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Seattle federal judge rules that developing standards is pretty much worthless

Imagine you are a company who has the expertise and experience to develop and patent crucial technologies that are subsequently embraced by your market segment.  You'd think that'd be the ticket to big royalties.  But you'd likely be wrong.

I. Local Judge Deals Big Win for Microsoft

In a ruling this week Federal Judge James Robart of the U.S. District Court, Western District of Washington ruled that Microsoft Corp. (MSFT) had to pay next to nothing -- a mere $1.8M USD -- to license Google Inc. (GOOG) subsidiary Motorola's portfolio of video and wireless patents, which likely cost tens of millions (if not more) to develop.  

At a courthouse in Seattle, just 16 miles east of Microsoft's Redmond campus, the home-court judge dealt the big win for Microsoft on Thursday.  The royalties ruling comes nearly in line with Microsoft's requested figure -- $1M USD -- and falls far from the $4B USD Google Inc. (GOOG) was hoping for.

Microsoft demands much higher royalties from phonemakers who use Google's Android platform.  In Q1 2013 Samsung Electronics Comp., Ltd. (KSC:005930) shipped 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.

Windows Phone movies
Microsoft has to pay virtually nothing to license Google's video codec patents, yet can demand billions from Android OEMs. [Image Source: WP Central]

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, respectively -- and Microsoft is likely making $1-1.5B USD or more from royalties alone.

While one can certainly argue the respective merits over Microsoft's largely API and UI based operating system portfolio versus Motorola's mobile firmware and codec centered patent portfolio in terms of good versus better, the court's ruling does not compare the portfolios in relative terms -- it gives Google orders of magnitude less.

One might argue that the Android OEMs should have challenged Microsoft's high licensing fees and took the case to court.  But Samsung learned first hand that outcome is often just as bad.  It was ordered to pay Apple, Inc. (AAPL) over a billion dollars in a Calif. jury verdict for three utility and three design patents.

II. Punish Those Who Cooperate

On the surface this all seems to suggest that Motorola and its fellow Android phonemakers' patents are pretty much worthless, while Microsoft and Apple have tapped some sort of special brilliance.  But on a deeper level it appears to be that the judge's ruling -- combined with Apple's Californian court win over Samsung -- give an effective ruling that cooperating among companies via the development of patented standards is basically worthless.

Historically patents developed as part of a standard and licensed under fair-reasonable and non-discriminatory (FRAND) terms have had lower royalty rates, so there's no arguing that the amounts in question do have a historical basis.  What has changed, though, is the tremendous inflation in valuation of non-FRAND patents.  Decades ago non-FRAND patents might be worth up to 10 times more than FRAND patents, but carried risk in that you had to take the infringer to court and win.  Now with the value of non-FRAND patents worth around 1,000 times more than FRAND patents, that risk is essentially a moot point.

Every man for himself
Recent federal rulings have pretty much told the phone industry to adopt an "every man for himself" model and abandon cooperation. [Image Source: 123rf]

If FRAND patents are being licensed for approximately 1,000 times less than non-standards patents, it basically means that a company would be insane to cooperate with its peers.  It's an issue that we've discussed here before, and it's an issue that remains very real and provocative.

David Howard, Microsoft's Deputy General Counsel, bragged in a statement, "This decision is good for consumers because it ensures patented technology committed to standards remains affordable for everyone."

But ultimately if this precedent sticks in the U.S., the long-term outcome may be that there will be no more standards work and no more standards patents in the mobile industry (and potentially other industries as well).

That's bad news for Google, a company who has promoted cooperation and exchange of ideas in the smartphone industry.  The recent federal court verdicts seem to send a clear message to the smartphone industry -- every man for himself.  Google doesn't fit with that model, and is being punished to the tune of billions for trying to promote cooperation and equal licensing rates.

Because according to this and other recent rulings, FRAND patents are pretty much worthless, with similar patents not developed as part of a standard being around 1,000 times more valuable.

Google is appealing the decision.

Source: Reuters

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RE: What did you expect?
By Solandri on 4/26/2013 3:22:18 PM , Rating: 5
Arrgh, that site still pops up. It's a terrible site, heavily slanted in the woman's (trial lawyers') favor, not at all objective.

- The coffee brewer was set at a holding temperature within the range recommended by the manufacturer and various coffee brewing organizations.

- In a survey the plaintiff did, the temperature was the same as in other restaurants, except for one. Of course they only presented that one data point, saying "other establishments sell coffee at substantially lower temperatures." If their survey were really damning of McDonalds, they would've simply said "no other establishments sold coffee as hot as McDonalds." Read between the lines and you can tell they're completely spinning an unfavorable survey to make it sound like it supports their case.

- McDonalds dropped the temperature immediate after the verdict. Within a few months it was back at the same temperature because too many customers complained about the coffee cooling off too quickly.

- Her lawyers focused on the horrific nature of her injuries, not on who was at fault, in a ploy to gain sympathy. It worked. In interviews after the verdict, the jurors said they thought the accident was the woman's own fault. But McDonalds' attorneys acted like heartless jerks in the courtroom, and someone had to pay the woman's medical bills. So they figured they'd make McDonalds pay it.

- Divided by the number of cups of coffee sold, the coffee accident rate is lower than the vehicle fatality rate for a 5 mile trip. In other words, if you drove 5 miles to McD's every day for a cup of coffee, you have a higher chance of being killed in a car accident than you have of injuring yourself by spilling coffee. If the coffee was unacceptably dangerous, then we need to ban all cars immediately because they are far more dangerous.

RE: What did you expect?
By Cheesew1z69 on 4/26/13, Rating: -1
RE: What did you expect?
By inighthawki on 4/26/2013 4:24:33 PM , Rating: 2
I'm not sure what you define as facts. It was basically a short summary of what happened and the outcome.

RE: What did you expect?
By Cheesew1z69 on 4/26/13, Rating: -1
RE: What did you expect?
By inighthawki on 4/26/2013 7:09:09 PM , Rating: 1
Summaries are not facts. Summaries are biased perspectives. Facts would be listing out all of the details, such as the poster above your original comment did.

RE: What did you expect?
By Cheesew1z69 on 4/26/13, Rating: -1
RE: What did you expect?
By inighthawki on 4/26/2013 9:38:02 PM , Rating: 3
You must be a super trusting person to believe that a summary of a public trial is 100% fact and truth with nothing misleading. Please see Solandri's post, he knows what facts look like.

RE: What did you expect?
By Solandri on 4/26/2013 8:52:19 PM , Rating: 5
It omits key facts necessary for the lay person to properly interpret the facts which they do present. i.e. They feed you just enough facts to mislead you to the (wrong) conclusion that they want you to arrive at.

Presented fact: McDonalds set their coffee temp at 180-190 F.

-Interpretation: Is that a reasonable temperature? They follow this up with all sorts of talk about the dangers of high temperatures, leading you to the conclusion that it's too hot.

- Omitted fact: Bunn (manufacturer of most of the commercial coffee brewers sold worldwide) recommends a holding temp of 176-185 F. The National Coffee Association recommends a holding temp of 180-185 F. Below this temp, both claim that many of the aromatics which give coffee its pleasant smell do not evaporate and thus cannot be smelled. Hot beverages are supposed to be served hot, go figure.

Presented fact: McDonalds dropped the temp to 158 after the verdict.

- Interpretation: By itself that sounds like McDonalds admitted the temperature was too hot, and "corrected" it after being chastised by the verdict. And that the country is safer now due to the verdict lowering coffee temperatures at restaurants.

- Omitted fact: McDonalds raised the temperature back to the 180-185 F range after a few months. If you go to any McDonalds today, or any other restaurant for that matter, the coffee holding temp will be 175-185 F because that's what Bunn recommends. The verdict had no long-term or even medium-term impact on coffee temperatures in the country.

Presented Fact: More than 700 people were injured by spilling hot McDonalds coffee between 1982 and 1992.

- Interpretation: By itself that sounds like a lot, and that the coffee is dangerous.

- Omitted fact: During that time period, McDonalds served some 11 billion cups of coffee if I remember right. 700 spills out of 11 billion is 1 spill per 15.7 million cups served. If you drank a cup of McDonalds coffee every day, you would experience one injurous spill every 43,000 years. As I already pointed out, your drive to McDonalds is more dangerous. Just how safe do you want it to be?

Presented fact: "Other establishments sell coffee at substantially lower temperatures"

- Interpretation: McDonalds served their coffee at a substantially higher temperature than other establishments!

- Omitted fact: Other establishments sold coffee at the same temperature too. By phrasing it the way they did, they lead you straight into a logical fallacy. The fact that some establishments sold coffee at lower temperatures doesn't mean no establishments sold coffee at equal or higher temperatures. But by phrasing it as they did, they lead you into making that logical mistake - leaping from "other coffee was lower temp" to "no coffee was as high or higher temp". If their survey had actually proven what they wanted it to say, they would have simply phrased it "no other establishment served coffee as hot as McDonalds did".

Do you start to see why lawyers have a reputation for being lying weasels, even when they don't actually lie? It's because even when they don't lie, they don't tell you the whole truth. I dealt with this crap all the time helping write contracts at a previous business I worked at. You have to read, and re-read anything a lawyer writes, being careful to not to add any implied interpretation.
(80-85 C = 176-185 F)

RE: What did you expect?
By RedemptionAD on 4/27/2013 9:56:07 AM , Rating: 2
That is exactly what most people misunderstand. Thank you for pointing it out. Presenting facts without the total picture surrounding said facts to build perspective has misled many. There's lies, damned lies, and statistics. -Mark Twain

RE: What did you expect?
By kingmotley on 4/26/2013 5:32:18 PM , Rating: 2
It is slanted in her favor because it only mentions facts that help her case. It was written by a group of lawyers who represent consumers (Note: "© 1995, 1996 by Consumer Attorneys of California "), so it's not surprising.

Additionally, "It's telling of the facts. Nothing more." is false. From the article "No one will ever know the final ending to this case.", is factually incorrect and misleading. There is at the least 3 people who know the final ending to the case, and I suspect a great deal more. Also, "Such secret settlements, after public trials, should not be condoned.", is not a fact, it is an opinion.

Let's so some useless (biased) facts:
"McDonalds asserted that customers buy coffee on their way to work or home, intending to consume it there. However, the companys[sic] own research showed that customers intend to consume the coffee immediately while driving."
could easily be re-written as follows:
"McDonalds asserted that customers buy coffee on their way to work or home, intending to consume it there, and the company's own research showed that many customers do."
same exact research, just worded for the opposite view. Unbiased answers would indicate how many customers intended to consume the coffee immediately while driving vs how many were intending to consume it at home or the office.

Repeat the above for most of the "facts" in the article.

"This week I got an iPhone. This weekend I got four chargers so I can keep it charged everywhere I go and a land line so I can actually make phone calls." -- Facebook CEO Mark Zuckerberg

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