Google/Motorola offer H.264 patent settlement; Microsoft chuckles

Google/Motorola offer H.264 patent settlement; Microsoft chuckles

Summary: Motorola's apparent concessions at the bargaining table weren't enough to get Microsoft to budge, either on licensing terms for H.264 or on the injunction they won against Motorla phones.

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Patent suits and related injunctions and import bans are running rampant among mobile device OEMs and software vendors. Google's Motorola unit is at the heart of several and, in particular, is embroiled in a suit and countersuit with Microsoft over Motorola's H.264 video standard and ActiveSync, respectively. Yesterday, Motorola made a new settlement offer to Microsoft, modifying its demands over the video codec and seeking to prevent an injunction from going into effect next month that would prevent Android phones manufactured by Motorola from entering the country.

Needless to say, Microsoft rejected the settlement. As Businessweek reported, Microsoft "asked if the offer was serious."

At issue is the use of the H.264 video standard (around which Motorola, and therefore Google, holds several patents) in PCs and XBox game consoles. This same issue resulted in an injunction in Germany early last month that would have prevented the sale of Windows 7 and XBox game consoles in the country if a US court had not blocked it. Motorola maintains that Microsoft included the patents in the products without permission or appropriate licensing and was originally asking for nearly $4 billion annually in royalties.

Yesterday's proposal is still considered far above market value, both by Microsoft and by some analysts (note that the referenced analyst has ties to both Microsoft and Oracle, but the article itself is useful in its descriptions of the various patents involved). At the core of Microsoft's argument is the nature of Motorola's intellectual property, which are considered "Standard Essential Patents" (SEP). In other words, because a widely used standard depends on the patents, Motorola has an obligation to charge a "fair and reasonable" price for their use. $4 billion a year, apparently, was not fair or reasonable. Neither was yesterday's proposal, according to the company. The revised proposal requested 2.25% of the retail price of all XBox consoles sold (this part of the proposed settled didn't change) and $0.50 a piece for all computers running Windows 7 (down from 2.25% of the retail price, or $12.50/computer assuming an average price of $500/machine).

In exchange for this concession, Motorola offered to pay Microsoft $0.33 per Android phone to end the dispute over ActiveSync. Businessweek quoted Horacio Gutierrez, Microsoft’s deputy general counsel for intellectual property, as saying,

While we welcome any good faith settlement effort, it’s hard to apply that label to a demand that Microsoft pay royalties to Google far in excess of market rates, that refuses to license all the Microsoft patents infringed by Motorola."

Indeed.

So are Google/Motorola's demands unfair? Or is Microsoft refusing to bargain in good faith as Google suggests? It has been pointed out that MPEG-LA receives far lower royalty payments for its related patent pool, but Google's patent pool for H.264 may actually be more valuable given the nature of its standards essential patents. Microsoft, not surprisingly, sees it differently, believing that Motorola is unfairly leveraging its patents that are so critical to the popular video standard. Motorola, for its part, maintains that 2.25% is its going rate for all licensing deals.

In fact, the answer is quite unclear. The only thing that is clear is that this is far more likely to be settled by a judge than at the bargaining table.

Topics: Mobility, Enterprise Software, Google, Legal, Microsoft

Christopher Dawson

About Christopher Dawson

Chris Dawson is a freelance writer, consultant, and policy advocate with 20 years of experience in education, technology, and the intersection of the two.

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43 comments
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  • Ha

    Can't wait for the DOJ / EU to slap google around.
    danjames2012
    • That would be necessary

      "A fraction of a cent for MPEG-LA" vs. "2.25% of Xbox value for H-264"?

      Motorola requires a slap in the face.
      wmac1
      • Necessary?

        It can easily be argued that H.264 is the more widely used simply because of the defendent's (i.e. Microsoft's) patent-ignoring actions, and, therefore, G/M should reasonably share in the proceeds - although maybe not to _this_ extent!

        As for "popular", that is a word that needs to be used with care here: it implies some sort of ability to choose, and, when one is purchasing a game console (for example), the video system in use is not exactly something one has a say over (or even knows, for the vast majority of buyers). One would normally select on games-availability!
        LeMike
      • not really.

        Google is using whatever they can to get Microsoft and Apple off suing all android makers for expensive per unit licensing costs.

        You can bet that any settlement that takes place should google prevail will have a low monitary value, but will stop MS from going after android phone and tablet manufactures. That was the whole reason they bought Motorola in the first place.

        Don't blame them for trying. because of Patent and court misuse, Microsoft make more money from Android than Google.. and they do it in two ways (In my opinion)
        1. Go after manufactures of Android devices who also need MS Windows like Samsung and LG. Nudge nudge, less acceptable pricing for Windows if you don't license our patents.. or it's all a sham and the android license cost is actually removed from the Windows costs to Android.

        2. Try never to let the patents show up in court when the opponent has enough money to follow though. This appeared to have happened with Barnes and Nobel.. they didn't cave in as they were supposed to.. when Microsoft realized it was all going to come out in court, they paid 300 million to settle it and nudge B&N into obscurity the old fashion way. If B&N had stood their ground, they might still be relevant now. Microsoft have never let their Linux/Android patents see the light of day in court.. If they wanted to stop linux, sue Redhat or IBM or Ubuntu. Yet they have not. Ditto Android, Sue Google and try your hand if you really think you are being infringed. Yet they do not. Why is that do you suppose?
        frankieh
    • So you're okay with Microsit infringing on other's

      Patents? Motorola offered Microsoft a license, Microsoft claimed "We're Microsoft, we don't need no stinking license", then turns around and demands Motorola license F.U.D. Patents from Microsoft at an even higher % of the device's cost?
      Jumpin Jack Flash
      • Right. That's your version in your world

        Patents? Motorola offered Microsoft next to nothing for the sought out and essential Activesync, with Motorola claiming "We're now Google, and we don't need no stinking license, so take our 33 cents", then turns around and demands MS license F.U.D. Patents from motorola at an even higher % of then other equivelent patented cost?

        BS all the way on Motorola's part
        William Farrel
      • You keep using that acronym, I don't think it means what you think it means

        FUD, what exactly do YOU think that acronym means? Because you're using it 100% wrong. Fear/Uncertainty/Doubt is what the meaning of it is, can you see why there's no rationale behind using it like you did?

        WTF is a Fear Uncertainty Doubt patent?
        BrewmanNH
      • F.U.D. is a Microsoft pateted business tactic.

        Creating a false sense of Fear, which leads to Uncertainty, and often makes the end user Doubt, the product can be legally used is the purpose of Microsoft's claims. They refuse to name specific patents, which leads to the F.U.D. Having to sign an NDA in order to see which patents are alleged to be the source of the infringement is a slippery slope. Microsift can use the fear genersated by a decade long battle to defend yourself to force you into signing up for their "Protection Scam", which is all it really is.
        Jumpin Jack Flash
    • dream on!

      there is no legal ground for that.
      M$ is required to license it's patent cheaply because it's a monopoly, not google.
      The Linux Geek
      • They should remove the monopoly sticker

        If I were Microsoft I would go after this. I would go after the argument that a phone is a PC as is a tablet. if you look at those devices as PCs, Microsoft is far from a monopoly.
        A Gray
      • Feed the Squirrel

        ..you know the one running on the tread-wheel between your ears. It's not making any sense again.
        TGGR
      • Nope

        @ A Gray

        "If I were Microsoft I would go after this. I would go after the argument that a phone is a PC as is a tablet. if you look at those devices as PCs, Microsoft is far from a monopoly."

        But PC is a own sub-class for personal computers, like Mac's, Tablets, Smartphones etc are.

        Technically there has not been PC for decade, when ISA card was removed and PCI replaced it and now personal computers what are sold as PC (legacy from PC-clone manufacturers like Dell, HP etc) are far from PC architecture.

        When IBM invented and designed the PC to conquer personal computer markets, no one knew how big favor that company did for whole world with such design and plan of "PC to every desk". Same time no one at IBM knew that what Microsoft would gain by allowing it to maintain rights to PC-DOS and sell it to other personal computer manufacturers under own MS-DOS brand.

        Microsoft was judged from abusing a monopoly position at PC markets. Not from having a monopoly at personal computer markets. As Microsoft didn't have monopoly at personal computer market, only at PC market. And problem was, MS-DOS (aka Windows) compatibility was needed from operating system to be a PC and because Microsoft didn't manufacture a own PC but had OEM's to manufacture PC's.
        Fri13
    • "Ha" is right...

      Can't wait for the DOJ / EU to slap MS around as well...
      Don't forget - EU ordered MS to offer the information necessary for competing networking software to interact fully with Windows desktops and servers. Offer doesn't mean free, but in Samba case that worked out to be $10k and NO non-disclosure. Imagine ActiveSync falls under this order.
      vgrig
      • LOL!

        You're talking out of your ass and have no clue what you're talking about. DOJ/EU is not going to slap MS around because they're no longer being invested and they've complied with court rulings.
        jhammackHTH
        • you mean like the big fine they just got?

          for blocking the browser choice window for 6 months with an update?
          frankieh
    • Yep

      And for Fri3
      You were on the right track about farmers, but not exactly correct. The farmers get a wee bit more, but the supermarket does not come close to what you said. The middle men get the majority of the spoils without the benefit of putting out any labor.
      eargasm
  • Really?

    Florian is an independent analyst? Since when?
    He got compensation from MSFT and ORCL. Is this your definition of independent?
    kirovs
    • Proof of that statement, please.

      He doesn't mention it.
      msalzberg
      • Follow the links and you'll see

        that hes inserting Florian Mueller as an independent analyst which in all sense of the word he is not one. Also, this blogger is a joke if he's only taking Florian's "indepenent analysis" How come I don't see any other analyst claiming those royalties are unreasonable?
        wolfn11
      • @wolfn

        So your proof that he isn't independent is that you don't like his analysis?

        The only people who think a royalty rate that is more than 25x the going rate is reasonable are people who have no idea what they're talking about.
        msalzberg