation into Motorola’s SEP enforcement practices,

including its seeking of injunctions. The settlement stipulated

that it did not constitute an admission of a violation of any

law. Over Motorola’s objection, the court permitted

Microsoft to admit evidence of the investigation through the

testimony of Microsoft’s deputy general counsel, David

Heiner. Motorola contends that allowing that evidence to be

introduced was error.

Heiner testified that in May 2012, Microsoft filed a

complaint with the FTC alleging that Motorola “had not lived

up to its promise to make its patents available on . . .

reasonable but non-discriminatory terms; . . . and that they

compounded their failure to live up to that promise by

actually going to court in other places to get injunctions,

blocking Microsoft from shipping products that implemented

these standards.” Heiner further testified that, following

Microsoft’s communication, the FTC initiated an

investigation against Motorola for, in the FTC’s words,

“reneg[ing] on a licensing commitment made to several

standard-setting bodies to license its standards-essential

patents . . . on FRAND terms by seeking injunctions against

willing licensees of those SEPs.” Heiner was not permitted

to testify about the details of the investigation.

Motorola challenges admission of Heiner’s testimony

about the FTC investigation under Federal Rules of Evidence

403 and 408, both of which the district court considered

60 MICROSOFT CORP. V. MOTOROLA, INC.

before allowing the testimony.23 Rule 408 prohibits

introduction of evidence of acceptance of consideration for

compromising a claim to prove the validity of the claim. Fed.

R. Evid. 408. The rule has been interpreted to bar admission

of civil consent decrees to prove the governments’

allegations. See United States v. Austin, 54 F.3d 394, 400

(7th Cir. 1995). Consent decrees can be introduced, however,

for other purposes, such as to show notice or knowledge. See

id.; United States v. Gilbert, 668 F.2d 94, 97 (2d Cir. 1981).

Here, the court allowed the testimony to show that

Motorola was aware its actions were contrary to “custom and

practice in the industry”—that its “conduct ha[d] been found

objectionable.” That is, Heiner’s testimony was admitted not

to show that the FTC had made any conclusions about

whether Motorola’s conduct was in breach of its RAND

obligations, but rather to show that Motorola was aware the

FTC (and Microsoft) found its conduct questionable enough

to merit investigation. A conclusion that Motorola knew that

23

Microsoft’s argument that the testimony was admissible as curative

evidence is without merit. “Under the rule of curative admissibility, or the

‘opening the door’ doctrine, the introduction of inadmissible evidence by

one party allows an opponent, in the court’s discretion, to introduce

evidence on the same issue to rebut any false impression that might have

resulted from the earlier admission.” Jerden v. Amstutz, 430 F.3d 1231,

1239 n.9 (9th Cir. 2005) (internal quotation marks and citations omitted).

Microsoft argues that Motorola “opened the door” to Heiner’s testimony

by presenting testimony about a letter Heiner wrote to the FTC in 2011;

in the letter, Heiner stated that Microsoft had, up to that point, never

“accused anyone of patent hold-up,” which Motorola’s counsel argued

was evidence that hold-up was not a real concern. Whether or not

Heiner’s letter was inadmissible or misleading, the testimony regarding

the FTC’s investigation of Motorola was not responsive to any false

impression the jury may have gotten about Microsoft’s views on hold-up.

See United States v. Whitworth, 856 F.2d 1268, 1285 (9th Cir. 1988).

MICROSOFT CORP. V. MOTOROLA, INC. 61

its behavior had been considered questionable could support

a bad faith determination as to Motorola’s continuing

conduct. At trial, Microsoft emphasized that Motorola

continued to pursue its injunctive actions in the ITC and in

the Wisconsin district court after the FTC initiated its

investigation and after the district court imposed a temporary

restraining order against enforcing the German injunction.

Heiner’s testimony did—impermissibly—go beyond the

scope of Judge Robart’s admissibility ruling. When asked

how the FTC investigation concluded, instead of stating that

the parties entered a consent decree—which is what counsel

had represented to the judge Heiner would say—Heiner

testified that the FTC had “concluded” that Motorola

“reneged” on its agreements. Judge Robart twice instructed

the jurors to disregard the statement and informed them,

reading from the consent decree, that the settlement “does not

constitute an admission by Motorola Mobility or Google that

the law has been violated as alleged in the complaint.”

Before Heiner testified, the court had twice informed the jury

that “allegations in a . . . government investigation, are not

proof of the truth of the matter alleged.” These prompt, clear

instructions were adequate to cure the prejudicial impact of

Heiner’s comments. See B.K.B. v. Maui Police Dep’t,

276 F.3d 1091, 1105 (9th Cir. 2002).

As to its Rule 403 argument, Motorola cites two

occasions on which this court has upheld a district court’s

decision to exclude evidence of a no-fault consent decree

after balancing its probative value against the danger of

prejudice. See Gribben v. United Parcel Serv., Inc., 528 F.3d

1166, 1172 (9th Cir. 2008); Kramas v. Sec. Gas & Oil Inc.,

672 F.2d 766, 772 (9th Cir. 1982). In both cases, we deferred

to the district court’s decision to exclude the evidence, which

62 MICROSOFT CORP. V. MOTOROLA, INC.

decision was “committed to the trial court’s sound

discretion.” Kramas, 672 F.2d at 772; see also Gribben,

528 F.3d at 1172. Further, in both cases, the consent decrees

in question were at most minimally probative, as they related

to actions markedly different from those at issue in the later

litigation. See Gribben, 528 F.3d at 1172; Kramas, 672 F.2d

at 772. Gribben, for example, involved a retaliatory

employment action claim; the employer’s prior no-fault

consent decree with the EEOC was “irrelevant” to the

question whether the plaintiff-employee was terminated in

retaliation for filing his own complaint with the EEOC. Id.

at 1172.

Here, by contrast, the evidence the judge authorized was

undoubtedly probative. The FTC investigated Motorola for

the same conduct cited in Microsoft’s breach of contract

complaint, and for the same reason: The conduct was alleged

to be a violation of Motorola’s good-faith RAND obligations.

There was, undoubtably, a risk of prejudicing the jury in

admitting testimony about the FTC investigation. Although

the jury was instructed that the FTC made no finding of

liability, the jurors might have assumed the agency would not

have initiated an investigation if they did not believe

Microsoft’s complaint was true. Similarly, while the jury was

told that Motorola’s agreement to the consent decree was not

an admission of liability, they may have inferred from the

decree that Motorola believed its actions were wrongful.

Any prejudicial effect of the order, however, was likely

cumulative of the impact of Heiner’s testimony about the

“public interest statement” the FTC sent to the ITC around

the same time as the investigation, expressing its “concern[]

that a patentee can . . . seek an exclusion order for

infringement of [a] RAND-encumbered SEP as a way of

MICROSOFT CORP. V. MOTOROLA, INC. 63

securing royalties that may be inconsistent with the RAND

commitment.” Motorola did not challenge Heiner’s

testimony about the FTC’s statement to the ITC on appeal.

Thus, testimony about the FTC order was largely cumulative

and so not prejudicial.

In short, Heiner’s testimony on the FTC investigation and

subsequent consent decree was clearly both probative and

potentially prejudicial. But under Rule 403, evidence is to be

excluded only “if its probative value is substantially

outweighed by a danger of . . . unfair prejudice.” Fed. R.

Evid. 403 (emphasis added). And in determining whether the

district court abused its discretion in applying that Rule, we

employ a “highly deferential” standard of review, Boyd v.

City & Cnty. of S.F., 576 F.3d 938, 949 (9th Cir. 2009),

reversing only if the exercise of discretion was “manifestly

erroneous and prejudicial,” Wagner v. Cnty. of Maricopa,

747 F.3d 1048, 1055 (9th Cir. 2013) (quoting Orr v. Bank of

America, NT & SA, 285 F.3d 764, 773 (9th Cir. 2002)). Here,

the danger of prejudice in admitting limited testimony about

the FTC investigation did not so manifestly outweigh the

testimony’s probative value that admitting the evidence was

an abuse of discretion.

III. CONCLUSION

With the parties’ consent, the district court conducted a

lengthy, thorough bench trial on the RAND rate and range.

The court analyzed that evidence in its exhaustive findings of

fact and conclusions of law, in a manner consistent with the

Federal Circuit’s recent approach to establishing damages in

the RAND context. The court’s factual findings were

properly admitted at the jury trial. The jury’s verdict was

64 MICROSOFT CORP. V. MOTOROLA, INC.

supported by substantial evidence, and its damages award

was proper.

The judgment of the district court is AFFIRMED.