Bloomberg News

Google’s Motorola Mobility Offers to End Microsoft Cases

June 21, 2012

Google Inc. (GOOG:US)’s Motorola Mobility unit said it made a new offer to settle its patent-infringement disputes with Microsoft Corp. (MSFT:US) over the Xbox gaming system and smartphones. Microsoft questioned whether the offer was serious.

Motorola Mobility offered to pay 33 cents for every phone that uses Microsoft’s ActiveSync software to avoid an import ban by the U.S. International Trade Commission on phones that use the software, Kirk Dailey, vice president of intellectual property for Motorola Mobility, said in an interview yesterday.

The Google unit also lowered its demand for royalties on products that use Microsoft’s Windows operating system, to 50 cents for each unit that uses the industry standard for video compression. The company maintained its request for 2.25 percent of the cost of the Xbox gaming system, Dailey said. Microsoft could be banned from importing the Xbox if it loses an ITC case brought by Motorola Mobility.

“We’re hopeful they’re going to respond positively,” Dailey said. “We should have a response in two weeks.”

A settlement would end tit-for-tat cases the companies brought against each other. Microsoft, which contends all devices that run on Google’s Android operating system use its technology, sought royalties from Motorola Mobility. Libertyville, Illinois-based Motorola Mobility responded by demanding royalties on the Xbox for use of the company’s Wi-Fi and video-compression technology.

License Refusal

“While we welcome any good faith settlement effort, it’s hard to apply that label to a demand that Microsoft pay royalties to Google far in excess of market rates, that refuses to license all the Microsoft patents infringed by Motorola,” Horacio Gutierrez, Microsoft’s deputy general counsel for intellectual property, said in a statement.

The Motorola Mobility offer would increase the amount to be paid on the Xbox because it would extend to controllers as well, Gutierrez said. Microsoft has asserted other patents in district court against Motorola Mobility that aren’t related to ActiveSync.

Motorola Mobility, which Google bought last month, is facing an order that it must remove the ActiveSync feature from its Android phones or the phones will be stopped at the border. The import ban is scheduled to go into effect July 17 unless it is overturned by President Barack Obama on public policy grounds.

The 33-cent offer on Android phones equals the amount of a bond that Motorola Mobility is obligated to post during the presidential review period, and is higher than what the company paid under a prior license for ActiveSync, Dailey said.

Standard Rate

Motorola Mobility had offered to license its own patents to Microsoft at a rate of 2.25 percent on the retail price of the products, which the company has said is its standard rate. Redmond, Washington-based Microsoft said in court filings that the figure would amount to $4 billion a year and filed a lawsuit accusing Motorola Mobility of violating its obligation to license patents related to industry standards on fair terms.

The $4 billion figure was based, in part, on a calculation that the 2.25 percent would apply to the cost of a computer that runs on Windows. Motorola Mobility challenged Microsoft’s calculation.

Dailey said the offer has been changed to 50 cents per unit for the video standard so if Microsoft were to sell 300 million copies of Windows, that would equal $150 million.

Windows Offer

Gutierrez said the Windows offer is for only one standard, and doesn’t include Wi-Fi technology. The company pays 2 cents per unit to a patent pool for access to 2,300 patents for the video decoding standard, while Motorola Mobility wants to be paid 50 cents per unit for the use of its 50 patents on the standard plus free use of Microsoft’s patents on the technology, he said.

Motorola Mobility also has made a licensing offer to Apple Inc. (AAPL:US) and the companies continue to be in discussions, he said.

“Both Microsoft and Apple need to show that they’re willing to be reasonable as well by respecting the contributions Motorola has made in literally creating the mobile phone industry,” Dailey said. “Injunctions are an extreme remedy, but not when you’ve been negotiating with someone for years with no movement, and who is actively seeking to destroy a competitor ecosystem.”

Judges’ Findings

Judges at the International Trade Commission have said that Microsoft and Apple infringe Motorola Mobility patents related to industry standards. The commission is scheduled to announce June 25 whether it will review those findings, and has set target dates in August to complete those investigations.

European regulators are investigating complaints brought by Microsoft and Apple that Motorola Mobility was misusing its patents as the companies battle for smartphone market share.

The U.S. Federal Trade Commission and leaders of the House Judiciary Committee submitted comments to the ITC saying that companies should be limited in their ability to win import bans using standard-essential patents.

“At a time when the FTC, prominent members of Congress and leading companies from across the industry are expressing concern about Google’s refusal to honor its obligations to standards bodies, this appears to be little more than an effort to change the subject,” Gutierrez said.

The Motorola Mobility case against Microsoft is In the Matter of Gaming and Entertainment Consoles, 337-752 and the Microsoft case against Motorola Mobility is In the Matter of Mobile Devices, Associated Software and Components Thereof, 337- 744, both U.S. International Trade Commission (Washington).

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net;

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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