Microsoft Pushing Licensing Clarity for Key Patents

In the midst of an especially litigious period in the mobile space, Microsoft is issuing a call for greater fairness and clarity in licensing.

Microsoft published a statement on Wednesday regarding so-called "standard essential patents," or patents that standards bodies have deemed important. The statement pushes for greater licensing clarity for such patents based on "fair, reasonable and nondiscriminatory" (FRAND) terms.

Microsoft has faced legal challenges from companies that hold intellectual property important for mobile products using standards-based technologies. The company has also has sued many of its own mobile hardware partners over mobile user interface technologies, especially if those partners are using the Linux-based Android mobile OS.

FRAND, along with its linguistic cognate, RAND (which drops the "fair" part but bears the same meaning), is typically licensing language that's targeted as part of standards body formulations. The idea is that if a standard requires the use of certain patented technologies, companies can afford to pay for the royalty costs and still compete in the market. However, it's worth noting that these terms are rejected by the Free Software Foundation because they imply that costs must be associated with software use. Instead, the FSF prefers the use of the phrase "uniform fee only" to describe FRAND and RAND licensing. Given the context of recent squabbles over standards essential patents, the FSF's definition may be the most accurate one.

The Motorola Problem
The nature of those FRAND royalty costs may have prompted Microsoft's latest statement on the matter. Microsoft appears to be trying to shape how high-tech industries license intellectual properties that are used in specifications set by standards bodies. However, the timing of Microsoft's statement also coincides with regulatory authorities' reviews of Google's attempt to buy Motorola Mobility Holdings Inc. (MMI).

It turns out that Motorola has been giving both Microsoft and Apple a hard time over FRAND licensing. Google's attempts to purchase MMI may amount to further heartburn for Microsoft's and Apple's legal departments since Google could maintain Motorola's stance with respect to FRAND licensing, potentially affecting the costs of both companies' mobile products.

Some of these FRAND difficulties have made the news. For instance, Microsoft sued Motorola in November 2010 for charging excessive royalty payments for wireless LAN and H.264 video codec technologies that Microsoft uses in its Xbox gaming console. The technologies are associated with IEEE and ITU standards, and so the licensing should be offered according to RAND principles. Microsoft has elaborated on that FRAND licensing, saying that the royalty payments should have been determined at the component price level, rather than at the cost of the whole device (Motorola's position).

Apple, too, has been complaining about FRAND licensing. The company was initially blocked from selling its iPad and iPhone devices in German stores because Motorola wanted payment on patents associated with the General Packet Radio Service standard, according to a report. Apple recently sent a letter to the European Telecommunications Standards Institute (ETSI) complaining about mobile device patents and royalty rates, and asking for a more consistent FRAND licensing scheme, according to an article published by The Wall Street Journal. The article suggested that Motorola had demanded 2.25 percent of Apple's iPhone device sales for the FRAND licensing.

Google on FRAND
Google has explained that it will follow some of Motorola's specific policies on FRAND licensing once it acquires MMI. In response to a question, a company spokesperson simply stated that it would license intellectual property based on FRAND terms.

"Since we announced our agreement to acquire Motorola Mobility last August, we've heard questions about whether Motorola Mobility's standard-essential patents will continue to be licensed on FRAND terms once we've closed this transaction. The answer is simple: they will," a Google spokesperson stated via e-mail on Wednesday.

However, Google's letter to the IEEE, dated Feb. 8, 2012, is more specific. It indicates that the company will continue Motorola's policy and grant licenses based on "a maximum per-unit royalty of 2.25% of the net selling price for the relevant end product on a go-forward basis, subject to offsets for the value of any cross-licenses or other consideration received from the licensee." The letter also indicated that Google won't impose injunctive relief "against a willing licensee."

Google's letter is reproduced at Florian Müller's blog, which also houses documents from Apple and Cisco on "FRAND abuse." Müller is a non-lawyer consultant who currently has a contract with Microsoft to produce a study on FRAND licensing. He backs Microsoft's position on FRAND and claims to support open source licensing, too.

In any case, it looks like Google may be moving into a position in which it could wreak some financial payback. The Android OS, largely fostered by Google and offered royalty-free to hardware manufacturers, has been the subject of numerous patent infringement claims from both Apple and Microsoft. It's calculated that Microsoft may make more money off Android royalty payments than it does selling its own competing Windows Phone OS. Should Google get a hold of MMI's intellectual property, Microsoft's and Apple's costs could rise.

Microsoft's Position
Here is Microsoft's declaration on how FRAND principles should be applied to intellectual property associated with standards-based technologies:

  1. "Microsoft will always adhere to the promises it has made to standards organizations to make its standard essential patents available on fair, reasonable and nondiscriminatory terms."

  2. "This means that Microsoft will not seek an injunction or exclusion order against any firm on the basis of those essential patents."

  3. "This also means that Microsoft will make those essential patents available for license to other firms without requiring that those firms license their patents back to Microsoft, except for any patents they have that are essential to the same industry standard."

  4. "Microsoft will not transfer those standard essential patents to any other firm unless that firm agrees to adhere to the points outlined above."

Microsoft's position, in a corporate framework, does sound reasonable. It has even taken its position to regulators around the world, insisting on RAND terms for intellectual property holders when patents touch standards. It really should be that companies rallying around standards shouldn't let FRAND licensing become an obstacle to producing products.

However, the litigious mobile space seems to be breaking apart the notion of such "gentleman agreements." At this point, the milieu seems to be all about legal positioning to grab the most mobile revenues, while leveraging very useful standards in products. It may be that Microsoft's litigation outside the FRAND standards licensing scheme has set the tone, and upped the costs, especially for companies making mobile products.


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