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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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RE: Obama Administration
By Clarencio on 9/5/2013 3:07:41 PM , Rating: 0
The legal analysis here is very poor. The Obama administration correctly decided that owners of FRAND patents cannot get injunctions at the ITC. The only remedy available at the ITC is an injunction (no money damages). An injunction is a prohibition on importing the infringing devices. The law (set by the Supreme Court) is very clear, however, that injunctions are only allowed as a remedy where money damages are hard to calculate. FRAND patents are just the opposite: they are patents where the patent holder participated in setting a standard (for example, a WIFI standard, which enables interoperability among devices, regardless of who builds the device). In exchange, they explicitly agreed to license the patents for a low monetary amount. So, an injunction is completely contrary to the idea of a FRAND patent, and the ITC is therefore not the right place to assert FRAND patents. If a patent owner wants to force someone to license his patent, he has to go to district court (an entirely different judicial body with a different set of available remedies). That is all the Obama administration said. I know that it is easier to concoct conspiracy theories rather than researching the issue, but spreading misinformation is not very helpful to anyone. FRAND issues are only recently being litigated, so the courts have not worked out how to deal with them, and the Obama administration stepped in to help.

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.

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