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Jury ruled that Motorola's use of FRAND patents was illegal, Google subsidiary must pay $14M+ in damages

While chic designs like the Moto X suggest that there's still hope for Google Inc. (GOOG) to turn a profit on its $12.5B USD Aug. 2011 acquisition, Motorola Mobility, Google's hopes of leveraging Motorola's seeming formidable patent portfolio as an offensive or defensive tool appear to be fading fast. 

I. A Big Jury Win for Microsoft in its "Home Court"

On Wednesday, in a closed-door ruling in Microsoft Corp.'s (MSFT) "home court" in Seattle, a federal jury ruled that Microsoft would get effectively a free license of Motorola's patents and ordered Motorola to pay modest damages to Microsoft after it was found to have breached its licensing obligations concerning video and smartphone patents.

The case was the second in lawsuit saga between the two firms.  Federal Judge James Robart of the U.S. District Court, Western District of Washington in Seattle last year ruled that Motorola was required to license its portfolio of video and wireless patents -- standards essential patents (SEP) bound by "fair reasonable and nondiscriminatory" (FRAND) licensing terms -- to Microsoft at a rate of $1.8M USD -- far less than the $4B USD Google at one point had hoped to squeeze from Microsoft. 

Google on Motorola
Google's subsidiary Motorola lost a major case this week. [Image Source: TechnoBuffalo]

After that victory, Microsoft filed a second suit against Motorola, claiming it had breached its FRAND obligations by asking for such a high license rate.  Microsoft argued that Motorola essentially gave it to "unreasonable" licensing options -- either pay a large sum ($4B USD) or give Android OEMs free licensing of Microsoft portfolio.

A jury this week ruled in agreement with Microsoft's lawyers that neither of these options was "fair" or "reasonable".  They thus decided that Motorola should be forced to give Microsoft basically a free license for its abuse.  Microsoft will pay Motorola $1.8M USD, but the jury ruled that Motorola must pay Microsoft $14.5M USD, essentially nullifying Microsoft's licensing fee.

Seattle Washington Wide
The case is being tried in Seattle, Washington, just 16 miles from Microsoft's headquarters.  The local court has handed Microsoft two major wins. [Image Source: Foreclosure Listings]

The verdict was reported by MLex reporter Curtis Cartier via Twitter:
The jury ruling reportedly involved $3M USD for Microsoft's court fees, as it was found in the right and $11.5M USD to cover the costs of Microsoft moving a warehouse in Germany to prevent its Windows and Xbox stock from being destroyed.

The verdict is slightly less than the $23M USD that Microsoft sought, but nonetheless is a massive win for Microsoft.  Microsoft can now move forward with its efforts to ban Motorola's products from the market if Motorola refuses to pay Microsoft's exorbitant licensing fee demands.

II. Android OEMs Face Microsoft Milking

A Microsoft spokesperson confirmed the ruling to Reuters cheering the verdict, stating, "This is a landmark win for all who want products that are affordable and work well together."

The "affordable" part may be somewhat subjective.

Microsoft has driven up the prices of devices that run Google's Android platform by demanding substantial per-device royalties.  In Q1 2013 Samsung Electronics Comp., Ltd. (KSC:005930shipped 70.7 million Android smartphones, and reportedly paid a toll of $15 USD per handset -- indicating that Samsung alone may have paid Microsoft over a billion dollars in licensing royalties for the quarter.

Add in royalties from LG Electronics, Inc. (KSC:066570), ZTE Corp. (SHE:000063), and HTC Corp. (TPE:2498) -- the second, fourth, and fifth largest Android phone sellers in Q1 2013, respectively -- and Microsoft is likely making $1-1.5B USD or more from royalties alone.

Google's FRAND loss to Microsoft may force it to begrudgingly pay Microsoft licensing fees.  Motorola is the last major OEM not to tap out and agree to pay Microsoft.
Android licensing
Android OEMs are paying boatloads of cash to Microsoft. [Image Source: Shutterstock] 

Ultimately, Android OEMs are finding there's no free lunch.  After fleeing Windows Mobile and Microsoft's operating system license fees for Google's free Android based platform, they're now finding themselves paying significant royalties -- typically $10 USD or more per device -- to Microsoft anyways.  

In some OEMs cases like HTC, ZTE, and Huawei, they are too young and have too little intellectual property to fight Microsoft's patent demands via countersuits.  In the case of LG, Motorola, and Samsung, the underlying problem is that much of their patents were licensed cooperatively as part of industry standards.  This has played to the advantage of companies like Microsoft and Apple, Inc. (AAPL) who refused to cooperate with their fellow firms, as federal courts have now ruled their patents are up to 10,000 times more valuable than the Android OEMs FRAND patents.

Motorola's spokesperson William Moss sounded resigned about the decision commenting to Reuters, "We're disappointed in this outcome, but look forward to an appeal of the new legal issues raised in this case.  In the meantime, we'll focus on building great products that people love."

III. Motorola v. Microsoft Contrasted to Samsung v. Apple -- Different Facts, Same Outcome

With the most recent ruling Motorola has essentially lost to Microsoft in the U.S. pending appeal.

Elsewhere, in Germany it has scored a minor win, forcing some Microsoft products off the market, although Microsoft has forced Motorola into similar warehouse relocations as Motorola smartphones have also been pulled.  

This outcome is not necessarily indicative of which company will ultimately win -- Microsoft seems to have a least a minor edge given the U.S. outcome -- but rather a testament to Germany's strange intellectual property systems which typically starts cases with a ban (effectively an assumption of guilt) later removing the ban if the infringement claims prove untrue.  For German consumers this means that they now have to go to neighboring countries to pick up some Motorola and Microsoft products involved in the case (e.g. the Moto RAZR MAXX or Microsoft's Xbox 360).

Dusseldorf court
Microsoft and Motorola both scored bans on each others' products in Germany.
[Image Source: All About Samsung]

Motorola didn't manage much better against Apple.  Federal courts are now essentially ignoring the pair's spat.  Apple v. Motorola -- a case in which each company accused the other of patent infringement -- has been dismissed with prejudice not once, not twicebut three times.

The Washington verdict is arguably the second major blow to Android OEMs on FRAND grounds.  In August President Obama's trade secretary rejected a decision by the U.S. International Trade Commission.  

Obama pointin
Obama's trade appointee shot down a ban on iPhones and iPads, despite a preliminary finding by the ITC that Apple willfully stole Samsung's FRAND IP and refused to pay for licensing it.
[Image Source: Sodahead]

That case, however, was very different.  Whereas Motorola was found to have been abusive in its licensing request, Samsung was found to have asked for reasonable licensing rates.  Apple refused to pay Samsung -- anything -- hence the ITC ruled on grounds of "reverse-holdup" that in this special case Samsung could sue Apple for a product ban using FRAND products, as Apple appeared to be effectively willfully stealing and refusing to pay for Samsung's IP.

The Obama administration ignored these facts, siding with Apple, whose late CEO direct President Barack Obama's digital media campaign in the 2012 election.  The administration's decision set an alarming precedent in that it signaled that companies can now essentially willfully, openly steal FRAND IP and refuse to pay anything for licensing (as the ITC ruled Apple did), so long as they do favors for the President.

Sources: Twitter, Reuters

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Obama Administration
By Argon18 on 9/5/2013 2:24:54 PM , Rating: 5
"The Obama administration ignored these facts, siding with Apple, whose late CEO direct President Barack Hussein Obama's digital media campaign in the 2012 election. The administration's decision set an alarming precedent in that it signaled that companies can now essentially willfully, openly steal FRAND IP and refuse to pay anything for licensing (as the ITC ruled Apple did), so long as they do favors for the President. "

Obama, who was elected on the platform of government transparency and "cleaning up Washington" has turned out to be one of the dirtiest and most corrupt Presidents of all time. What a disguating man.

RE: Obama Administration
By Clarencio on 9/5/13, Rating: 0
RE: Obama Administration
By Reclaimer77 on 9/5/2013 3:19:14 PM , Rating: 5
Since when does the president decide such matters? You realize that's not the judicial branch right?

The rule of law has once again been tossed aside by the whims of one man. We're a Dictatorship at this point.

The OP is dead on. Obama is the worst.

RE: Obama Administration
By Reflex on 9/5/13, Rating: 0
RE: Obama Administration
By Reclaimer77 on 9/5/2013 3:41:02 PM , Rating: 1
I'm well aware of those numerated powers. I think you would be hard pressed, however, to state this ruling would have caused great harm to the public and so the President needed to step in.

It might have caused a harm to a major Democrat lobbyist and campaign contributor though.

Also, your use of the term 'dictatorship' appears to describe you living in a nation that elected people you don't like who are doing things you do not want.

Voting for someone doesn't mean they can do whatever you want them to do. We're not a democracy buddy, we're supposed to be a Republic. But we flat out have a Dictator in the White House who does anything he wants to do, damn the law or the Constitution.

The Supreme Court is going to have it's hands full for the next 10 years dealing with all the things this "Administration" has done.

RE: Obama Administration
By Reflex on 9/5/13, Rating: -1
RE: Obama Administration
By ClownPuncher on 9/6/2013 11:29:22 AM , Rating: 1
Democracy is a broad term. You know China has a form of democracy, right? Neither the US or China are direct democracies. The US system is not "half democratic". It's MOSTLY a representative republic.

RE: Obama Administration
By Reflex on 9/6/2013 2:40:53 PM , Rating: 2
I did not say it was 'half democratic'. I said it was both a democracy and a republic. It is fully both of those things. And no, China does not have a democracy unless you define that to mean "someone, somewhere can vote for something". In the United States every citizen of legal age can vote. Even those who lose voting rights, such as convicted felons, can get those rights restored.

RE: Obama Administration
By ClownPuncher on 9/6/2013 4:55:25 PM , Rating: 2
China practices democratic centralism. People in China can vote for representatives in the People's Congresses.

RE: Obama Administration
By Clarencio on 9/5/13, Rating: -1
RE: Obama Administration
By Reclaimer77 on 9/5/2013 3:52:36 PM , Rating: 1
Way to miss the point entirely. I was talking about the President, the Executive branch.

There doesn't need to be a trial because there's no question that Apple is breaking the law. That is not in dispute. The Obama regime didn't say the judge was wrong and that laws were not broken. The Obama regime is specifically saying that Apple has the privilege to break the law until Samsung decides to accept what Apple is willing to pay them.

You know what this reminds me of? This reminds me of the time when AllOfMP3 decided to sell music they didn't have rights to sell in the US. AllOfMP3 actually offered to pay licensing fees to the RIAA, but only what AllOfMP3 thought was fair. That amounted to a few pennies per song, and the RIAA wasn't hearing any of that. Russia sided with AllOfMP3 and it was all perfectly legal there. The US music industry had to pursue other avenues to shut them down. In the end, they cut of the payment processing with Visa/Mastercard.

So, I would expect to see new Korean law that allows Samsung to terminate Apple contracts for failure to pay licensing fees soon, if such a law does not already exist.

I'm really beginning to think the Obama regime is destined to destroy the entire tech industry in the US. Between this and Snowden's revelations, they've driven a stake through the heart of the tech industry. Now they're just nailing the coffin shut for good measure. By the end of his second term, no one anywhere is going to want to do business with US tech companies anymore. He will have accomplished what no other US dictator has managed to do. Kill the goose that laid the golden egg over in silicon valley...

RE: Obama Administration
By Clarencio on 9/5/2013 4:09:17 PM , Rating: 2
I have missed your point entirely. I thought you were asking why the president is dabbling in the judicial branch, to which I explained that he is not, the ITC is part of the executive branch. You will have to clarify your point for me!

Again, the ITC is not authorized to force payments of money. Owners of FRAND patents still get paid, but they have to go to the district courts . So your statement that "[t]he Obama regime is specifically saying that Apple has the privilege to break the law until Samsung decides to accept what Apple is willing to pay them" is erroneous. Samsung is free to go force Apple to pay up in district court. It wasted its time and money at the ITC, unfortunately, but it can still collect in federal court. Owners of FRAND patents still get paid, they just get lower rates. And who the owner of the patent is (domestic or foreign) makes no difference at all.

There does have to be a damages trial because it is always a challenge to value a patent. How much money is fair and reasonable? What is a patent's true value? If a cell phone has 1000 parts and features, and the asserted patent covers the most minor feature, how much money does the patent owner deserve? Only a jury of our peers can tell us the answer to that nebulous question.

RE: Obama Administration
By Reflex on 9/5/2013 4:46:12 PM , Rating: 2
Thank you for this post. People seem to think Apple is going to 'get away with infringing' when the reality is that they will have to pay for past, present and future use of these patents. It won't be optional, it won't be dismissed. But while courts determine the rate Apple's products cannot be banned since SEP's are not weapons.

RE: Obama Administration
By ammaross on 9/9/2013 12:17:43 PM , Rating: 2
If we want to look at a patent's true value, how much is a bounce animation or a rectangular object really worth?

RE: Obama Administration
By Reflex on 9/5/2013 3:19:56 PM , Rating: 2
Yes, this. It always amazes me at just how unwilling to understand the difference between FRAND/SEP is from regular patents. Using FRAND as Google and Samsung have been attempting is a horrible corruption of the standards process, and it is being slapped down by courts worldwide, not only in the USA.

Points to the author for once again being willfully disingenuous on this topic. This was not a 'home court', it was a federal court. Its physical location is irrelevant, it has no ties to Washington State, and does not answer to any lawmakers there.

RE: Obama Administration
By Clarencio on 9/5/2013 5:56:20 PM , Rating: 2
"This was not a 'home court', it was a federal court. Its physical location is irrelevant, it has no ties to Washington State, and does not answer to any lawmakers there."

The jury (which decides whether to award damages and how much) is made up of local people, many of whom have friends or relatives that work at Microsoft. Physical location of the trial is always fought over very hard by parties for just that reason, regardless of whether the case is heard in federal or state court.

RE: Obama Administration
By Reflex on 9/5/2013 6:08:57 PM , Rating: 2
Google chose a jury trial, not Microsoft. Also, as someone who lives in the area, Microsoft is at this point a very small presence. Lots of their competitors are here, including Google, Amazon and Sony.

But again, the fact that there was a jury was due to Google choosing a jury trial, they had the option of a bench trial.

RE: Obama Administration
By Clarencio on 9/5/2013 6:55:16 PM , Rating: 2
Maybe the judge was highly pro Microsoft. We can only speculate as to why the parties made the decisions they did. Home court advantage provides many benefits beyond an increased chance of favorable juries.

RE: Obama Administration
By Reflex on 9/5/2013 7:03:13 PM , Rating: 2
The judge is not from the area. It is a federal court and the judges are appointed by congress. Also, his ruling was in line with several other rulings in the past couple years, there was nothing unusual about it. Most patent reformers applaud the verdict as they felt it was an abuse of standards processes and patents.

BTW, this is almost the same tactic Rambus was using back in the early 2000's. Arguably worse. Nobody cheered them on.

RE: Obama Administration
By Samus on 9/5/2013 3:18:04 PM , Rating: 2
You clearly haven't paid attention to politics very long. Any president, at any point in history, would have done the same thing for such an important domestic player when threatened by a foreign company.

It of course helps Obama is a democrat and Steve Jobs was a huge contributor to the DNC...

RE: Obama Administration
By Reflex on 9/5/13, Rating: -1
RE: Obama Administration
By ClownPuncher on 9/6/2013 11:25:12 AM , Rating: 2
It doesn't make it right. This is what happens when we mix politics with the mind of a 3rd grader, "But the other guys did it too!". Yes, they did. If we want this to change, we need to change it with the current administration, not with a magical time machine.

RE: Obama Administration
By Reflex on 9/6/2013 2:45:53 PM , Rating: 2
If it were true we would be in agreement. Instead it was pretty clear that the decision made was in line with all but one court decision that has been made globally on this topic over the past two years(the one that did not was a lower court in Germany).

RE: Obama Administration
By WhatKaniSay on 9/5/13, Rating: -1
RE: Obama Administration
By Reflex on 9/5/13, Rating: -1
RE: Obama Administration
By Samus on 9/6/2013 4:00:33 AM , Rating: 1
In 2008, they had about Jobs & Co had $10,000 to do with his campaign, and Laurene Powell (Jobs widow) is not only close friends with Barack Obama, having contributed $250,000 to his 2008 campaign, but in 2010 she was appointed to a White House Council for Community Solutions working closely with Michelle Obama to bring Apple products to lower income communities.

RE: Obama Administration
By Reclaimer77 on 9/6/2013 7:45:04 AM , Rating: 2
Ugh disgusting. And people think that has nothing to do with his decision lol.

RE: Obama Administration
By Reflex on 9/6/2013 2:42:34 PM , Rating: 2
So you will retract the lie you were spreading about Jobs running Obama's technical campaign?

RE: Obama Administration
By Reflex on 9/6/2013 2:44:39 PM , Rating: 2
In 2008 the Obama campaign received all donations from individual contributers. Individual contribution limits do not permit $250k contributions. It is possible they donated to a PAC of some sort, possibly one that supported Obama. But the claim that Powell donated $250k to his 2008 campaign is a lie.

Also, evidence please that Michelle and Laurene are close personal friends. Evidence was that Jobs was not close to Obama in any meaningful way, and as pointed out before, he told the president to take a hike when it came to his priorities on manufacturing jobs.

Tired of this
By exeedorbit on 9/5/2013 3:14:19 PM , Rating: 2
I think most of what I read on the internet about these companies is how they're constantly battling it out with one another in court. The industry has devolved into largely homogeneous products (same specs, roughly same shape/size, same functionality) all while all the companies pushing those products are accusing one another of stealing their idea, or claiming IP infringement. Makes me glad I never went over to smartphones/tablets and such, I wouldn't want any of these greedy companies to benefit from my money. Even if it is insignificant to them at the end of the day.

By sweetca on 9/5/2013 7:26:23 PM , Rating: 2
There are people here who are using rational, coherent, and fact-based points to put forth their arguments. On the other end of the spectrum, we have some posters who simply appear to be railing against one company or another, perhaps due to some unexplainable loyalty or hatred. Watching the dynamic of these two groups interact is very entertaining.

MS license fees
By jwcalla on 9/5/2013 7:30:52 PM , Rating: 2
I'd be kind of surprised if Android OEMs are still paying license fees to Microsoft. For what tech? I think they completely moved away from fat32 around the Android 4.0 time frame.

It's one thing when you have already-made products that are currently shipping. But when you come up with a new device, you're probably going to avoid certain patented things if you can.

Hi Jason
By CvP on 9/7/2013 12:28:02 AM , Rating: 1
I just logged in after months just to say this:
I always loved to read your posts but this one is full of shit. You sound like a MS/Apple basher and google apologist. Please, grow up.

By Tony Swash on 9/5/13, Rating: -1
RE: Correction
By Reclaimer77 on 9/5/2013 3:56:47 PM , Rating: 4
Sorry but Apple is breaking the law, and everyone keeps trying to avoid that fact. Especially you, but that's the facts.

What Obama's ruling did was to specifically allow Apple to keep breaking the law until Samsung is forced to accept whatever Apple is willing to pay them. If anything!

Apple has gone years without paying one cent, while making billions off the devices. Nowhere in FRAND law can you decide to just continue to use the patents if a settlement hasn't been reached, but that's exactly what Apple continues to do.

RE: Correction
By Reflex on 9/5/2013 4:53:05 PM , Rating: 2
Actually, a court will decide what Apple has to pay, just as they have with Microsoft/Motorola recently. And it will be something, it will be based likely on the same formula used in that case, and what others are paying for similar uses of the same patents. Which is how FRAND is supposed to work.

And no, challenging the terms is not 'breaking the law'. Apple actually has an explicit right to challenge this in court, and they are doing so.

RE: Correction
By ritualm on 9/6/2013 1:22:24 PM , Rating: 2
The judge has the final say on what rates he/she will set, yet Apple takes offense at THAT mere suggestion, because Cupertino does not want to pay a single cent to a competitor. That is not "challenging the terms", that is called being belligerent and disrespectful to the court system. Civilians doing that will earn them a Contempt of Court charge, companies doing that will earn them a full case dismissal with prejudice.

Apple plays fast and loose with the court system, and you're perfectly okay with it. You've gone full on retard.

RE: Correction
By Reflex on 9/6/2013 2:48:02 PM , Rating: 2
Where are you making this stuff up? Like Microsoft, Apple knows they will be paying FRAND terms for the patents they have been ruled to be infringing. They will have to pay for past infringement, current use, and future use. They will not 'get away' with anything, they will simply have to pay a fair, court decided rate for them.

That is how it just worked out in the Microsoft case, that is how it will work out in any Apple related FRAND patent cases.

RE: Correction
By Reclaimer77 on 9/6/2013 3:01:45 PM , Rating: 2
Wow you really do not get this stuff at all. Why don't you shut the fuck up and stop lying, or do you like all your posts being red?

RE: Correction
By WhatKaniSay on 9/5/2013 4:33:07 PM , Rating: 1
Well said Tony. I have Never understand the case this way. But unfortunately DT audience are more interested in Apple bashing than facts/reasoning...

Reading from other Apple related responses I’ve seen on DT, for you to get a proper/civil dialog on this issue, you must first replace Apple with Google and repost your argument then you will likely get avalanche of positive/constructive responses.

RE: Correction
By sprockkets on 9/5/2013 5:09:16 PM , Rating: 3
Or we could read the ITC's decision itself which garnered me a 6 the last time I posted it:

Which shows that just about every long winded argument that you just posted is just bull sht.

RE: Correction
By WhatKaniSay on 9/5/13, Rating: -1
RE: Correction
By Reflex on 9/5/13, Rating: 0
RE: Correction
By Reclaimer77 on 9/5/2013 7:51:25 PM , Rating: 3
All sprockets did was quote the ITC! He didn't inject any bias. And since you chickenhawks are too brainwashed to inform yourselves, I'll just quote it myself right here.

"Apple also criticizes Samsung for tying some of its license offers to the settlement of litigation. We find Apple's argument to be somewhat hypocritical. The following sentence from Apple's submission to the Commission on April 10, 2013, indicates that Apple has no intention of paying Samsung any royalties until after the conclusion of litigation:
If the Commission were to determine that the '348 patent is valid, infringed, and enforceable -- and it should not for all the reasons the ALJ found and Apple previously briefed -- and if that judgment were affirmed on appeal, Apple would stand ready to pay FRAND royalties.
Resp. Apple Inc.'s Reply Submission at 20 (April 10, 2013) (public version April 12, 2013).
Apple's position illustrates the potential problem of so-called reverse patent hold-up , a concern identified in many of the public comments received by the Commission.20 In reverse patent hold-up, an implementer utilizes declared-essential technology without compensation to the patent owner under the guise that the patent's owner's offers to license were not fair or reasonable. The patent owner is therefore forced to defend its rights through expensive litigation. In the meantime, the patent owner is deprived of the exclusionary remedy that should normally flow when a party refuses to pay for the use of a patented invention….

Samsung can hardly be accused of patent hold-up when it has licensed its declared-essential patents -- including the '348 and '644 patents -- to more than 30 companies.

Apple and some public commenters have also argued that issuing a remedy for a patent owner that has breached its FRAND obligation would result in patent hold-up, undermine SSOs, and thereby harm competitive conditions in the U.S. economy and U.S. consumers. Whatever the merits of such arguments, they are inapt to the facts of this investigation. As we have determined above, Apple has not proved that Samsung violated a FRAND obligation, and Samsung has widely licensed the '348 patent. We need not decide here whether some future investigation showing evidence of patent hold-up or of harm to SSOs would require a different analysis"

And the judge in the Moto vs MS case said:

"As discussed above, in certain circumstances seeking injunctive relief may constitute a breach of the RAND commitment, whereas in other circumstances such conduct may be proper. "

RE: Correction
By Reflex on 9/5/13, Rating: -1
"We can't expect users to use common sense. That would eliminate the need for all sorts of legislation, committees, oversight and lawyers." -- Christopher Jennings

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