Microsoft beats Google in latest patent battle: What it means

Microsoft has won the latest installment of the US court system’s smash hit “Patent Games” series. Once again, the verdict could establish a key precedent in the way patents operate.

This week’s case was the second in a double header pitting Microsoft against Motorola, now owned by Google. Both involved Microsoft allegedly breaching Motorola patents when it designed and built the Xbox and Windows. At one stage Motorola got a temporary sales ban on the Xbox console in Germany thanks to the alleged breach.

Like many of the cases in this particularly rivalry, the dispute involved standards-essential patents, in other words those that relate directly to a technology using an industry standard. (In this case it was the H.264 video format and the 802.11 Wi-Fi system.)

A widely established principle of international intellectual property laws is that standards-essential patented technology should be made available to rival firms, the theory being that if companies don’t do so, it undermines the standard and thus harms the entire industry. The general principle is that such licensing should be offered on a reasonable and non-discriminatory basis, meaning a fair price offered to all.

In the first instalment of this dispute, Microsoft successfully argued that Motorola had asked too much for the license, a disagreement that partly involved the issue of whether royalties should be based on a product’s full retail price, or take account of how important the relevant patented technology and components were to the product. The court said a fair price in this case was $1.8 million, compared with Motorola’s suggestion of $4 billion (yes, billion!)

The second instalment this week centered on the actual process of agreeing the license. Motorola had argued that Microsoft didn’t even try to negotiate a deal and just used the patented technology regardless. However, the Seattle-based court ruled that it was clear Motorola wasn’t prepared to offer a reasonable deal and that Microsoft had thus acted reasonably itself.

That could make a big difference to patent law: it may be interpreted as a green light for firms to use patented technology and put the onus on patent holders to prove they offered a fair licensing deal that was turned down.

As well as the victory of principle, Microsoft also got a small cash prize. The court ordered Motorola to pay it $14 million to cover the costs of moving Xbox production from Germany to the Netherlands to comply with the European injunction that’s now been labelled by a US court as unjust.