Federal Jury Finds Motorola Mobility Failed to Meet FRAND Obligation, Awards Microsoft $14.5 Million in Damages

On September 4, 2013, a federal jury in Seattle found that Google’s Motorola Mobility unit must pay Microsoft $14.5 million for failing to act in good faith when it demanded patent royalties from Microsoft.  The decision was the second phase of a patent dispute between Microsoft and Motorola Mobility in the U.S. District Court (Western District of Washington), with Microsoft coming away victorious in both phases.

The first phase of the dispute was decided in April 2013, when Judge James L. Robart held that Microsoft must pay Motorola Mobility patent royalties amounting to $1.8 million per year for its use of video-compression and Wi-Fi technology.  Motorola Mobility had originally demanded royalties of 2.25% of the retail price of Microsoft units sold, totaling $4 billion per year according to Microsoft’s estimate.  The patents at issue are standard-essential patents (SEPs), which obliges Motorola Mobility to license them on fair, reasonable, and non-discriminatory (FRAND) terms.  After Judge Robart calculated the reasonable rate for Microsoft to pay, it was left to a jury to determine any damages owed to Microsoft for Motorola Mobility’s failure to comply with its FRAND obligation.

After Microsoft refused to give in to the demanded royalty rates, Motorola Mobility sought an injunction in Germany against Microsoft.  Microsoft moved a warehouse from Germany to the Netherlands to avoid distribution problems in Europe, which it claimed cost $23 million, constituting the majority of the $29 million it sought in damages.  The jury awarded Microsoft approximately $14.5 million for the warehouse move and Microsoft’s legal fees.  Despite being awarded roughly half of what it sought in damages, Microsoft hailed the award as a victory against the abuse of patents.  By penalizing Motorola Mobility for not licensing SEPs on FRAND terms, Microsoft claimed the decision was a landmark win for those who want affordable products that work well together.  Motorola Mobility has already announced that it plans to appeal the decision.

The jury award provides a better understanding of what the penalty will be for those that do not license SEPs on FRAND terms, and contributes greatly to the development of case law concerning SEPs.  The verdict could also have further implications for Google, currently involved in numerous disputes regarding its alleged refusal to license SEPs on FRAND terms, most notably with Apple.