Microsoft vs Motorola case could set fair rate for essential patents

Back in 2010 Microsoft filed a lawsuit against Motorola complaining that the company was demanding excessive royalty rates for industry-standard essential patents. The contention is that Motorola is not abiding by the principles of FRAND licensing which is all about “Fair, Reasonable, and Non-Discriminatory” licensing terms on patents that other companies have to license. The case will be heard in the U.S. District Court in Seattle starting tomorrow.

Federal judge, James Robart, is expected to issue an opinion on what is fair when it comes to royalty rates. There will then be a jury trial in the spring to decide whether Motorola breached its agreement with an unfair demand. Motorola asked for 2.25 percent of the sale price on releases that infringe the patents, in this case that includes the Xbox 360 games console and Windows software. Microsoft balked at what it claimed would amount to more than a $4 billion royalty per year. Motorola disputed that and pointed out that the 2.25 percent rate was an opening to negotiations. Microsoft has argued that a payment of $1.2 million would be fair.

Since Microsoft refused to negotiate, Google-owned Motorola appealed to the ITC to ban the Xbox 360 from sale. There is also a related case in Germany where Motorola won an injunction, but it is on hold pending the result of the Seattle trial.

A similar case between Apple and Motorola was due to be heard last week, but Apple refused to pay more than $1 or less per iPhone to license Motorola’s patents. Judge Barbara Crabb canceled the trial in Madison, Wisconsin.

Google’s purchase of Motorola Mobility was partly about building a patent portfolio and it has been trying to use Motorola’s FRAND patents to fight back against Microsoft and Apple in the courts. This case could decide whether that’s a viable tactic or not once and for all.

The general consensus is that this could set a precedent that other courts will look at in future cases. That could mean future negotiations over FRAND patent licensing will have a framework to refer to and the outcome will have a major impact on the overall patent war.