Judge sets “fair, reasonable and non-discriminatory” patent royalty rates in Motorola’s Suit against Microsoft

On April 25, 2013, U.S. District Court Judge James L. Robart (Western District of Washington) ruled that Microsoft must pay Motorola royalties of .5 cents per unit for video-decoding technology, and 3.5 cents per unit for wireless technology (WiFi), equaling around $1.8 million a year. The decision is a huge victory for Microsoft, as Motorola originally sought 2.25% of the retail price of Microsoft units sold, potentially totaling billions of dollars per year.

Microsoft vs. Motorola, 10-cv-1823, commenced in 2010 when Microsoft demanded patent royalties for Motorola mobile phones running on Google’s Android operating system, as it contends that some of its patents cover a number of Android features. Motorola responded by asking for patent royalties for Microsoft’s Windows operating system and Xbox, which utilize the video-decoding and WiFi technologies that Motorola helped establish standards for.

Companies like Microsoft and Motorola often participate in standard-setting organizations (SSOs) that develop industry-wide standards, so that an industry participant’s hardware and software products can work with products of other participants without technology conflicts and integration problems. The development of standards is also necessary to satisfy consumer expectations and demands, especially considering the diverse range of devices and platforms in the technology marketplace today. Consumers expect that data or video sent from one device will be compatible with other devices, regardless of the hardware/software manufacturer.

Commonly, companies whose technology is included in the standards must license patents to such technology on “fair, reasonable, and non-discriminatory” (FRAND) terms. Disputes often arise as to what constitutes FRAND, and the decision by Judge Robart is a rare instance in which a court has decided the value of patents used in industry wide standards. Judge Robart considered the value of the patents to the standard, as well as the value of the standard to the products involved, in formulating the proper royalty rate.

The ruling, while a victory for Microsoft, also benefits consumers by not having the greater royalty being passed on to them by way of increased product and license fees. Trial is scheduled for August to determine if Motorola met its obligation to license its patents on FRAND, based on the royalty ranges set by Judge Robart.