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Microsoft Wins Trial on Google’s Patent Licensing Tactics

Google Inc. (GOOG)’s Motorola Mobility didn’t act in good faith when it demanded patent royalties from Microsoft Corp. (MSFT) for use of video-compression and Wi-Fi technology, a federal jury said yesterday.

The jury in Seattle acted in its first day of deliberations. Microsoft was awarded about $14.5 million in damages, the Seattle Times newspaper reported in a blog post.

“This is a landmark win for all who want products that are affordable and work well together,” David Howard, Microsoft deputy general counsel, said in an e-mailed statement. “The jury’s verdict is the latest in a growing list of decisions by regulators and courts telling Google to stop abusing patents.”

“We’re disappointed in this outcome, but look forward to an appeal of the new legal issues raised in this case,” William Moss, a Motorola Mobility spokesman, said in an e-mailed statement.

The verdict could help the two companies resolve a dispute over patent royalties for both fundamental technologies in electronic devices and features that make them easier to use. More broadly, the case is one front in a global debate on how to handle patents that relate to technology included in industry standards used by all manufacturers.

Microsoft claimed that Motorola Mobility acted unreasonably by demanding royalties of 2.25 percent of the price of an Xbox video-gaming system or a computer that runs on the Windows operating system, and then threatening to get a court order halting sales of the products if the money wasn’t paid.

Common Tactic

Motorola Mobility said the October 2010 letters sent to Microsoft were a common opening offer that it used in negotiating patent licensing with other companies for years. Rather than sitting down to negotiate a licensing agreement as other companies do, Microsoft went to the courts, Motorola Mobility said.

Microsoft, which reported $73.7 billion in 2012 revenue, has said the royalty demand would equal more than $4 billion a year, a figure Motorola Mobility disputed.

U.S. District Judge James Robart, who presided over the trial, determined in April that the appropriate royalty rate was about a half-cent per unit for video-decoding technology and 3 1/2 cents for wireless technology. Microsoft said that would equal about $1.8 million a year.

The issue for the jury was whether Motorola Mobility’s actions were in keeping with the standards of good faith and fair dealing. Robart, in pre-trial rulings, said Motorola Mobility’s offers have to be made in good faith, though the initial offer doesn’t have to be on fair terms as long as the result is fair.

Royalty Demand

Microsoft struck first in 2010, demanding royalties from companies using Google’s Android operating system and filing a complaint with the U.S. International Trade Commission. Motorola Mobility responded within weeks by sending a letter saying it was owed royalties on the Xbox and Windows. The company then filed its own infringement lawsuits.

Microsoft, based in Redmond, Washington, won a ruling that limits imports of Motorola Mobility phones that have a feature to synchronize calendars with computers. It sued U.S. Customs and Border Protection for letting the phones continue to enter the U.S., and both companies are appealing aspects of the case to the U.S. Court of Appeals for the Federal Circuit in Washington, D.C.

$293.9 Billion Market

The patent fights are part of a global war for an increased share of the $293.9 billion smartphone market. They’ve become a testing ground to determine how to treat patents that cover basic technology used by companies so that, for instance, chargers can plug into any device or Apple Inc. (AAPL)’s iPhone can send and receive images from Samsung Electronics Co.’s Galaxy S4 handset.

Companies that participate in groups to establish industrywide standards pledge to license any relevant patents on “fair, reasonable and non-discriminatory” terms. In return, they have the advantage of ensuring their technology is widely used, giving them a leg up on implementing the standard and establishing a broad base of potential licensees.

A patent gives its owner the power to block others from using the invention. Microsoft and Apple have both pledged not to exercise that power when it comes to patents on industry standards, though they have used other patents in their legal fights with competitors.

Motorola Mobility and Samsung, two companies with long histories with mobile phones, have lodged patent-infringement suits using their patents on fundamental phone technology, such as how data is transmitted.

Obama Veto

President Barack Obama’s administration said limits should be placed on such patents, and on Aug. 3 vetoed an import ban on some of Apple’s older phones that Samsung had won.

Samsung, which is under investigation by European regulators over its use of standard-essential patents, had agreed not to seek a sales ban on that continent against Apple for use of any such technology. Google, of Mountain View, California, reached an agreement with the U.S. Federal Trade Commission that limits its activities regarding those patents.

Robart last year precluded Motorola Mobility from halting sales of any Microsoft products based on an infringement finding in Germany. Part of Microsoft’s request for damages was based on the cost of relocating a logistics center warehouse to the Netherlands from Germany.

Sept. 11 Arguments

The U.S. Court of Appeals for the Federal Circuit, which specializes in patent law, is scheduled to hear arguments Sept. 11 on whether there should be different rules for standard essential patents, and when companies can obtain court orders to block the use of patented technology.

U.S. Circuit Judge Richard Posner, who normally presides on the 7th Circuit Court of Appeals in Chicago, threw out cases Apple and Motorola Mobility had filed against each other. Posner ruled in June 2012 that Motorola Mobility wasn’t entitled to any ban on the use of standard-essential patents, while Apple wasn’t entitled to halt sales of complicated electronics based on an infringement claim over device features.

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

To contact the reporter 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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