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The RAND Modified Hypothetical Negotiation

By Mark A. Chapman and Rose Cordero Prey

On April 25, 2013, Judge James L. Robart of the Western District of Washington publicly issued his Findings of Fact and Conclusions of Law from the November 2012 bench trial in Microsoft Corp. v. Motorola, Inc., et al., Case No. 2:10-cv-01823-JLR (W.D. Wash.). Judge Robart's 207-page opinion describes in great detail the methodology he used and the evidence he considered to determine a reasonable and non-discriminatory (“RAND”) royalty for Microsoft's use of certain Motorola standard essential patents (“SEPs”) related to video compression and wireless networking. To determine the RAND royalty, Judge Robart applied the traditional Georgia-Pacific factors, but modified the hypothetical negotiation to assume that it was conducted under a RAND obligation. For both sets of SEPs, Judge Robart determined both a royalty rate as well as a range of royalty rates that would satisfy the RAND obligation. These determinations will serve as a baseline for the jury in the upcoming August trial over whether Motorola's license offers to Microsoft ' which were considerably higher than the court's RAND license rates ' were made in good faith and not a breach of Motorola's contractual obligation to license its SEPs under RAND terms.

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