WDWA sets FRAND rates for 802.11 networking and H.264 video

On April 25, 2013, Judge Robart of the Western District of Washington issued a 200+ page findings of fact and conclusions of law in Microsoft Corp. v. Motorola Mobility, Inc., Case No. 2:10-cv-01823 (Doc. No. 681), addressing a multitude of issues, but of particular interest, FRAND (fair, reasonable, and non-discriminatory) rates for patents relating to two well-known industry standards. The standards at issue were the IEEE wireless local area network ("WLAN") standard, 802.11, and the ITU advanced video coding standard, H.264.

Both of the standards include a wide variety of patented technology, and parties that are involved with the standard-setting process and claim to have patents covering the standards are obligated to license the patents on reasonable and non-discriminatory (synonymous with fair, reasonable, and non-discriminatory) terms. The issue then becomes what exactly a RAND (or FRAND) rate is, as undoubtedly the patentee believes its patents are worth more than potential licensees believe.

The litigation involved a breach of contract claim, as Microsoft claimed that Motorola had breached its RAND obligation by making an unreasonable offer when attempting to license Microsoft to Motorola's standards-related patents. Motorola had sought a license rate of 2.25% for a variety of end products, including the Microsoft Xbox. Because the RAND rate (or range of rates) was a "heavily disputed, fact sensitive issue...[it] must be resolved by a finder of fact." There was a lengthy bench trial, and based on a very detailed analysis, the Court determined:

The RAND royalty rate for Motorola's H.264 SEP portfolio is 0.555 cents per unit; the upper bound of a RAND royalty range for Motorola's H.264 SEP S portfolio is 16.389 cents per unit; and the lower bound is 0.555 cents per unit. This rate and this range are applicable to both Microsoft Windows and Xbox products. For all other Microsoft products using the H.264 Standard, the royalty rate will be the lower bound of 0.555 cents. The RAND royalty rate for Motorola's 802.11 SEP portfolio is 3.471 cents per unit; the upper bound of a RAND royalty range for Motorola's 802.11 SEP portfolio is 19.5 cents per unit; and the lower bound is 0.8 cents per unit. This rate and range is applicable to Microsoft Xbox products. For all other Microsoft products using the 802.11 Standard, the royalty rate will be the low bound of 0.8 cents per unit.

Because there are numerous suits involving patents related to the 802.11 and H.264 standard, this case figures to be oft-cited by experts and Courts in determining the RAND rate of other, similar, patents.