Motorola Mobility Wins Ruling on Microsoft Xbox Patents

April 23 (Bloomberg) -- Motorola Mobility Holdings Inc. won a U.S. International Trade Commission judge’s ruling in its attempt to block imports of Microsoft Corp.’s Xbox gaming system. Bloomberg's Emily Chang and Megan Hughes report on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

Motorola Mobility Holdings Inc. (MMI) won a U.S. International Trade Commission judge’s ruling that bolsters its chances of blocking imports of Microsoft Corp. (MSFT)’s Xbox gaming system from entering the U.S.

ITC Judge David Shaw said yesterday that Microsoft was violating four of five Motorola Mobility patents. The judge’s findings are subject to review by the six-member commission, which has the power to ban imports that infringe U.S. patents. A second judge at the ITC delayed until today issuing his findings in a separate Motorola Mobility case against Apple Inc. (AAPL)

The ruling gives Motorola Mobility leverage in its patent fights with Microsoft that may force settlement talks to avoid an Xbox import ban. Motorola Mobility filed in retaliation for Microsoft lodging patent-infringement claims against Motorola Mobility phones that run on Google Inc. (GOOG)’s Android operating system, the most popular platform for mobile devices.

“Microsoft continues to infringe Motorola Mobility’s patent portfolio, and we remain confident in our position,” said Becki Leonard, a spokeswoman for Motorola Mobility, in an e-mailed statement. “This case was filed in response to Microsoft’s litigate-first patent attack strategy, and we look forward to the full commission’s ruling in August.”

The U.S. International Trade Commission Judge David Shaw said Microsoft was violating some of Motorola Mobility's patent rights. Photo: Joe Raedle/Getty Images Close

The U.S. International Trade Commission Judge David Shaw said Microsoft was violating... Read More

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The U.S. International Trade Commission Judge David Shaw said Microsoft was violating some of Motorola Mobility's patent rights. Photo: Joe Raedle/Getty Images

The commission has set a target of completing the investigation by Aug. 23. A separate judge at the agency found that Motorola Mobility infringed one of seven Microsoft patents. The commission is reviewing that determination, and is scheduled to release its decision May 18.

Review Pending

Motorola Mobility contends that three of the four patents found to be infringed relate to industry-established standards covering Wi-Fi technology and video decoding. Motorola Mobility took part in establishing those standards in return for a pledge to license any standard-essential patents on fair and reasonable terms.

Microsoft had sought to delay Shaw’s decision until a federal judge in Seattle can rule on the software maker’s claims that Motorola Mobility breached its licensing obligations. A hearing in the Seattle case is scheduled for May 7. Shaw, in his one-page synopsis of his findings, said Microsoft had not prevailed in its arguments.

Microsoft, which has pledged to never seek a legal ban on products that infringe standard-essential patents, said it would be vindicated once the six-member commission reviews the case.

Commission Process

The recommendation by the administrative law judge “is the first step in the process leading to the commission’s final ruling,” Microsoft said in an e-mailed statement. “We remain confident the commission will ultimately rule in Microsoft’s favor in this case and that Motorola will be held to its promise to make its standard-essential patents available on fair and reasonable terms.”

Motorola Mobility, the Libertyville, Illinois-based creator of the consumer market for mobile phones with the DynaTAC 8000X that cost $4,000 in 1983, has a portfolio of more than 17,000 patents. Google has agreed to pay $12.5 billion to buy Motorola Mobility.

Motorola Mobility contends that Microsoft is infringing two patents that cover aspects of an industry standard for video decoding, two for Wi-Fi technology and a fifth patent on a way that to establish communication between the Xbox and accessories. The second Wi-Fi patent wasn’t infringed, and one aspect of one of the video-coding patents was invalid, the judge said.

Royalty Demand

Shaw won’t release the full findings until both sides get a chance to redact confidential information.

Motorola Mobility sent letters to Microsoft demanding a 2.25 percent royalty on the end price of products that use the inventions, including the Xbox and Windows products. The entertainment division, which includes sales of the Xbox, generated $8.9 billion in global sales in fiscal 2011, about 13 percent of Microsoft’s review.

Microsoft, based in Redmond, Washington, has challenged Motorola Mobility’s right to bring patents that the company says cover essential aspects of an industry standard in a case at the agency. Microsoft has accused Motorola Mobility of violating its commitment to license those patents on “reasonable and non- discriminatory” terms.

Suit Filed

The software maker filed the Seattle breach-of-contract lawsuit against Motorola Mobility before the ITC case was filed. Microsoft claimed that Motorola Mobility’s demand, if met, would result in $4 billion a year in royalties.

Motorola Mobility said the numbers were misleading. It said the offer is typical of those it makes to start negotiations and Microsoft never made a counter-offer.

“Motorola is saying, ‘If you want to go to war with me, that’s ok, but then you can’t say I should play nice in the sandbox,” Tom Scott, a patent lawyer with Goodwin Procter in Washington, said before the findings were released. “There really isn’t a standard for fair, reasonable and non- discriminatory.”

The European Union is investigating complaints by Microsoft and Apple that Motorola Mobility is unfairly using standard- essential patents to block competition.

The standards are established to ensure products work together across platforms to let, for instance, a video be downloaded to a home computer, laptop and smartphone no matter who makes the electronic device. Manufacturers are limited in their ability to claim they don’t infringe patents that are deemed critical to following an industry standard.

‘Competitive Tool’

Microsoft has argued that, since the ITC has only the power to block imports and not to award cash damages, standard- essential patents shouldn’t be part of infringement cases at the agency. The proper forum, Microsoft contends, is a district court that can resolve licensing disputes.

Motorola Mobility has called Microsoft’s objections “a competitive tool rather than a principled objection.” Last year, in a written statement to the U.S. Federal Trade Commission, Microsoft supported the right to assert standard- essential patents at the ITC.

In a March 15 letter to the Justice Department and the ITC, the Senate Judiciary Committee said it was concerned “that patent holders may choose to seek an exclusionary order from the ITC in a manner that would threaten competition, rather than simply dispute the reasonable terms of the license in court in a way that would allow continued use by competitors.”

Legal Issue

The letter was signed by Senate Judiciary Chairman Patrick Leahy, a Vermont Democrat, and Wisconsin Democrat Herb Kohl, who heads the antitrust, competition policy and consumer rights subcommittee.

“It would surprise me if the end result is that they’re precluded from practicing a standard,” said David Long of Dow Lohnes in Washington, who specializes in telecommunications patents. “The question is how we get there.”

The Motorola Mobility case against Microsoft is In the Matter of Gaming and Entertainment Consoles, 337-752 and the Microsoft case against Motorola Mobility is In the Matter of Mobile Devices, Associated Software and Components Thereof, 337-744, both U.S. International Trade Commission (Washington).

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

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

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