Microsoft vs. Google: Major tech patent issue could be clarified

The latest battle between Microsoft and Google could be more than the usual patent punch-up: it might set a precedent on the key issue of “reasonable” licensing terms.

As we’ve previously covered, one of the main points of contention in the world of tech patents is “Rand” or “Frand” terms. That’s the widely agreed concept that if you develop a patent that relates to a technology standard (such as 3G for phones), you are obliged to make it available for licensing, the idea being that the entire tech industry benefits from standards.

Such licensing has to be “[fair,] reasonable and non-discriminatory”, meaning you have to make the licensing available to everyone on the same terms. The issue is exactly what counts as “reasonable.” A recent International Telecommunication Union summit got only as far as to agree that more talks were needed, but at least one patents expert predicted the issue will only ever be settled by court rulings.

That’s exactly what may happen in a case that starts in court today. Google (specifically its now-subsidiary Motorola) is suing Microsoft for allegedly breaching patents relating to H.264 video coding and wi-fi connectivity.

Microsoft maintains the only reason it used the patented technology without permission is that Google’s offered terms for licensing did not meet the “frand” test. According to Google, its suggestion of a 2.25 percent royalty was a reasonable starting point based on other licenses it has agreed.

In contrast, Microsoft has come up with its own estimate of a reasonable annual fee for the two technologies based on patent licensing deals across the wider market.

The two estimates are so far apart, it’s clear why negotiations went nowhere. Microsoft puts the reasonable price at $1.21 million a year, while Google’s cost works out at $4 billion.

While the difference may be down to which previous deals each side select as a point of comparison, the vast gulf may also relate to whether any royalties are based on the purchase price of the entire product, or just the cost of the specific components that use the patented technology.

This specific case will have a two-step ruling process. First the judge will decide what a reasonable price for licensing the patents is. Then the jury will decide whether, based on the judge’s figure, Motorola’s initial demand was an acceptable starting point for negotiations or if it was so high that Microsoft was justified in simply going ahead and using the patents.

The BBC notes the outcome could set a precedent, particularly in ongoing cases where Google is trying to get a sales ban on several Microsoft products in Germany as well as an import ban on the same products in the US (which would have much the same effect as a sales ban.)