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Microsoft Pri0

Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times technology reporter Matt Day.

December 18, 2012 at 11:15 AM

Microsoft and Motorola’s closing arguments in patent trial

Should Microsoft pay Motorola $1.2 million or more than $100 million annually for use of certain Motorola patents in producing Windows and Xbox products?

Those poles-apart figures are what Microsoft and Motorola, respectively, have presented to a federal court judge in post-trial briefs — basically, their closing arguments — in a trial that will likely have far-reaching ramifications for technology companies.

The trial, which began last month in a federal court in Seattle, stems from Microsoft’s contention that Motorola Mobility, now owned by Google, was asking too much for use of some of its patents.

The patents at issue are for technologies deemed so essential that they have become standard use in the industry, such as the H.264 standard for video compression or the 802.11 standard for wireless connectivity.

Motorola had asked MIcrosoft for 2.25 percent of the sale price of each Xbox and Windows. Microsoft said that would mean paying Motorola $4 billion annually.

U.S. District Court Judge James Robart is expected to issue a decision early next year on what a reasonable royalty is for those patents — the first time a federal judge would be determining such a rate or rate range.

The redacted post-trial briefs, dated Dec. 14, were released this week. (Some post-trial briefs were also filed under seal.)

In the briefs, Microsoft reiterated the stance it took in its opening arguments — that looking at patent pool rates would be a good way to determine reasonable royalty rates for Motorola’s industry-standard patents. Under that model, Microsoft says, it should pay Motorola no more than $1.2 million annually for the Motorola patents at issue. (The $1.2 million is a total of $502,000 for the most recent year for Motorola’s H.264 patents and $736,000 for Motorola’s 802.11 patents.)

Motorola, in contrast, had argued that a reasonable rate could have been arrived at through bilateral negotiations. Based on such past negotiations with other companies, Motorola says, its standard reasonable royalty range had extended up to 2.25 percent of the end product price. But adjustments were also possible. And in this case, Motorola said it was willing to cap annual Microsoft payments at between $100 million and $125 million for the H.264 patents alone. In addition, Motorola says Microsoft should pay it a royalty rate of 1.15 percent to 1.73 percent of the sale price of each Xbox 360 for Motorola’s 802.11 patents.

Interestingly, Judge Robart had also asked for post-trial briefs on Google’s 2005 licensing agreement with an H.264 patent pool.

Microsoft contended in its brief on the issue that Google’s agreement to take part in that pool “ultimately derails Motorola’s excessive H.264 demands,” given that Google had agreed to license its H.264 patents at that pool rate and that Motorola was now an affiliate of Google. That agreement provides “compelling, if not conclusive, evidence of the appropriate (reasonable) royalty to be applied” to Motorola’s patents, Microsoft said.

Motorola said in its brief that Google’s agreement does not reach Motorola’s H.264 patents, given that Google entered into the agreement years before it acquired Motorola. Motorola also contended that that agreement was not relevant to determining a reasonable rate in this case because the pool rates “reflect the unique circumstances of a given pool and are not representative of the rates in bilaterally negotiated patent license agreements.”

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