Last month, we reported that Microsoft and Motorola’s heated battle over Wi-Fi technology and video codecs had reached a critical juncture. An International Trade Commission (ITC) judge, David Shaw, has ruled that the Redmond, Washington computer giant was guilty of violating four patents. At the time, he hadn’t recommended a ban on the Xbox 360 and other infringing devices, but that has apparently changed.
According to the ruling, Microsoft endeavored to combat the ban by claiming that removal of the Xbox 360 from the market would be contrary to the public good, leaving only two choices of game consoles (PlayStation 3 and the Wii). One can only imagine the judge chuckling to himself over that argument as he decided that protecting intellectual property was more important. Right now, Motorola seems to have the upper hand as the matter goes to the six-person board of commissioners on August 23, 2012.
This group has the power to dismiss the matter all together, make adjustments to the ruling or simple accept Judge Shaw’s determination. In the event that the matter is upheld, it goes to the President of the United States (or, at least, members of his administration) who has the ability to either accept the ruling or eliminate it completely. It is likely that, should it get that far, that Microsoft will acquiesce to unfavorable terms set forth by Motorola rather than see a full freeze of sales of the game console and some related peripherals.
The reason a settlement hasn’t been reached so far is because of a widely different interpretation of what is “reasonable and nondiscriminatory.” Motorola has proposed a 2.25% royalty on the end-user price of every infringing device. Assuming 66 million Xbox 360s sold (according to 1UP in January), that’s somewhere between $297,000,000 and $594,000,000. This also doesn’t include additional infringing devices like controllers.
Microsoft, on the other hand, claims that is too high, but hasn’t proposed a different value. They claim that the 2.25% is “roughly forty-five times the maximum rate charged by all licensors in the H.264 [video codec] patent pool, and sixteen times the maximum rate charged by the five licensors in the 802.11 [Wi-Fi] patent pool.” Microsoft has successfully stalled a ban on the sale of the console in Germany, citing that Motorola had failed in their obligation to offer the licensing up at fair rates (and because the judge recognized that were it upheld, further negotiations would be unbalanced). In fact, a lawsuit was filed in 2010 to that affect. As you can see, the valley is wide, and the relationship between these two giants has been souring for years.
A Microsoft representative shared this with us on the matter,
“The recommendation by the Administrative Law Judge is the first step in the process leading to the Commission’s final ruling and has no immediate effect on the availability of Xbox 360 in the U.S. 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.”
We won’t know more until August unless the two parties reach a settlement. It’s not looking good for Microsoft, though. Should the commissioners accept Judge Shaw’s ruling (available as a PDF), what little bargaining power they have will be all but gone.