795 F.3d 1024 (9th Cir. 2015)
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 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 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.
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 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 “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 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.
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 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 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.6
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 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 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).
In 2012, Motorola appealed to this court to review the district court’s grant of a preliminary anti-suit injunction. See 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 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.
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.
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 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.
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 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 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.
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 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.
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).
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.
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.
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 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 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
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.
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 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).
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).
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.
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 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.
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.
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 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 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.
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 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.
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 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 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 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 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.
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).