Bloomberg News

Google Patent Offers Probably Won’t End Microsoft Suit

January 07, 2013

Google Inc. (GOOG:US)’s requirement to make new patent-licensing offers to Apple Inc. and Microsoft (MSFT:US) Corp. under its settlement with the U.S. Federal Trade Commission probably won’t resolve lawsuits among the technology giants, according to patent lawyers.

Last week’s agreement requires Google to offer competitors “fair and reasonable” terms for using its patents included in industrywide standards for smartphones, tablet computers and other electronic devices, and to give them time to respond.

Microsoft and Apple rejected earlier royalty demands, accused Google’s Motorola Mobility unit of misusing its patents, complained to U.S. and European regulators and filed breach-of- contract suits in federal court.

“It’s going to be a more reasonable offer than last time - - I’m not sure it’s going to be perfectly reasonable,” said patent lawyer Robert Stoll of Drinker Biddle in Washington, who’s not involved in the disputes. “You might see further activity by the FTC if they think Google is not acting in good faith.”

The global litigation has become central to shaping the worldwide market for mobile devices, which includes phones, tablets and e-readers, that reached $436 billion last year and is projected to almost double to $847 billion by 2016, according to Carl Howe, an analyst with Yankee Group.

Patent Abuse

The FTC agreement resolved claims that Motorola Mobility, which Google bought for $12.4 billion last year, abused patents essential to industry standards to extract higher royalties. Industry-standard technology helps ensure products such as mobile phones can operate together when made by different manufacturers, meaning companies making those products must conform with the standards.

Under the FTC settlement, Google can’t try to block sales or imports of competitors’ products during the license-offer process and must report to the FTC on steps it’s taken to comply.

In a filing with the U.S. International Trade Commission today, Microsoft said that means Google must drop two video- coding patents from a case in which it seeks to block imports of the Xbox gaming system. The third patent, for a way to establish communication between the Xbox and accessories, doesn’t relate to any industry norm, so wouldn’t be affected by the FTC agreement.

“As a result of the settlement Motorola and Google have entered with the FTC, Microsoft expects that Motorola will immediately dismiss from this investigation its claims” related to the two patents, Microsoft said in the filing.

Wireless Claims

The commission already has cleared Apple (AAPL:US) of claims it infringed Motorola Mobility patents for wireless technology.

Making offers to appease the FTC, and European regulators who are investigating Google’s practices, may not be enough to stop the litigation among the companies, said James Kulbaski, a patent lawyer with Oblon Spivak in Alexandria, Virginia, who’s not involved in the cases.

Microsoft, which said the FTC agreement does little to resolve issues it raised over Google’s business practices, probably will decide it would rather wait to hear from a federal judge in Seattle who is considering what the appropriate royalty should be, he said. Apple, in a different case, has told a judge in Wisconsin that it won’t pay Motorola Mobility more than $1 per handset.

Apple also is trying to get Motorola Mobility and other makers of phones that use Google’s Android operating system to stop what it calls copying of the iPhone.

‘Clear Rules’

“It takes two entities to reach a settlement and Apple has made clear they are doing everything they can to seek every possible remedy,” Kulbaski said. “If Apple’s not willing to settle, there can’t be a global settlement.”

Kristin Huguet, a spokeswoman for Apple, said the Cupertino, California-based company had no comment.

The agreement doesn’t require Mountain View, California- based Google to drop lawsuits where it is seeking cash damages. Nor is it precluded from trying to block imports or sales of competitors’ products after taking the steps required by the FTC, including an offer of binding arbitration on issues that can’t be resolved through negotiations.

The agreement “establishes clear rules of the road for standards essential patents going forward,” Google said in a statement.

Thwarting Competition

At issue are Motorola Mobility patents related to technical standards on things like wireless transmissions and video decoding, a legacy of the company’s history as a mobile-phone pioneer. As one of the companies that helped establish specifications for how the phones operate, Motorola Mobility pledged to license any relevant patents on fair terms to anyone who asked.

It demanded royalties equal to 2.25 percent of the retail prices of products and devices including Microsoft’s Xbox and Apple’s iPhone. Redmond, Washington-based Microsoft said that would amount to $4 billion a year, a figure Motorola Mobility disputed. Motorola Mobility lowered the offer in June, to what Microsoft said was still unreasonable.

Because companies that participate in standard-setting groups have an advantage in getting their technology adopted, the FTC and European Commission have argued standard-setters shouldn’t be allowed to use those patents to thwart competition. A patent gives its owner the right to exclude others from using the invention.

Judges in Seattle and Chicago have said Motorola Mobility isn’t entitled to orders halting U.S. sales of products based on the use of standard-essential patents. The ITC, which has the power to block imports, is considering similar rules.

Court Bans

Microsoft and Apple pledged not to seek court bans based on standard-essential patents to help gain Justice Department clearance to join a group that bought Nortel Networks Corp. patents in July 2011 for $4.5 billion. Apple, in a patent fight with Nokia Oyj (NOK1V) that was settled in 2011, argued against the Finnish company’s use of standard-essential patents in the dispute.

Google, while seeking regulatory approval to buy Motorola Mobility, said it would continue the handset maker’s policy of not seeking sales bans as long as licensing negotiations were under way. The FTC agreement requires Motorola Mobility to take extra steps to resolve royalty disputes.

‘Less Relief’

“Google is saying the same thing they said in February, but with some more limitations,” said Jorge Contreras, an associate law professor at American University in Washington. “It still can go around and monetize the patents, but at the end of the day that’s not what Google bought them for. They didn’t buy them for a revenue stream as much as a defensive measure.”

Microsoft Deputy General Counsel Dave Heiner, in a blog posting, criticized the FTC for not going far enough on the licensing question, Google’s practices related to its core search business, or other issues on review by the agency.

“We are disappointed that the FTC accepted less relief from Google than the DOJ obtained from Microsoft and Apple last year,” Heiner said. “The good news is that other antitrust agencies, within the United States and overseas, are still examining Google’s conduct.”

Samsung Electronics Co., which is facing an antitrust complaint by European regulators, dropped efforts to block sales of Apple products in Europe based on infringement claims related to standard-essential patents. In an ITC filing, Apple argued Samsung should do the same thing in the U.S.

Stoll, the Drinker Biddle patent lawyer, said the FTC agreement with Google is “very confusing” and has “a lot of holes.” Still, he said, it could be a good first step in setting rules on how to handle standard-essential patents.

“The FTC is trying, but I think they need more specificity, more engagement,” Stoll said. “A few more of these and they can hone something with more structure.”

To contact the reporter 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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