This is the other long running patent fight over smartphones, the one that isn't Apple Apple and Samsung suing each other over multiple nations and at least three continents. This is the one between Microsoft Microsoft and Motorola and the really interesting thing we're going to get when this is finally finished is an answer to the question, well, what is the penalty for not offering a standards essential patent on FRAND terms?
The basics of the fight are thus:
Microsoft Corp takes on Google Google's Motorola Mobility Motorola Mobility unit this week in the second of two landmark trials between the companies that delve into hot disputes over the patents behind smartphone and Internet technology.
The jury trial, starting Monday in federal court in Seattle, is set to resolve whether Motorola breached its contract with Microsoft to license on reasonable terms its so-called standard essential patents, covering wireless and video technology used in the Xbox game console.
The other bit of information we need is this:
More particularly, Microsoft has been locked in a battle with Google to ensure that handset makers using Google's free Android phone operating system pay Microsoft a license fee. Most large handset makers, such as Samsung, LG and HTC HTC, have agreed to pay Microsoft a royalty on Android handsets that Microsoft believes may infringe on its patents. Motorola, which was bought by Google last year for $12.5 billion, is the last big holdout.
Now we can tiptoe through the story. Microsoft insists that the Android operating system violates some of its patents. These are not standards essential patents: they're just the regular kind. Most of the handset makers have agreed (or been threatened into agreeing perhaps) and are paying a royalty to Microsoft. There are rumours abounding that Samsung is paying $10 per handset for example: and it's a fairly usual assumption that the majority of what Microsoft is reporting as revenue from its Windows Phone division is in fact royalties upon those Android licences.
The puzzle then is why isn't Microsoft suing Google, who are after all the people who wrote and then distribute Android? The answer is that Google gives it away and thus there's no revenue that can be gained from proving the patent violation. Thus Microsoft sues or negotiates with the handset makers, not Google. And Motorola Mobility is the last of the major handset makers not to settle. No, this has nothing to do with this trial, or at least not unless you want to try filling in some of the dots.
For this trial and the one that preceded it, are about Motorola owned patents that are used in the Xbox. However, these are standards essential patents, or SEPs. When and if a general standard is approved all the owners of said various patents agree that they will licence them on fair, reasonable and non-discriminatory terms, or FRAND (for some reason I am not sure about in American this often becomes RAND). The first part of this trial was about Motorola Mobility insisting that the Xbox was indeed using SEPs that belonged to Motorola and they'd like some money please. A lot of money actually, but the judge rather disagreed:
After five months of deliberation, U.S. District Judge James Robart came down heavily in Microsoft's favor, saying it owed only a fraction of the royalties Motorola had claimed, suggesting the appropriate rate was about $1.8 million, above Microsoft's estimate of $1 million, but well below Motorola's demand for as much as $4 billion a year.
At which point we come to the second part of this trial, the one about to start. This is where Microsoft alleges that Motorola had been particularly dastardly in demanding so much money for SEPs that should have been licenced on FRAND terms and they'd like some money please. We're all waiting to find out if they get any of course. But that's not actually the important thing that we're waiting to find out, about which more in just a moment.
This is where the dot joining comes in. The suspicion is that the basic strategy being followed by Google and Motorola, and it is just a suspicion not a revealed or proven fact, is that if Microsoft is using one of their patents and Android is using one of Microsoft's then perhaps some sort of a deal can be worked out. Say, a cross-licence of all patents or something like that. This isn't a strategy that's really had much luck: as the result of that first trial shows. The reason it's not worked, if that indeed was the basic calculation, is that in the past couple of years we've seen a much clearer distinction being made between standards essential patents and the regular kind. Both the EU and US law now generally seem to be arguing that violation of SEPs cannot be used to demand an import or sales ban. But violation of normal patents most certainly can be under the usual rules (those really being that it's really necessary to have a ban rather than someone later writing a check being sufficient). The end result of this clarification of the difference between the patent types (they're not actually different types of patents but the contracts signed when they are adopted into a patent pool for a standard do then make them so) is that Microsoft's patents might still be able to get that $10 a handset sort of level, while Motorola's get only that $1.8 million a year in total. Microsoft is unlikely, to put it mildly, to accept to just net off the two and go home.
So, filling in the dots finished now and we get to the answer that we're really going to get from this trial:
"I think the interesting question is, assuming the court finds that Motorola breached its obligation to offer a RAND license, what is the remedy?" said Mark Lemley, a Stanford Law School professor who has been following the litigation. "No court has addressed that issue before."
That is indeed what we all hope we'll learn at the end of this trial. Clearly and obviously there is no criminal sanction, simply because not offering a FRAND licence, or offering it at too high a price, isn't a criminal act. It's entirely civil law, a tort. But what should be done with those who violate some part of the reasonable part of FRAND? Fine them? Smack them on the knuckles? No one really knows and that's what's going to be the interesting result of this trial.
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