Tomorrow (Monday, August 26, 2013) the Microsoft v. Motorola breach-of-FRAND-contract trial will kick off in Seattle (Western District of Washington), with Judge James Robart of worldwide enforcement-blocking and royalty-setting fame presiding. It's already the second trial in this bifurcated case. A first trial took place in November 2012.
The two commercially most important questions have already been answered between the two trials:
Shortly after the first one, the Google subsidiary was denied injunctive relief over its FRAND-pledged patents declared essential to the IEEE 802.11 (WiFi) and H.264 (video codec) standards (and it is now additionally restricted due to an FTC consent order).
The annual royalty Microsoft owes Motorola according to Judge Robart's FRAND determination is less than $2 million, or less than one-twentieth of a percent of Motorola's original demand.
With such an abundance of guidance, a reasonable settlement shouldn't be hard to reach. And it wouldn't be if this dispute involved only those H.264 and IEEE 802.11 SEPs because those Motorola SEPs have so little value that even if Google obtained four or fives times more money on appeal, which is a steep challenge for sure, the upside wouldn't offset the legal fees incurred through continued litigation. But Google doesn't appear to be interested in a separate settlement of SEP issues with Microsoft. It wants a broad settlement involving Microsoft's non-SEPs, various ones of which have already been held infringed by Android. So it carries on with its SEP assertions and appears inclined to exhaust all appeals when a final FRAND ruling comes down after the second trial.
Just to be clear: I'm not saying that Google is solely responsible for the existence of this dispute. It takes two to tango, and there's no question that Microsoft sued Motorola on October 1, 2010 over patents allegedly infringed by its Android-based devices. But there are two key issues with Google's approach that I'd like to highlight on the eve of the breach trial:
I don't think -- and at this point I think no one in the industry thinks anymore -- that it was a responsible decision on Google's part to put out a mobile operating system (and to mislabel it as "free") without firstly securing licenses to critically-needed intellectual property. Regardless of where one stands on the desirability of software patents, they're a fact of life that can't just be ignored. Software patents are the law of the land, in the United States and the whole industrialized world. There can be endless debates over whether software patents complicate or facilitate new market entries, but Google is definitely an example of a company that owes its success in no small part to a software patent, the PageRank patent, which Google's founders applied for before they had a business plan, let alone a working product, and which was absolutely key to their initial fundraising.
At any rate, there can be no doubt that the law must be obeyed. Granted, no one will be able to perform complete clearance of all patents in the field because there are too many. But for a long time it has been the usual approach of major tech industry players to approach each other constructively and to respect each other's rights. Google has shown astounding disregard for its peers' intellectual property: it negotiated a Java license with Sun, then released Android with Java, but without a license ("absolutely evil" in Oracle CEO Larry Ellison's words); it originally envisioned Android to be a BlackBerry-style operating system, then copied Apple's iOS; and any responsible company in Google's shoes could have figured easily that Microsoft has the strongest operating system patent portfolio out there, making a multiplicity of infringements a given and a license -- or a large-scale clearance effort -- an objective necessity.
Google shirked this responsibility. It had this responsibility not only for itself and its stakeholders but also for its device makers. It exposed a number of companies to enormous risks like no software maker has ever done in the history of this industry. And this leads us to the second point.
When Google started to realize its Android IP mistake (but also enjoyed its tremendous success in the marketplace), it basically had two options. It could have decided, better late than never, to address the IP infringement mess it's created. But it chose another strategy. It acquired Motorola Mobility and seamlessly continued its abusive SEP assertions against Microsoft and Apple.
In an effort to correct the first mistake (releasing Android without key licenses in place), it committed a second one by betting on SEP-based injunction requests and out-of-this-world royalty demands (comparable to demanding $54 million for a standard Ford Taurus) in hopes of gaining leverage that would let it get away with the first error.
The trial starting tomorrow will be about Motorola's conduct that gave rise to Microsoft's FRAND enforcement lawsuit in November 2010 and certain things that happened thereafter. Google announced its intent to acquire Motorola Mobility in August 2011 and closed the deal, after thorough antitrust reviews all over the world, in May 2012. It has had 15 months now to fix the problem. 15 months is a lot of time to work out a settlement. And it wouldn't even take a well-meaning party with a sense of fairness 15 hours to lower originally-excessive royalty demands to a truly fair, reasonable and non-discriminatory level, and to withdraw SEP-based injunction requests. Google took full control of Motorola Mobility and has been micromanaging its litigations for a while, with Google in-house lawyers -- but no more Motorola Mobility staff -- typically sitting next to outside counsel at trials and court hearings in Germany (where these two parties are scheduled to square off in two German appeals courts in September). It's tried different things and keeps playing all sorts of games, but in 15 months there hasn't been a radical departure from Motorola's abusive SEP enforcement campaign.
It's also difficult to understand Google's refusal to honor its grant-back licensing obligations under its MPEG LA AVC/H.264 license agreement. That story won't come up at the trial because Google itself (as opposed to its Motorola Mobility subsidiary) is not a party to this dispute. It's nevertheless regrettable.
It's not just hard but squarely impossible to reconcile the two prongs of Google's patent strategy. At the trial starting tomorrow, its lawyers are going to argue that intellectual property must be respected and that patent enforcement must be strong, and that FRAND promises don't really mean much. At the same time, there are Google lobbyists running around in Washington DC telling lawmakers that patent law is broken and that enforcement should be weakened. And that's also the message Google delivers in connection with Apple and Microsoft's non-SEPs. I've heard this message in court, such as at a German trial over a map data patent. I've seen this in pleadings, amicus curiae briefs, and public interest statements. To me, this is just schizophrenic. If Google could take a consistent position, one way or the other, there wouldn't be a need for this jury trial. There might still be a need for non-SEP infringement lawsuits, and I totally respect Google's right to defend itself against non-SEP assertions and I give it credit for being very good at that. It just fails to focus on its defensive strengths because it wants to pursue a counteroffensive that's not going to get it anywhere.
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