A federal judge in Seattle, in a case that has potentially wide-reaching ramifications for tech companies worldwide, has issued a ruling favorable to Microsoft in its ongoing patent battle with Google’s Motorola.
U.S. District Court Judge James Robart on Thursday made public his ruling determining how much would be fair for Motorola to ask Microsoft to pay for using certain patented Motorola technologies in its products.
The resulting amount, based on the rates set by Robart, is very close to what Microsoft had proposed as reasonable, and is far less than what Motorola had asked for.
Motorola had asked initially for 2.25 percent of the sale price of each Xbox and Windows — a rate that Microsoft said would amount to paying Motorola $4 billion annually.
Microsoft had said that $1.2 million annually might be a reasonable amount to pay Motorola.
Judge Robart set royalty rates that, according to Microsoft, would amount to the company paying about $1.8 million annually to Motorola.
“This decision is good for consumers because it ensures patented technology committed to standards remains affordable for everyone,” David Howard, Microsoft’s deputy general counsel, said in a statement.
A Google spokesman issued a statement saying that: “Motorola has licensed its substantial patent portfolio on reasonable rates consistent with those set by others in the industry.”
This is another in a string of recent blows to the strength of Motorola’s patent portfolio. Google cited Motorola’s patents as one of the reasons it purchased the company last year for $12.5 billion.
Earlier this week, the U.S. International Trade Commission sided with Apple, ruling invalid a Motorola patent in a dispute between the two companies over phone sensor technology. Last month, an ITC judge issued an initial ruling that Microsoft’s Xbox console doesn’t infringe on a Motorola patent.
The patents in the case before Judge Robart involve standard-essential patents – patents for technologies deemed so essential that they have become standard use in the industry.
This case has wider ramifications for the tech industry because it’s the first time a federal judge has ruled on what a reasonable royalty rate or range is for such standard-essential patents, and, more importantly, outlined his process in reaching that decision.
In the case here, the patents involve technologies used in the H.264 standard for video compression and the 802.11 standard for wireless connectivity. Microsoft uses those technologies in producing Windows and Xbox products.
The trial, which ran for about a week in November, stemmed from Microsoft’s contention that Motorola Mobility, now owned by Google, was asking too much for use of some of its industry patents, breaching a commitment it had made to provide its standard-essential patents on fair and reasonable terms.
Motorola said during the trial that the 2.25 percent royalty rate it had asked for had been intended as an opening offer toward further negotiations. And it had argued that bilateral negotiations would have been the way to arrive at a reasonable rate.
In post-trial briefs, Motorola had 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 said 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.
Microsoft came up with a much lower figure, saying that $1.2 million annually might be a reasonable amount to pay Motorola, based on comparable patent-pool benchmarks.
Microsoft had further argued that looking at patent pool rates would be the best way of determining reasonable royalty rates for Motorola’s patents at issue.
In his ruling, Judge Robart set a royalty rate for Motorola’s H.264 standard-essential patent portfolio at 0.555 cents per unit, with a royalty range of 0.555 cents to 16.389 cents per unit.
He set the royalty rate for Motorola’s 802.11 standard-essential patent portfolio at 3.471 cents per unit, with a royalty range of 0.8 cents to 19.5 cents per unit.
What is likely to have wider ramifications within the tech industry is the method by which Judge Robart determined the rates and ranges. He did so by looking at the value of the individual patent to the standard, and then looking at the value of the standard to the technology as a whole. He also said real-world bargaining was key to reaching a reasonable rate but that such bargaining would take into account patent pool rates.
Judge Robart’s ruling this month marks only the end of part one of the trial.
Part two is scheduled to start Aug. 26, with a trial that will focus on whether Motorola actually did breach its contract to provide those standard-essential patents on fair and reasonable terms, given that Judge Robart has now determined what such fair and reasonable terms are.
[The updated, print version of the story is here.]