Microsoft Corp. and Google Inc. (GOOG:US)’s Motorola Mobility unit are headed to a trial in a dispute over royalty rates on the Xbox gaming system and Windows products, after a judge refused to end the case in Microsoft’s favor.
The dispute revolves around patents owned by Libertyville, Illinois-based Motorola Mobility that are used in standards that all electronics, including the Microsoft products, follow for WiFi and video coding technology.
U.S. District Judge James Robart in Seattle declined today to find that Motorola Mobility breached obligations to license those patents to Microsoft on fair terms, saying the issue must be resolved at a November trial. Microsoft is also seeking to prevent Motorola Mobility from winning a ban on sales or U.S. imports of the Xbox.
“While the court will not at this time set forth a legal standard with respect to Motorola’s duty to offer its patents in good faith, it is likely that any analysis of Motorola’s duty will involve, at least in part, an examination of the intent behind Motorola’s offers,” the judge ruled.
Robart rejected the handset maker’s claim that Microsoft lost the right to complain by filing suit instead of responding to early royalty demands. At this stage in the case, he said, Microsoft hasn’t proven Motorola Mobility acted dishonestly in making its demands.
Motorola Mobility sent letters to Microsoft with what it said was a standard demand for a 2.25 percent royalty on the end price of products that use the inventions, including the Xbox and Windows products. Microsoft contends that would add as much as $4 billion in annual royalties, a figure Motorola Mobility disputes.
“Motorola Mobility has acted in good faith and we will prove that at trial,” spokeswoman Jennifer Erickson said in an e-mail. “We are pleased that the court is holding Microsoft to its word -- to license our essential patents just as the vast majority of the industry has done.”
Microsoft’s entertainment unit that includes Xbox sales generated $8.9 billion in revenue last year, and the Windows unit garnered $19 billion, according to Bloomberg data.
The Redmond, Washington-based company is trying to prevent the U.S. International Trade Commission from blocking imports of the Xbox from Asia, where it is built.
An ITC judge in April said the Xbox infringed four Motorola Mobility patents, including three related to industry standards. The commission is scheduled to announce June 25 whether it will review the infringement finding, and any exclusion order would be announced in August.
“This case is about Motorola breaking its promise to make its standard essential patents available on reasonable terms and putting the price and availability of consumer technology in jeopardy,” Microsoft Deputy General Counsel David Howard said in a statement. “Today’s decision underscores that Motorola made a promise to the industry which it now must keep, and we look forward to the November trial to determine the appropriate licensing royalty.”
Motorola Mobility, which became a Google unit last month, said that Microsoft refuses to pay royalties on the standard patents. Motorola Mobility has sued the software maker in the U.S. and Europe.
Robart has prevented Motorola Mobility from taking action to ban sales of Microsoft products in Germany. Motorola Mobility officials had no immediate comment on today’s decision.
The European Union is investigating complaints by Microsoft and Apple that Motorola Mobility is unfairly using standard- essential patents to block competition.
The U.S. case is Microsoft Corp. (MSFT:US) v. Motorola Inc., 10cv1823, U.S. District Court for the District of Washington (Seattle). The ITC case is In the Matter of Gaming and Entertainment Consoles, 337-752, U.S. International Trade Commission (Washington).
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