Must an Offer to License Be Reasonable and Non-Discriminatory?

What does a patent owner have to do to meet a requirement of a standards setting organization (SSO) that license terms be reasonable and non-discriminatory (RAND)?  Does the patent owner simply need to be willing to license on RAND terms, or does the patent owner have to include RAND terms in its initial offer?  In the continuing patent battle between Microsoft and Motorola, the court recently held that this question must be answered according to principles of contract interpretation applied to the governing SSO policies.  Because the parties failed to brief the law of contract interpretation, the court denied parts of Microsoft's summary judgment motion seeking findings that (1) Motorola was obligated to offer RAND terms to SSOs' third party beneficiaries, and (2) Motorola's offer to Microsoft to license standards-essential patents violated Motorola's RAND obligations.  Microsoft v. Motorola, No. C10-1823JLR (W.D. Wash. Feb. 27, 2012).

Courts, litigants, and commentators (see this recent post on the PatentlyO blog, for example) have for some time pondered the question of what it means for patent license terms to be RAND (or, sometimes, fair, reasonable and non-discriminatory).  This opinion is interesting not because it moves the patent world any closer to understanding what RAND means -- it doesn't -- but for the court's reasons for denying Microsoft all the relief it sought.  The court took Microsoft to task for not briefing the law of contract interpretation governing whether Motorola was obligated to offer, as opposed to ultimately agree to, reasonable and non-discriminatory terms.  Microsoft's motion was partly denied because the parties had left "the court to guess at, among other things, which choice of law governs the [two SSOs'] policies, whether the policies are ambiguous, [and] whether review of extrinsic evidence is appropriate in interpreting the policies.”

It will be interesting to continue to watch this case.  The court gave the parties leave to file further summary judgment motions.  Then, assuming the case remains unresolved, the court stated that it "intends to schedule a mini-trial on any unresolved RAND issues."

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