On May 18, 2012, ALJ David P. Shaw issued the public version of the Recommended Determination on Remedy and Bonding (“RD”) (dated May 7, 2012) in Certain Gaming and Entertainment Consoles, Related Software, and Components Thereof (Inv. No. 337-TA-745).

By way of background, the investigation is based on a complaint filed by Motorola Mobility, Inc. and General Instrument Corporation (collectively, “Motorola”) alleging violation of Section 337 by Respondent Microsoft Corp. (“Microsoft”) for its importation into the U.S. and sale of certain gaming and entertainment consoles, related software, and components thereof that infringe  certain U.S. Patents.  See our November 24, 2010 post for more details.  On April 23, 2012, ALJ Shaw issued the Initial Determination (“ID”) which found that a violation of Section 337 occurred in this investigation by Microsoft by reason of infringement of certain valid claims of U.S. Patent Nos. 5,357,571 (the ‘571 patent); 6,069,896 (the ‘896 patent); 6,980,596 (the ‘596 patent); and 7,162,094 (the ‘094 patent).  See our May 24, 2012 post for more details on the public version of the ID. 

With respect to remedy, Motorola sought a limited exclusion order (“LEO”) against Microsoft, and its affiliated companies, related business entities, and successors or assigns, barring from entry into the U.S. all gaming and entertainment consoles, related software, and components thereof found to infringe one or more of the asserted claims of the patents-in-suit.  According to the RD, Microsoft argued this would be contrary to the public interest, citing only two primary competitors to Microsoft’s gaming system; the Sony Playstation and the Nintendo Wii.  ALJ Shaw rejected Microsoft’s argument, on the grounds that (i) Microsoft did not show that Sony or Nintendo would fail to meet the demand for consumer video gaming consoles in the event the LEO issued; (ii) Microsoft did not file a response to the ITC’s solicitation of comments relating to the public interest; and (iii) there is a strong public interest in enforcing intellectual property rights.  Accordingly, ALJ Shaw recommended that in the event a violation is ultimately found, the Commission should issue an LEO, which should contain a certification provision to facilitate proper enforcement.  Such a provision permits entities whose products are potentially excludable to certify, pursuant to procedures specified by the U.S. Customs and Border Protection, that they are familiar with the terms of the order, and to the best of their knowledge, the products being imported are not excluded from entry under the order.  ALJ Shaw further recommended that the Commission issue a cease and desist order, since it was shown that Microsoft held commercially significant infringing inventory, centered at two distribution centers in the U.S. 

Regarding the bond amount, Motorola requested a 100% bond in light of the wide range of prices charged for infringing products and the resulting difficulty in making a price differential analysis.  In the alternative, Motorola argued that a reasonable royalty rate of 2.25% would be appropriate with respect to the ‘712, ‘571, ‘596, and ‘094 patents, and that a different, royalty rate should apply to the ‘896 patent.  Microsoft responded by arguing that the bond should be set at zero, since Motorola did not identified any consumers who purchased an Xbox console in lieu of a Motorola device, and that the purported reasonable rates were excessive, between 16 and 45 times the maximum rates charged by licensors in the standards pool applicable to certain of the asserted patents.  ALJ Shaw stated that the patent pools Microsoft referred to did not include the Motorola patents, the ‘896 patent was not even subject to any obligation by Motorola to license at a reasonable and non-discriminatory rate, and Microsoft did not propose an allegedly more reasonable royalty rate.  ALJ Shaw recommended that any bond required to be posted by Microsoft during the Presidential review period be seven percent of the wholesale price of the products at issue.