We learned on January 31 that Barnes & Noble had suffered a major setback in a patent-infringement lawsuit filed against the company by Microsoft.
That day, an administrative law judge (ALJ) at the International Trade Commission (ITC) had tossed out the company’s key defense, that Microsoft was engaging in "patent misuse" as part of a larger scheme to "kill Android." Today the full opinion has been made public.
I found the decision thanks to a story by GeekWire’s Todd Bishop, who noted that Theodore Essex, administrative law judge for the International Trade Commission, had called Microsoft’s negotiating tactics “certainly hard bargaining,” but not illegal. (You can see the full PDF here.)
Here's what the ALJ said:
Microsoft argues that Barnes & Noble has failed to offer any conduct that could either by itself or collectively constitute patent misuse. Barnes & Noble responds that Microsoft is committing patent misuse through its actions against the Android operating system. Staff agrees with Microsoft that Barnes & Noble’s theory does not amount to patent misuse.
The decision lays out a chronology: beginning in February 2010, Microsoft “engaged in discussions” with Barnes & Noble over Microsoft's portfolio of more than 65,000 patents. Microsoft “suggested Barnes & Noble take a license to Microsoft’s patents and mentioned potential royalty rates.”
Barnes & Noble made several counter-offers, but, the ALJ notes, “Microsoft did not consider them fair and did not respond.”
After a second meeting in December 2010, Microsoft sent a cease-and-desist letter with claim charts for five of the six patents mentioned in that letter. In the public version of the January 31 opinion, two full pages (from the middle of page 2 to the middle of page 4) are redacted at this point. Presumably those include details of Microsoft's “licensing program aimed at manufacturers and sellers of devices that use the Android operating system.”
The ALJ concluded that Microsoft had done nothing wrong:
The ALJ finds that even viewing the undisputed facts in a light most favorable to Barnes & Noble, Barnes & Noble has failed to prove the defense of patent misuse in this case.
The judge dismissed allegations that Microsoft’s collaboration with Nokia and its attempts to acquire patents from Nortel and Novell were objectionable and said no: “The only thing such concerted action might demonstrate is an ill-will towards Android.”
This, for me, was the kicker:
Even assuming that these transactions and the related evidence establishes that Microsoft is bent on eliminating Android as a competitor, the mere fact that Microsoft is targeting Android for destruction is insufficient to establish an antitrust violation, let alone patent misuse.
The ALJ specifically called out quotes from previous antitrust cases. One green-lighted “a desire to crush a competitor” while a second noted that “hostility to competitors (‘these turkeys’) is irrelevant.”
Microsoft’s tactics are certainly hard bargaining, but they do not rise to patent misuse because there is absolutely nothing about such tactics that expand the scope of any patent.
And if the licensing fee seems too high, well, suck it up and pay. Barnes & Noble accuses Microsoft of trying to drive up the cost of Android (and make Microsoft’s Windows product more attractive) by charging an Android licensing fee roughly equivalent to the cost of licensing Windows Phone.
The judge cites yet another precedent to deny that claim: “[A] patent empowers the owner to extract royalties as high as he can negotiate with the leverage of that monopoly.” Indeed, he adds, Microsoft could simply refuse to license the patents at all. (The situation would be different if any of the patents in question were identified as standard-essential.)
The case now goes to trial, with evidentiary hearings scheduled to be under way already.
Microsoft isn't the only mortal enemy Google and its Android hardware partners face. Before he died, Steve Jobs said “I’m going to destroy Android, because it’s a stolen product.” And he promised he would “spend every penny of Apple’s $40 billion in the bank, to right this wrong.”
Apple shows no signs of backing down in its Android-related lawsuits. And so the patent wars go on.