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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: Correction
By WhatKaniSay on 9/5/2013 5:35:23 PM , Rating: -1
quote:
Which shows that just about every long winded argument that you just posted is just bull sht.


Getting 6-up vote on Apple bashing post on DT is not indicative of facts.


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 don't know how to make a $500 computer that's not a piece of junk." -- Apple CEO Steve Jobs














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