Judge cuts Google's Motorola Mobility royalty demand to Microsoft

In a new probe announced in May 2013,

In a new probe announced in May 2013, FTC investigators are examining whether Google is using its position in U.S. display ads -- a $17.7 billion industry that includes the sale of banner ads on websites -- to push companies to use more of its other services. (Sept. 26, 2012) (Credit: Getty Images)

Google Inc.'s Motorola Mobility unit isn’t entitled to the potentially billions of dollars it sought for its patents on technology used throughout the electronics community, a federal judge ruled in a victory for Microsoft Corp.

Microsoft should pay about a half-cent per unit for video- decoding technology and 3 1/2 cents for wireless technology, U.S. District Judge James Robart in Seattle said in a decision made public Thursday. That equals about $1.8 million a year, Microsoft said, far less than the 2.25 percent of the retail price Motorola Mobility initially demanded.

The ruling marks a rare instance in which a U.S. court has set guidelines on how patent owners should value inventions on industrywide standards, which are developed so devices running on different platforms can work together. It’s an issue that has prompted inquiries by antitrust regulators on three continents involving companies such as Samsung Electronics Co. and InterDigital Inc.


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“This decision is good for consumers because it ensures patented technology committed to standards remains affordable for everyone,” David Howard, deputy general counsel for Microsoft, said in a statement.

Companies meet to develop standards so that, for instance, data can be sent to any smartphone no matter the manufacturer. Those companies that help establish the criteria gain an advantage in having their technology included in the standards. In return, they pledge to license any relevant patents on fair and reasonable terms.

AUGUST TRIAL

The next step in the case is a trial in August to determine whether, based on the ranges set by Robart, Motorola Mobility had met its contractual obligation to license its patents on fair terms.

“Motorola has licensed its substantial patent portfolio on reasonable rates consistent with those set by others in the industry,” Matt Kallman, a spokesman for Motorola Mobility, said in a statement after the ruling.

Robart said that the proper royalty range for the video- decoding technology, used in both the Xbox gaming system and Windows operating system, should be no more than 16.4 cents.

Motorola Mobility’s portfolio “only constitutes a sliver of the overall technology incorporated” into the standard, Robart said in his 207-page opinion. For the Wi-Fi portfolio, applicable to the Xbox, the upper rate would be 19.5 cents per unit, he said.

DISPUTE'S ORIGINS

The dispute between Microsoft and Motorola Mobility, then a standalone company, began in 2010, when Redmond, Washington- based Microsoft demanded that Motorola Mobility pay patent royalties on its mobile phones that run on Google’s Android operating system.

Motorola Mobility, which helped establish standards for things such as video decoding and Wi-Fi, responded by demanding that Microsoft pay royalties for the Windows operating system and Xbox. It sent letters in October 2010, demanding 2.25 percent on the retail price of the product. Microsoft, which reported $73.7 billion in 2012 revenue, has said the royalties would total more than $4 billion a year, a figure Motorola Mobility disputes.

Microsoft, in court filings, had argued that the proper royalty rate would be pennies per product, with the royalties on the standard for video compression totaling no more than $521,000 a year. It also contended that the rate for wireless technology should be based on what it calls the smallest salable unit, meaning the Marvell Technology Group Ltd. chips, which cost about $3.

XBOX DEMAND

Microsoft argued that it’s the games -- not wireless technology -- that drive demand for the Xbox. Motorola Mobility contended that sales of the device fell when Microsoft failed to include Wi-Fi before 2010.

Motorola Mobility said it had originally charged licensees a flat rate of $9 per unit, and converted that to the 2.25 percent royalty at the request of companies that said falling phone prices were pushing the rate up. It said Microsoft refused to make a counteroffer, instead filing the breach-of-contract suit that Robart ruled on in the decision released Thursday.

Apple Inc. made similar breach-of-contract allegations against Motorola Mobility in a case in federal court in Wisconsin. U.S. District Judge Barbara Crabb threw out the case last year after Apple said it wouldn’t abide by any royalty rate she set. Apple has filed an appeal.

Google, which bought Motorola Mobility last year, reached an agreement with the U.S. Federal Trade Commission that it wouldn’t seek to block sales of products that comply with industry standards. European regulators also are investigating Google’s use of the Motorola Mobility patents in litigation.

The case suit is Microsoft Corp. v. Motorola Mobility Inc., 10cv1823, U.S. District Court for the Western District of Washington.

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