News

U.S. Judge Sides with Microsoft in Patent Case Against Motorola

• By Kurt Mackie
• April 30, 2013

A U.S. district court judge has concluded favorably to Microsoft in assessing Motorola Mobility's standard-essential patent (SEP) infringement claims.

James L. Robart, a judge for the U.S. District of Washington at Seattle, on Thursday offered a 207-page "findings of facts" document as an explanation for determining the value of SEPs licensed under reasonable and non-discriminatory (RAND) terms. It was an unusual approach for the judge to take because not even standards-setting organizations determine the value of such essential patents. Typically, companies negotiate the terms, often making deals with other stakeholders based on their various intellectual property holdings.

Robart stepped into the case after a court in Germany ruled Microsoft had infringed Motorola Mobility's SEPs. The judge acknowledged that he was intervening, but said at the time that Microsoft had filed its complaint six months before that German case. Motorola Mobility (now majority owned by Google) had sought 2.25 percent of Microsoft Xbox unit sales for Microsoft' use of its SEPs.

Robart had signaled last May that the U.S. district court would determine the RAND royalty rates in the case. Essentially, that's what the 207-page document on Thursday delivered. The case involves patented technologies associated with two standards, the 802.11 Wi-Fi standard and the H.264 video codec standard.

The conclusions drawn by Robart were influenced by the testimony of 18 expert witnesses from a November 2012 bench trial. A "hypothetical negotiation" was set up to assess the rates that should be charged. The judge took the position that the court should assess the realizable profit associated with the invention, apart from its value in the standard.

The assessment didn't go well for Motorola Mobility. For instance, the court found "scant evidence" that Motorola's 802.11 patents were essential to the standard. On the H.264 patents, the court found that they were associated with interlaced video that was becoming "less prevalent in the marketplace."

"In sum, the court concludes that the royalty rates sought by Motorola for its 802.11 and H.264 SEP portfolios do not fall within the range of RAND royalties," Robart wrote.

Microsoft had estimated that Motorola Mobility was seeking $4 billion in royalties just for the Xbox unit revenues related to the H.264 standard. However, that figure was a bit differently described in Robart's document. Per that document, Motorola had calculated that the net annual payment for unidentified years for its H.264 patents would be $137 million. For the 802.11 patents, Motorola calculated that Microsoft would need to make "a net payment of $36 to $54 million in the fiscal year 2010 to 2011."

Robart didn't specify the total amount Microsoft owed to Motorola Mobility. Instead, he estimated the RAND royalty rate for the patents, along with a range. The H.264 RAND royalty rate was specified as 0.555 cents per unit, ranging between 0.555 cents per unit and 16.389 cents per unit, which applies to Microsoft's Windows and Xbox products. The 802.11 RAND royalty rate was specified as 3.471 cents per unit, ranging between 0.8 cents per unit to 19.5 cents per unit, which applies to Xbox.

Those numbers mean that Microsoft will pay just $1.8 million per year, rather than the millions that were estimated by Motorola Mobility, according to The Seattle Times, citing Microsoft's estimate for the $1.8 million figure. The next phase of the trial, slated for Aug. 26, will determine if Motorola Mobility impeded Microsoft from licensing the technologies under RAND conditions, according to The Times.

Nonetheless, it appears that Robart has paved the way to set a method for determining RAND royalties in future SEP patent disputes.

Microsoft, along with Apple, also has been battling Motorola Mobility at the European Commission over SEPs and royalty rates. It's been doing that while also extracting royalties from companies based on its non-FRAND patent holdings. Typically, Microsoft's targets have been device makers using the Google-fostered Android operating system. The judge seemed to back that distinction between FRAND and non-FRAND intellectual property.

"The owner of an SEP is under obligation to license its patents on RAND terms, whereas the owner of a patent uncommitted to RAND has monopoly power over its patent and may choose to withhold licensing," Robart wrote.