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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: Wow Mick is trolling for page clicks
By Mint on 4/26/2013 4:02:34 PM , Rating: 5
quote:
$160M USD for a patent on a bouncing animation?
Didn't that recently get invalidated?


By wifiwolf on 4/28/2013 12:04:11 PM , Rating: 2
Yes, but that was its value anyway


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