Microsoft flees Germany over patent disputes

Microsoft is taking its European software distribution center out of Germany due to patent disputes with Motorola Mobility.

On Monday, Microsoft said it is in the process of moving its European logistics operation to the Netherlands. The decision has meant severing its distribution deal with Bertelsmann subsidiary Arvato, which is based in the German state of Nordrhein-Westfalen.

"We have a great relationship with Arvato, and we are pleased with the quality of their service. But Motorola's refusal to live up to its patent promises has left us no choice," Microsoft said in a statement. "We would have preferred to keep our European distribution centre with Arvato in Germany as it has been for many years, but unfortunately the risk of disruption from Motorola's patent litigation is simply too high."

Motorola is suing Microsoft in Germany over H.264 video compression technology. It has accused the software maker of using its patents in Windows 7, the Xbox gaming console, Internet Explorer 7 and Windows Media Player without permission, and the Mannheim Regional Court is due to rule on the matter on April 17.

If the court finds in Motorola's favor, it could prohibit the sale of Windows 7 and the other products in Germany — a decision that would also affect any distribution happening from that country. FRAND terms

The suit is central to a complaint Microsoft made to the European Commission's antitrust division in February. Microsoft says the patents in question are essential to the H.264 standard and should therefore be licensed out on fair, reasonable and non-discriminatory (FRAND) terms.

Apple has also complained to the Commission over Motorola's allegedly abusive patent licensing tactics. In December, Motorola succeeded in having some iPad and iPhone models banned from German shelves over 3G-related patents that Apple said should have been licensed on FRAND terms.

In its suit, Motorola is looking for $4bn (£2.5bn) in annual royalties for Microsoft's use of 50 patents in Windows. This figure is equivalent to 2.25 percent of the Windows retail sales price, and is the same proportion that Motorola has demanded from Apple over the cellular patents.

Apple and Microsoft say that percentage is far too high for standard-essential patent royalties, but Motorola — and its soon-to-be owner Google — maintain that it is appropriate.

Samsung is being investigated by the Commission over similar FRAND issues, although its attempts to have German courts grant injunctions against Apple over cellular patents have been less successful than Motorola's.

According to German patent expert Florian Mueller, courts in that country are increasingly willing to grant injunctions to companies that use standard-essential patents aggressively, and Microsoft's decision shows that this trend may damage the German economy.

"A country in which such patents can be easily abused to win injunctions is not an advisable place for a European distribution operation," Mueller wrote in a blog post on Monday. "It's also an irresponsibly risky location for hosting websites that implement industry standards such as H.264."