Germany's leading news agency, dpa (Deutsche Presse-Agentur), reports that legal concerns have led Microsoft to relocate its European logistics center from Germany to the Netherlands. The warehouse and distribution operation, based in North Rhine-Westphalia (Germany's most populous federal state), was operated by Arvato, a Bertelsmann subsidiary, as a service provider for the U.S. software maker. The report says Microsoft stressed that legal concerns are the only reason for which Microsoft is now moving this operation out of Germany. According to what dpa found out, approximately 50 jobs are affected.
Microsoft is being sued in Germany by Motorola Mobility (a company Google is in the process of acquiring for $12.5 billion) over patents that are allegedly essential to the ubiquitous H.264 video codec standard. The Mannheim Regional Court will hand down a decision in two weeks (on April 17, to be precise) that could ban the sale of Windows 7 (and related technologies such as the Internet Explorer 7 and Windows Media Player) and the Xbox gaming console. At a trial in February, the court appeared to believe that Microsoft's and everyone else's products implementing the H.264 standard infringe on the asserted patents, and the presiding judge obligated Microsoft to give up its invalidity defense.
Just for a license to its H.264-related patents, Motorola is demanding many billions of dollars per year from Microsoft. These two charts show that Motorola's royalty demands are way out of line. Both Apple and Microsoft have lodged EU antitrust complaints against Motorola for this conduct. The EU's competition chief, European Commission Vice President Joaquín Almunia, said last week that he is considering formal investigations into the matter.
I regret to say that certain developments in patent enforcement have really turned Germany into a dangerous location for business, a problem that other high-tech companies, such as Apple, are also experiencing. Standard-essential patents are lethal weapons, a fact that Motorola proudly highlighted to the Mannheim court by saying that such patents are like bullets in a gun: "it takes only one bullet to kill". Once a patented invention becomes a mandatory part of a standard, the patent can no longer be engineered around. A country in which such patents can be easily abused to win injunctions is not an advisable place for a European distribution operation. It's also an irresponsibly risky location for hosting websites that implement industry standards such as H.264.
I'm based in Germany (where I frequently attend patent trials) and watch smartphone-related patent lawsuits around the world. Clearly, the German legal system lends itself to the abuse of standard-essential patents, by strategic patent holders like Motorola as well as so-called patent trolls, like no other jurisdiction I know. The problem is due to the combination of
Germany's statutory law, which makes injunctions available to any patent holder who wins an infringement ruling,
the so-called bifurcated system, which allows patents that should never have been granted to be enforced before they are, with considerable delay, proven invalid,
a disastrous decision on essential patents, named Orange-Book-Standard, by the Federal Court of Justice, which allows the owners of such patents to make even extortionate demands because an injunction is denied only if the implementer of a standard makes an offer that is so lucrative that its refusal constitutes an antitrust violation, and
the way in which lower courts apply the Orange-Book-Standard decision by constantly moving the goalposts in favor of standard patent abusers instead of holding them responsible for a breach of the commitments they made to offer licenses on FRAND (fair, reasonable and non-discriminatory) terms.
Those and others factors have made Germany the new epicenter of the smartphone-related patent wars. Dozens of related lawsuits keep courts and lawyers busy, but on the bottom line, patent abuse kills jobs and impedes economic growth.
Microsoft's decision to move a substantial logistics operation out of the country is only the beginning. Lawmakers, judges and competition regulators should use the means at their disposal to fix the system before it destroys more jobs. Actually, a "workshop" (roundtable) hosted by the Federal Ministry of Economics and Technology discussed this issue in June 2011. The official conclusions of the discussion state that "the workshop also identified as a problem that the owners of certain standard-essential patents have disproportionate leverage in negotiations due to their entitlement to injunctions". But so far, nothing has been done to bring about change. On the contrary, some court rulings have further exacerbated the problem.
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