Once Again, Motorola Gets Slapped Around Over Attempt To License Standards Patents At High Rates To Microsoft
from the just-drop-it-already dept
Microsoft and Motorola have been fighting over patents for many years, predating Google purchasing Motorola Mobility. One thing that’s never made any sense at all is why Google continued this strategy. While it may have been a short-term money grab, and a way to poke Microsoft in the eye, it seemed like Google could make a much stronger overall statement about abusing patents by changing course. And, even for those who don’t think that there’s a principled stand to take here, there’s the other side of it: the patent fight has been a complete disaster for Google/Motorola.
The ITC has sided with Microsoft, the FTC dinged Google for how it handled Motorola’s standards essential patents, the EU has sided with Microsoft and a US court did as well. And, the latest is that a jury in that trial has, once again, sided with Microsoft over Motorola, saying that Motorola was seeking licensing fees for standards essential patents that were way out of line.
This is a key battle over what “FRAND” (fair, reasonable and non-discriminatory) licensing terms on standards essential patents (SEPs) should be. Historically, Google has been pretty good about pushing back against patent abuse, including the ridiculous licensing demands that get thrown around for SEPs. But when it inherited the Motorola case, it kept Motorola’s bad strategy going, and now it’s suffering the consequences. Google had a chance to make a really strong statement early on, chose not to, and now is getting slapped around pretty much everywhere for trying to charge ridiculously high licensing fees. This seems like a financial, strategic and legal mistake all wrapped in one.
Filed Under: frand, patents, standard essential patents
Companies: google, microsoft, motorola
Comments on “Once Again, Motorola Gets Slapped Around Over Attempt To License Standards Patents At High Rates To Microsoft”
What was the rate that was being asked, and what’s the standard rate?
How out of line is it?
Re: Re:
Basically, imagine you build high-end cars. You buy your parts from suppliers who each license the technology in their respective parts from someone else. You do build a few parts in-house, and pay licensing fees on those directly to the patent owner. Each car you sell brings in $100,000.
Say one of those parts is a Widget. Each Widget costs you $5 to buy. A standard fee for the patent owner behind the Widget’s technology is about 2%, so you pay them 10 cents per Widget. Suddenly, they notice how well your cars are selling and demand 2% of the finished product instead of 2% of the part they sell you.
So they’re demanding $4,000 of every $100,000 sale you make because you have a $5 Widget built into the car that relies on a patent they own. Naturally, you refuse. If you paid $4,000 per Widget, then the people who own patents on Thingies, Odd-Parts and Even-Parts will want the same rate as well…and there are more than 50 parts in your cars. Eventually, doing so would mean you owe more than 100% of the cost of the car in licensing fees. Since you refused, they sue you.
That’s pretty much what Motorola has been up to lately, and it’s not just Microsoft they’ve been doing it to.
Re: Re: Re:
Your analysis is faulty in that the company obtaining the license is Microsoft and the one and only one thing you can be 110% sure of with doing business with Microsoft is that you are going to get screwed.
Court Precedent
Here’s my conspiracy theory of the day.
Google wanted to loose. Now there are precedents for most major courts regarding frand patents. Microsoft’s mobile division makes a huge amount of money of threatening to sue Android phone makers. Combine that with the Cisco ruling preventing Google from being directly involved in any lawsuit that does crop up, and losing these Motorola cases actually helps Google.
I disagree completely
They never got to asking for a rate, Mike. There was no negotiation. MS asked them for an offer and then sued, claiming the rate was exorbitant and in bad faith. Not only that, but it was the same rate they charged anyone else. The standards essential pricing. Oh, and MS got a judge so favorable to them that we have to wait until appeals to get rid of the biased guy. Did I mention the judge tried to decide on what Motorola can do internationally in germany?
Don’t you read groklaw? sheesh.
Re: I disagree completely
Ditto’ing this – TD’s post on this is remarkably devoid of information.
Motorola went to Microsoft, who had already been using Motorola’s H.264 patents in the Xbox (360, i think) since its inception. Motorola then asked Microsoft for the same rate which had been licensed to all other users of this patent of 2.25% of the unit price.
Microsoft, rather than negotiating, immediately went to sue
Re: Re: I disagree completely
I guess there are length limits on the comments? Adding this:
Microsoft and Apple, particularly, have been exploiting F/RAND patents by implementing them, refusing to negotiate in good faith*, and reaping the benefits of the patented technology without paying. While, on the other hand, patenting obvious and non-novel technologies, not bound by F/RAND obligations, and using these to bludgeon competitors.
*Microsoft went straight to court as above, Apple told a district judge they would not consider themselves bound by a court-ordered licensing rate unless it was at or below what Apple had already offered in negotiations
Re: Re: Re: I disagree completely
I have to agree with this. I also have to agree that, whilst this isn’t a win for Google right now, it’s a HUGE win for both Samsung and Motorola, who are engaged in F/RAND disputes with both MS and Apple over Android.
Re: I disagree completely
Don’t you read groklaw? sheesh.
I do, but I disagree with PJ’s analysis on multiple levels. The rate is excessive, and Google had an opportunity to change that. It chose not to.
And, in most cases claims of judges being biased towards a particular party are hogwash. That just sounds petty. Besides, you’d have a point if we haven’t already seen Motorola smacked around on this same point in multiple other jurisdictions. It’s not just this judge.
I agree with Groklaw on many things, but not this one.
Re: Re: I disagree completely
So what would not be a excessive rate?
And how is 2.25% excessive, if other people are paying the same?
Re: Re: Re: I disagree completely
There are lots of factors that go into determining what is a reasonable rate, but when you look at just how many patents are involved in modern products, with each patent holder wanting “just a couple percent” it’s not long until you realize that licensing would make the product untenable. 2.25% is quite a lot. The fact that others are paying it doesn’t automatically make it reasonable — as evidence by multiple jurisdictions that have pointed out how it was too high.
Sorry. Google had a real chance here to make a difference. In fact, many people believe, strongly, that SEPs shouldn’t be FRAND, but rather license-free. Google could have made a statement on that front, but chose not to, and now it’s getting beaten up over it.
Re: Re: Re:2 I disagree completely
They’re not asking for 2.25 % per product. They were asking for 2.25 % for their entire portfolio. Microsoft asks for around $15 per smartphone. That’s around 5-10% of manufacturing cost or thereabouts.
You can’t get rid of the question of “should stuff be patented in the first place”? at the same time as a judge is required to interpret existing law.
The most important part about rates is that they are negotiable. If it’s too high? Work it out with the party, maybe even get it down to zero. The fact that such a thing did not occur is the fault explicitly of Microsoft. there was no negotiation. There was no discussion with Microsoft outside of the courts as to whether or not this should be license free or should be FRAND or shouldn’t.
For these kinds of contract matters you are supposed to work it out with the party. when did that happen, again? It didn’t.
Re: Re: I disagree completely
Sorry Mike, I agree with the others in this thread, you’re just wrong here.
When you go to buy a car, do you pay the sticker price? No? Why not? Oh right, because the sticker price is how the negotiation is opened.
Motorola gave Microsoft the same exact opening offer they gave everyone else. The same exact opening offer that has been standard in this industry for DECADES. No one – not a single player in the industry – had any problem with this up until Apple and Microsoft came along. Doesn’t that mean anything to you?
Fact is, most of the big players cross-license their patents as part of the deal. If people don’t want to cross-license their portfolio, that’s their business, but don’t go suing people when you were offered the same opening deal that everyone else was and then suddenly your decision not to cross-license bites you in the ass.
If Microsoft wins this, all of those other deals Motorola and the entire industry have licensed would be treated unfairly. You are retroactively violating the FRAND agreement with this approach. You are ensuring that companies who invest in R&D will jealously guard their portfolio instead of contributing it to a standard, because now EVERYONE knows that FRAND patents have been devalued.
Re: Re: I disagree completely
“The rate is excessive, and Google had an opportunity to change that. It chose not to.”
And how is Google supposed to do that when the other party does not enter into negotiations, but instead decides to sue?
If I’m selling you my car and you think I’m demanding a ridiculous price, do you go screaming to your local court to demand a lower price or do you ENTER INTO NEGOTIATIONS with me to get a lower price?
Perhaps you (and Microsoft) ought to watch Monty Python’s Life of Brian where Brian tries to buy a false beard from Eric Idle as a market trader (about 44 mins into the film) – it’s a very good lesson on how negotiations work:
…
EI: Bert, this bloke won’t haggle
[Bert, a very large, intimidating bloke]
Bert: Won’t Haggle?
B: Do we have to?
…
EI: Are you telling me that’s not worth 20?
B: No
EI:Look at it…
B: All right, I’ll give you 19
EI: No come on do it properly…this isn’t worth 19
B: well you just said it was worth 20
EI: Oh, dear, oh dear; come on haggle
B: ok, I’ll give you 10
EI: That’s more like it; 10? Are you trying to insult me?…
B: All right, I’ll give you 11.
EI: Now you’re getting it…11?…
And so on. This is how the Motorola/Microsoft negotiations went:
MS: How much for these patents we’ve being using unlicensed?
M: 2.25% of your product price
MS: Far too much; we’re going to sue to get what we consider a fair rate. Bert
Bert: Yeah?
MS: M won’t give us what we consider a fair rate
Bert: M – you gunna give MS a cheap rate and I’m gunna thump you.
Spot the difference?
Re: Re: I disagree completely
If you disagree with the requested 2.24% then you were not paying attention. Most tablets and Phones require network access. They would have little or no functionality without it. Most software on tablets and phones use cpu offloading and online storage to compensate for low cpu power and local storage considerations. Difficult to work around standards when you need to access outside equipment using those very standards. Given that cell phone and tablet market is exceeding $300 Billion (that’s Billion) 2.25% may not be all that unreasonable for such vital technology. And people seem to forget in most negotiations, one who is selling usually starts high and get lowered over the course of the negotiations. In this case, Microsoft never even tried.
Re: I disagree completely
Actually, Motorola only ever offered a flat zero out deal, tied to their non FRAND patents. They never once offered an FRAND offer on just the SEP patents, and this is the problem.
The long and short of it is that they wanted to leverage their GSM patents against Microsoft to get the operating system patents Microsoft owns (non standard essential) but it backfired on them, rightfully so.
Re: Re: I disagree completely
And what is wrong with Motorola leveraging their GSM patents against MS? You make it would like a bad thing. That is what negotiations are supposed to be about. The problem here is MS was never intending on negotiating any licensing agreement with Motorola. Instead they ran to court crying foul instead of attempting to negotiate. This will eventually backfire on Microsoft.
Motorola and unfriendly Courts
Mike, I’m sorry, but you’re just trolling for Microsoft here. You obviously haven’t followed the history of this case. The judge, who happens to be in Microsoft’s backyard has shown clear bias in this case. Even other lawyers not involved have noticed this.
Secondly you’re disregarding the facts. One this started when Microsoft sued Motorola over patents it holds. It then sucker punched Motorola by asking them to send an offer to license for several patents and to do it quick so it could be settled before the court dates. Motorola didn’t demand anything. They just sent the initial offering they send to EVERYONE. MS then immediately sued. In bad faith.
Very few ever pay the 2.25%, it’s an initial offer. Usually no money changes hands at all and patents are cross-licensed. So you entire hypothesis is flawed and skewed for MS. I agree with Groklaw on this.
Re: Motorola and unfriendly Courts
I’m sorry, but you’re just trolling for Microsoft here.
Well, that’s a first.
Do you honestly think I’m suddenly trolling for Microsoft when I’m hard on them over so much?
You obviously haven’t followed the history of this case
I have. Quite closely. Note all the links?
Look, I know some people stake out a position and believe that anyone who doesn’t agree with them is an idiot, but perhaps you could step back for a moment and realize that EVERYWHERE not just in this court, this effort has gone badly for Motorola.
Whether or not you believe the judge is biased, strategically this whole thing has been a disaster for Motorola.
Re: Re: Motorola and unfriendly Courts
Whatever, let trolls think what they want, as long as we dont have standard’s banditry (like Motorola was attempting) we’re cool.
Can you imagine if you could hold hostage royalties on these kind of standards? Chaos would ensue, with MS, Google and Apple each buying a carrier and integrating vertically with no glimmer of compatibility between them.
Re: Re: Re: Motorola and unfriendly Courts
Clearly, the ONLY “standard’s banditry” was on the part of Microsoft. There was no, as you put it “…hostage royalties on these kind of standards” in this case. The initial rate offered was not unusual given what was being offered. If you think the standards patent was insignificant like MS wants to paint it, then I would strongly suggest you read up on the standards patents being discussed. The only unfair thing was the way Microsoft went about circumventing the entire FRAND process. Motorola is the victim here, keep it straight. I personally don’t hate Microsoft although it seems anyone who disgrees is being painted as a Microsoft basher, but I cannot get past the abuse of the FRAND process that the likes of Microsoft and Apple have done. Without standards, we would live in a very different world.
Re: Re: Motorola and unfriendly Courts
I’m sorry Mike, but I call it the way I see it. The fact is Motorola won a court injunction in Germany on these very patents. An injunction that would have applied to all of the EU, had the US judge not prevented Motorola from enforcing it.
So no Motorola isn’t losing everywhere on this issue.
I hate software patents as much as the next geek.
As to your history with MS, I’ve not followed many of your posts before. Only now that Groklaw has shuttered am I forced to seek my “Tech IP” news elsewhere.
The article just has the feel of another news article failing to do the research and give an objective report, or simply replaying MS talking points. Not that PJ was always objective. 😉
So no offence, I just call it the way I see it. Besides, you just have it wrong. But Google will fix this on appeal. That’s my prediction. This is all a stalling tactic of MS. Same old play from the same old playbook. I’ve watched MS do this repeatedly over the past 30 odd years I’ve used PCs. I even have a copy of Windows 1.01 laying around somewhere (yes “real mode” Windows with text-based graphics, if you know what that means).
Why does nobody read the last word of that acronym?
reposted from grokthelaw on request.
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Blaargh!!
I’ve been moderating the discussion of this on Slashdot and I’m beginning to wonder why I waste my time.
Dozens and dozens of idiots who clearly understand the issues but can’t see the wood for the trees.
Non Discriminatory!!!
Motorola were required to license their H.264 patents in a Non Discriminatory fashion. They have to treat each potential licensee the same way. They made the same opening offer they made to everybody.
All these idiots are acting like that opening offer was an extortionate demand. Well it was neither extortionate nor a demand. It was an opening offer, the same opening offer they routinely made for those patents because they are required to treat each license ‘applicant’ the same way.
To accept Microsoft’s demands would have been a breach of Motorola’s duty under the SEP agreement. They cannot give Microsoft a better deal than everybody else because that would be Discriminatory to their other licensees.
Google ought to consider having their other licensees get together to file an amicus brief for the appeal pointing out that Microsoft’s sweetheart deal discriminates against all those that negotiated in good faith with Motorola for these patents and thus breaches the terms of the SEP agreement.
[/rant]