Jack Ellis

This week, Microsoft and Motorola Mobility went head to head in a Seattle District Court in a case which could result in a framework for determining fair, reasonable and non-discriminatory (FRAND) licence terms. The suit, filed by Microsoft back in November 2010, is just the latest theatre to open in the ongoing global conflict between the two companies. In this particular case, Microsoft claims that Moto – which, in disputes with Microsoft and Apple, has sought a flat royalty rate of 2.25% of the sale price of each infringing product unit sold to end users by the two companies – is dishonouring its obligations to license its standards-essential patents (SEPs) under FRAND terms.

Speaking at conference organised by the Institute of Brand and Innovation Law (IBIL) in London last week, Jason Albert, assistant general counsel for IP policy and strategy at Microsoft, outlined his company’s view on what constitutes FRAND terms and how royalty rates for SEPs should be calculated. “We think that it should be based on the technology in question and nothing more,” he said. “Motorola Mobility’s infringement claim against us [in the Xbox case] concerns Wi-Fi technology – which relates only to a single chip that costs us about $3 per Xbox. There is no difference in Wi-Fi functionality between the $200 Xbox unit we sell and the $400 unit we sell, which just has a larger hard drive and comes with a Kinect unit included. So why does Motorola ask for more money for [the $400] one? [FRAND royalties] should always be based on the smallest part that the disputed patent relates to.”

Albert’s comments echo those made by his company back in February when it announced that it will “always adhere to the promises it has made to standards organizations to make its standard essential patents available on fair, reasonable and non-discriminatory terms” and “will not seek an injunction or exclusion order against any firm on the basis of [standards] essential patents”.

However, as pointed out by a representative from one of Microsoft’s competitors at the IBIL conference, those statements contradict public comments that Microsoft had submitted to the US Federal Trade Commission in June last year, when it stated its position as follows:

"The existence of a RAND commitment to offer patent licenses should not preclude a patent holder from seeking preliminary injunctive relief or commencing an action in the International Trade Commission just because the patent holder has made a licensing commitment to offer RAND-based licenses in connection with a standard. Whether such relief is available should be assessed under the current legal framework in the applicable jurisdiction, which often is premised substantially on the specific facts and circumstances at issue. Any uniform declaration that such relief would not be available if the patent holder has made a commitment to offer a RAND license for its essential patent claims in connection with a standard may reduce any incentives that implementers might have to engage in good faith negotiations with the patent holder."

To a din of approval from gathered delegates, the representative from Microsoft’s competitor suggested that the apparent ideological shift may have more to do with self-interest and short-termism, rather than a focus on bringing about a greater good for the IP owning community as Microsoft’s February 2012 statement implies.

But whatever the main reasons are behind Microsoft’s adoption of this or that position, the creation of conditions where intellectual property can be shared – on terms agreeable to all parties – is of paramount importance to all stakeholders. Without agreement on FRAND terms for licensing SEPs, there will be less incentive to participate in standards. Less standardisation means less interoperability and less opportunity for a range of businesses, large and small, to compete. That will be bad for consumers and for industry players.

The Microsoft v Motorola trial now taking place in Washington state may end up providing FRAND pointers for prospective SEP licensors and licensees – though a similar case filed by Apple against Moto was dismissed after Apple indicated that it would not necessarily abide by any royalty rate for Moto’s SEPs that the court determined.

As IAM reported recently, patent pools set up by Via Licensing and Sisvel are attempting to put a FRAND framework in place for the licensing of Long Term Evolution/4G SEPs and could be a more hopeful step in the right direction, at least with regards to 4G industry standards. If pooling works for 4G, then perhaps it could work elsewhere, too. As always, however, only compromise will allow things to move forward. Considering the fast pace of change in high-tech industries and uncertain economic climes, where a company might be leading the market at one point but find itself in a dire situation just a few years down the line, it would be wise for companies to pursue courses of action that would not only be good for them in the short term but would benefit the whole ecosystem in the long term.