A U.S. judge ruled Thursday that Motorola Mobility is entitled to substantially less royalties than it wanted from Microsoft for the company's use of wireless and video-encoding patents in its Xbox products.
The ruling, handed down in the U.S. District Court for the Western District of Washington, is significant because it is the first time a judge has determined specific royalty fees for the use of standard-essential patents. Standard-essential patents are those which cover technology used in international standards and ensure various products work together, and their licensing fees are often the source of patent disputes between companies.
The ruling also suggests that companies with standard-essential patents may be better off joining a patent pool, or an organization that licenses a group of patents from different companies and collects royalties.
Motorola initially sought around $4 billion from Microsoft when the two began negotiating for the licensing of technology incorporated into the 802.11 Wi-Fi and H.264 video-encoding standards. Companies typically attempt to privately negotiate royalty rates before they turn to the courts.
But those negotiations broke down, and Microsoft sued Motorola in November 2010 in U.S. District Court for the Western District of Washington. The companies failed to reach an agreement on RAND (reasonable and non-discriminatory) royalty rates for the patents. Microsoft's lawsuit technically claims a breach of contract on Motorola's part.
Before determining whether Motorola Mobility had breached a contract with Microsoft, U.S. District Judge James R. Robart first set out to determine RAND rates, which were set in the Thursday ruling.
The lawsuit's second phase, which will cover the breach of contract aspect, is scheduled for October.
Robart ruled on Thursday that Microsoft should pay around $1.8 million per year. He determined Microsoft should pay a RAND royalty rate of .0555 cents per product, such as the Xbox and Windows, that use Motorola's H.264 standard-essential patent portfolio.
Robart determined that Microsoft should pay 3.471 cents per unit for use of Motorola's 802.11 standard-essential patent portfolio for its Xbox products and .8 cents per unit for all other Microsoft products using the same portfolio.
Motorola Mobility did not say how it planned to deal with the ruling, instead saying that it "has licensed its substantial patent portfolio on reasonable rates consistent with those set by others in the industry."
Microsoft praised the ruling.
"This decision is good for consumers because it ensures patented technology committed to standards remains affordable for everyone," said David Howard, corporate vice president and deputy general counsel for Microsoft, in a written statement.