Motorola v. Microsoft

Google, Motorola, Microsoft Prepare to Settle Patent Royalty Rate Fight in Court

November 13, 2012 - Written By Kody Frazier

Patent disputes; if you’ve heard it once you’ve heard it a thousand times in modern news cycles. Recently, patent holders and the companies they license to having been squaring off in court ever more frequently over associated costs and fees. Not to mention the streak of Apple lawsuits over copyright and patent infringement. Now, Microsoft and Google are going head-to-head over the cost of royalty fees associated with Motorola patents.

So where does Google come into this mess? Last year Google purchased Motorola Mobility as part of its mobile division expansion. Google spokespeople had no comment on the current patent dispute, but they inherited the problem one year after Microsoft lodged its complaint against Motorola, so they also inherited Motorola’s position that Microsoft simply isn’t paying enough.

Microsoft licenses Motorola’s patents on 802.11 wireless standard and H.264 video standard. Motorola believes that it is fair for Microsoft to pay 2.25-percent of the price of each item sold that uses their patents. Microsoft has countered that a more realistic number would $0.05 per item. Bear in mind that several high-selling items feature these standards, including Microsoft’s Xbox 360 and Windows OS. Microsoft’s primary argument is that the industry is in danger of shooting itself in the foot with “royalty stacking,” a term that came up most recently during the HTC/Apple patent settlement. Royalty stacking means that as royalty fees from various patents are stacked onto a device, it no longer becomes practical to manufacture or profitable to distribute.

The two companies are unwilling or incapable of coming to a reasonable agreement, so Judge James Robart of the U.S. District Court in Seattle is going to hand down a decision, whether the companies like it or not. The trial begins Tuesday, and will be split into two parts. In the first part, Judge Robart will determine a rate for Motorola to charge for patents, and he will come to decision on his own. In the second part, however, a jury will sit in to decide if Motorola was in breach of contract for charging exorbitant fees.

The concern now is what kind of precedent this will set for the industry. Should judges be considered the best people to decide on royalty rates for industries they likely know little about? If the judge sets a relatively high royalty rate, should Motorola demand the same rate from other license holders? The long-term effects of this case may play a large role in the price structure of a variety of personal electronics for future generations.