## Facts

- Motorola declared certain patents essential to the IEEE 802.11 (Wi‑Fi) and ITU H.264 (video) standards and committed to license those SEPs on reasonable and non‑discriminatory (RAND) terms through the standard-setting organizations.
- Microsoft, as a standard implementer, was an intended third-party beneficiary of Motorola’s RAND commitments.
- Motorola sent Microsoft letters offering licenses at 2.25% of the end-product price for each standard-compliant device.
- Microsoft sued in the Western District of Washington, alleging Motorola’s offers breached its RAND obligations and the implied duty of good faith and fair dealing.
- Motorola pursued infringement actions and sought injunctive relief in multiple fora, including Germany; the district court enjoined Motorola from enforcing any German injunction, and the Ninth Circuit affirmed that injunction in an interlocutory appeal.
- With the parties’ stipulation, the district court held a bench trial to determine a RAND rate and range for Motorola’s SEP portfolios, using a hypothetical-negotiation framework informed by modified Georgia-Pacific factors and focusing on incremental value and avoidance of hold-up and royalty stacking.
- A jury then found Motorola breached the duty of good faith and fair dealing and awarded Microsoft $14.52 million, largely for costs associated with responding to injunctive efforts and relocating a distribution facility.
- Motorola appealed; the Federal Circuit transferred the appeal to the Ninth Circuit, which affirmed the judgment.

## Issues

1. Whether the Ninth Circuit had appellate jurisdiction over the dispute, given patent-related subject matter and a transfer from the Federal Circuit.
2. Whether the district court could determine a RAND rate and range in a bench trial, rather than leaving rate-setting to a jury.
3. Whether the district court’s RAND methodology was legally erroneous or inconsistent with Federal Circuit reasonable-royalty principles.
4. Whether substantial evidence supported the breach finding and whether the $14.52 million damages award was recoverable as contract damages.

## Decision

- The Ninth Circuit held it had jurisdiction under law-of-the-case principles based on its prior interlocutory decision and the Federal Circuit’s transfer.
- The court held Motorola consented to the bench trial on RAND and could not complain that a jury was required on that issue.
- The court upheld the district court’s RAND methodology as consistent with reasonable-royalty principles and permissible in light of RAND commitments.
- The court affirmed the jury’s finding that Motorola breached the duty of good faith and fair dealing and affirmed the $14.52 million damages award.

## Legal Principles

- RAND commitments to standard-setting organizations can create enforceable contracts governed by state contract law, and standard implementers may enforce those commitments as intended third-party beneficiaries.
- Contractual RAND obligations are subject to the implied duty of good faith and fair dealing, which bars conduct that undermines the counterparty’s expected contractual benefits.
- A court may, with party consent, determine a RAND rate and range in a bench proceeding as a form of contract interpretation that can guide a later breach trial.
- A RAND royalty analysis may use a hypothetical negotiation and adapt Georgia-Pacific considerations to account for RAND constraints, including focusing on incremental value and considering risks of hold-up and royalty stacking.
- Seeking injunctive relief on RAND-encumbered SEPs against a willing licensee, together with demands far outside a RAND range, can support a finding of bad faith.
- Damages for breach of RAND obligations may include foreseeable, proximately caused costs incurred to mitigate or respond to improper injunctive efforts, including certain relocation and related litigation-response expenses.

## Conclusion

The Ninth Circuit treated Motorola’s RAND commitments as enforceable contracts benefiting Microsoft, upheld a court-determined RAND rate and range reached through a modified reasonable-royalty framework, and affirmed findings that Motorola acted in bad faith—supporting a $14.52 million contract-damages judgment.


Microsoft Corp. v. Motorola, Inc., 795 F.3d 1024 (9th Cir. 2015)