[This story ran in the print edition of The Seattle Times Nov. 11, 2012.]
Microsoft and Motorola will be battling it out in U.S. District Court in Seattle starting Tuesday in a trial that’s being closely watched for its ramifications on the larger patent — and market — battles being fought between huge tech companies.
A federal judge will rule for the first time on what a reasonable royalty rate is for patents deemed essential for certain technologies that have become industry standards. At stake are billions of dollars.
“Maybe the most important thing that Judge [James] Robart can do is outline his view of a methodology for assessing reasonable royalties,” said Jorge Contreras, associate professor of law at American University Washington College of Law. “There are lots of competing theories but no court has given a hint what they will be looking for.”
The trial stems from a lawsuit Microsoft filed in November 2010, claiming that Motorola breached its contract to provide, at reasonable rates, use of its patented technologies that have become part of industry standards in online-video viewing and wireless usage.
(Private companies that hold such industry-standard patents agree, as part of joining international-standards groups, to license them under “fair, reasonable and nondiscriminatory” — or FRAND — terms.)
Microsoft’s lawsuit was one of two that had been scheduled to go to trial this month, claiming that Motorola Mobility — a subsidiary of Google — demanded excessive royalties from other companies that wanted to use its industry-standard patented technologies.
A judge in Madison, Wis., last week tossed out a lawsuit that Apple had filed against Motorola. The judge had been expected to determine a royalty rate on certain Motorola patents but dismissed the suit after Apple said it would not agree to pay Motorola a royalty rate of more than $1 for each iPhone manufactured.
In this case, Microsoft contends that Motorola was asking too much for use of some of its industry patents: 2.25 percent of the sale price of each Xbox and Windows. Microsoft argued the rate would amount to Microsoft paying Motorola $4 billion annually.
Motorola disputed the $4 billion figure, and said that the 2.25 percent royalty rate had been intended as an opening move toward further negotiations.
Judge Robart is expected, in this bench trial, to issue an opinion on what is reasonable.
A jury trial, scheduled for spring, is then expected to compare that reasonable rate to Motorola’s demand and determine whether Motorola breached its agreement.
Robart’s decision will also have an impact on other cases between the two companies being fought in Washington, D.C., and in Germany.
Motorola is seeking from the U.S. International Trade Commission (ITC) an import ban on Xbox consoles because the consoles contain some of the industry-standard patents under contention in the Seattle trial.
Motorola had also sought — and won — an injunction from a German court that would ban the sales of certain Windows and Xbox products in those countries. Robart barred Motorola from enforcing that injunction pending the results of the Seattle trials.
Microsoft has said that it would pay Motorola whatever the court decides is a reasonable royalty. If Motorola agrees to that, the cases before the ITC and the injunction in Germany should go away.
Either company, however, could also appeal whatever decisions the federal court ruling.
Despite that, next week’s trial is considered significant.
“Other courts deciding what qualifies as ‘fair’ and ‘reasonable’ will look at this court’s approach, learn from it and may elect to follow it if it seems sound,” said Robert Gomulkiewicz, a professor at the University of Washington School of Law.
Furthermore, said Robert Barr, executive director of the University of California Berkeley’s Center for Law and Technology, the judge’s decision will likely “provide guidelines for how other companies negotiate FRAND licenses in the future, hopefully making it less necessary to go to court for a resolution.”