## Facts

- Motorola participated in standard-setting for the H.264 video and IEEE 802.11 (Wi‑Fi) standards and submitted written commitments to license patents essential to those standards on reasonable and non-discriminatory (RAND) terms.
- Microsoft implemented H.264 and 802.11 in products such as Windows and Xbox and asserted it was an intended beneficiary of Motorola’s RAND commitments.
- Motorola sent Microsoft licensing offers for its H.264 and 802.11 standard-essential patent (SEP) portfolios that used a percentage-of-end-product royalty structure, resulting in high proposed royalties.
- Microsoft sued in federal district court asserting breach of contract based on Motorola’s RAND commitments to the relevant standard-setting organizations and sought a judicial determination of RAND rates.
- The court bifurcated issues and conducted a bench trial focused on determining RAND royalty rates and ranges applicable to Motorola’s SEP portfolios for Microsoft’s use.

## Issues

1. Whether Motorola’s RAND commitments to standard-setting organizations created enforceable contractual obligations that Microsoft could enforce as a third-party beneficiary.
2. What methodology a court should use to determine RAND royalty rates and ranges for SEP portfolios covering standardized technologies.
3. Whether RAND requires substantively reasonable licensing terms (as opposed to only a duty to negotiate) and how concerns about hold-up and aggregate royalties affect rate setting.

## Decision

- The court held Motorola’s RAND commitments were contractual promises intended to benefit implementers and were enforceable by Microsoft as a third-party beneficiary.
- The court determined RAND royalty rates and ranges for Motorola’s H.264 and IEEE 802.11 SEP portfolios as applied to Microsoft products.
- The court adopted a rate-setting approach that relied on evidence of comparable licenses (including patent pool benchmarks) and adjusted traditional patent-damages considerations to reflect the RAND context.
- The court concluded the RAND rates it set were far below Motorola’s initial percentage-of-end-product offers.

## Legal Principles

- RAND commitments made to standard-setting organizations can form enforceable contracts, and implementers of the standard may enforce those commitments as intended third-party beneficiaries.
- A RAND royalty should reflect the ex ante incremental value of the patented technology over alternatives, not value attributable to standard adoption or standard-induced leverage.
- Courts may determine RAND rates by using a modified Georgia-Pacific framework tailored to SEPs, including attention to apportionment and avoiding reliance on an end-product royalty base where the patented contribution is a small component.
- Comparable licenses, including patent pool rates and other industry agreements, may be strong evidence for establishing RAND ranges and selecting a RAND point rate.
- RAND rate setting should account for risks of hold-up and excessive aggregate royalties (royalty stacking) when many SEP owners could seek compensation for the same standardized product.

## Conclusion

The court treated Motorola’s RAND assurances as enforceable contracts benefiting standard implementers and, after a bench trial, set specific RAND royalty rates and ranges for Motorola’s H.264 and 802.11 SEP portfolios using an ex ante, apportionment-focused methodology designed to prevent standard-induced overpricing.


Microsoft Corp. v. Motorola, Inc., No. C10-1823JLR, 2013 WL 2111217 (W.D. Wash. Apr. 25, 2013)