Judge Rules in Microsoft’s Favor in Patent Battle with Motorola

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 Corp. in its ongoing patent battle with Google Inc.’s Motorola Mobility.

U.S. District Court Judge James Robart on Thursday made public his ruling determining how much Motorola may charge Microsoft for using certain patented Motorola technologies in its products.

The royalty rates and ranges set by Robart are far closer to what Microsoft had proposed than what Motorola had asked for.

Motorola had asked initially for 2.25 percent of each Xbox and Windows sale – 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.

Robart set royalty rates that, according to Microsoft, would amount to the company paying Motorola about $1.8 million annually.

“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, “Motorola has licensed its substantial patent portfolio on reasonable rates consistent with those set by others in the industry.”

The patents in this case 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.

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 for 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, 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.

Robart’s ruling this month only marks the end of the first part of the trial.

The second part 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 Robart has now determined what such fair and reasonable terms are.