Motorola Mobility Wants $4 Billion From Microsoft Over Patents

Microsoft Corp. (MSFT) said Motorola Mobility Holdings Inc. (MMI) demanded $4 billion a year in patent royalties for use of technology critical to functioning of the Xbox video-gaming system.

“Motorola’s demand was so over-reaching that no rational company could ever have accepted it or even viewed it as a legitimate offer,” Microsoft said in a March 30 filing.

Both companies want a federal judge in Seattle to rule whether Libertyville, Illinois-based Motorola Mobility broke its promise to license patents essential to comply with industry standards on wireless networking and video coding on fair and non-discriminatory terms.

The case is part of a broader dispute in which Motorola Mobility is seeking to block sales of the Xbox, and Microsoft wants a ban on U.S. imports of Motorola Mobility phones that run on Google Inc.’s Android operating system.

Microsoft said Motorola Mobility is seeking $4 billion a year for licensing 50 patents on video compression. The entertainment division of Redmond, Washington-based Microsoft generated $8.9 billion in sales last year. Microsoft’s total revenue was $69.9 billion in the fiscal year that ended June 30, 2011.

The software maker said it pays $6.5 million a year to a group of 29 companies with 2,339 patents that cover the same industry standard.

Standard Offer

Motorola Mobility contends that the licensing offer made in October 2010 -- a 2.25 percent royalty on the total value of a product -- was the same one it has presented to every company over the past decade as a starting point for negotiations. Instead, Microsoft filed the breach of contract suit.

“Microsoft did not write back to Motorola,” Motorola Mobility said in its own March 30 filing “Microsoft did not call Motorola to discuss the letters or any issues it had with the offers. Microsoft did not apply for a license.”

Microsoft had never licensed the technology, and Motorola never pushed it, because the two worked together to develop phones that used Microsoft’s operating systems. The relationship strained when the Microsoft platform failed to gain market share and Motorola Mobility turned to Android, Motorola Mobility said.

The court filings were earlier reported by the Foss Patents blog.

Microsoft also has asked the court to prevent Motorola Mobility from obtaining a ruling in Germany that would limit sales of Microsoft products in that country. Today, Microsoft said it was moving its European logistics center out of Germany, to the Netherlands, because of the patent fight.

Microsoft and Apple Inc., which has its own patent battles with Motorola Mobility, have both filed complaints with the European Union accusing the handset maker of misusing its patents on standard-essential technology

The U.S. case is Microsoft Corp. v. Motorola Inc., 10cv1823, U.S. District Court for the District of Washington (Seattle).

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net;

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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