Microsoft wins a breach of contract (RAND) against Motorola over “standard-essential” patents (SEPs)

Abusing Patent Rights – A Landmark Case of Microsoft & Motorola

Federal court ordered recently Google owned Motorola to pay the software giant Microsoft $14.5 Million in a patent case relating to licensing of “standard-essential” patents (SEPs).
The claimed inventions of standard-essential patents must be used to comply with a technical standard. These standards are created by Standard Setting Organizations (SSOs) for use in designing and manufacturing technology products. The SSO often requires SEP owners to disclose and grant licenses to their patents and pending patent applications on RAND (Reasonable and NonDiscriminatory (“RAND”) rate.

Issue in this case involves two standards which incorporate patented technology (i.e.) An IEEE wireless local area network (“WLAN”) standard called the “802J1 Standard” and an ITU2 advanced video coding technology standard called the “H.264 Standard.”

Motorola owns patents that are essential to the 802.11 and H.264 Standards and has committed to license them on RAND terms. (District court order – Finding of fact and conclusions of law)

Microsoft sued Motorola in November 2010 in the court as Motorola did not license patents to Microsoft at a reasonable and non-discriminatory (“RAND”) rate. The rate was 2.25 percent of the sale price of each Xbox and copy of Windows Microsoft sold. This will constitute a very high amount.

Microsoft’s Xbox is a special purpose computer which can be used to load and play video games. Xbox uses following 11 patents covering five technological area according to Motorola. (District court order – Finding of fact and conclusions of law)

Motorola also brought an injunction against certain Microsoft products in Germany as Microsoft refuses to pay the licensing fee demanded by Motorola. Microsoft moved a warehouse from Germany to the Netherlands costing about $23 million to avoid business related issues in case of Motorola wins the battle to ban Xbox in Germany.

“This is a landmark win for all who want products that are affordable and work well together,” said David Howard, Microsoft deputy general counsel.

“We’re disappointed in this outcome, but look forward to an appeal of the new legal issues raised in the case,” said William Moss at Motorola.

The court ruling in Microsoft and Motorola case have significant importance as it will prevent charging high royalty amounts towards licensing by patent owners and allows “fair, reasonable and nondiscriminatory” (FRAND) rates towards licensing of patents that are considered “standard-essential.” This will facilitate software developers and phone manufacturers to develop high end products in the smart phone market.

References:

Subathra, Patent Scientist @ DexPatent (info@dexpatent.com)

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