Was Motorola overreaching — and actually trying to get Microsoft to say no to its licensing offer — when it asked for patent royalties totaling what Microsoft estimated to be $4 billion annually?
Or was Motorola reacting to what it characterized as Microsoft’s attempt to destroy it after the handset maker turned from Windows Mobile to Android to power its smartphones?
That’s part of what a federal jury is being asked to consider as a trial in Seattle got under way Monday.
The jury will determine if handset maker Motorola Mobility, now owned by Google, breached its agreement to provide, at reasonable rates, use of its patented technologies that have become part of industry standards in video compression and wireless usage.
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Private companies that hold such industry-standard patents agree, as part of joining international-standards groups, to license them under “fair, reasonable and nondiscriminatory” terms.
Microsoft contends Motorola broke that agreement by issuing a letter in October 2010 that asked Microsoft for 2.25 percent of the end price of each Xbox and Windows sold — a figure Microsoft said would total about $4 billion annually.
Furthermore, Microsoft contended in court Monday that Motorola had set the fees deliberately high so that Microsoft would reject the offer, giving Motorola a reason to seek import bans and injunctions against Microsoft products.
Motorola’s offer had not been made in good faith because it was part of its demands over several years to extract excess fees from Microsoft, attorney Art Harrigan of law firm Calfo Harrigan Leyh & Eakes, said during his opening statement on behalf of the software company.
Microsoft also contended the Motorola patents at issue in the case form only a tiny fraction of the industry-standard technologies used in Xbox and Windows machines.
If every one of the dozens of companies whose patents are involved asked for what Motorola did, “we’d be out of business,” Harrigan said.
Put in context
Motorola, however, said the October letter should be looked at in the context of the relationship between the two companies at the time.
Back then, Motorola had moved from using Microsoft’s Windows Mobile to Google’s Android to power its smartphones. And Microsoft was just launching its new smartphone operating system: Windows Phone.
Microsoft had also sued Motorola twice that month, Motorola attorney Bill Price, with the law firm Quinn Emanuel Urquhart & Sullivan, said in his opening statement.
Microsoft, Price contended, was basically “asserting leverage on Android” and trying to put Motorola out of business. “Motorola acted in the utmost of faith,” he said.
Motorola had been unused to licensing to a software company at the time, having dealt mainly with hardware companies, he said.
The 2.25 percent was a figure Motorola had previously offered to other hardware companies.
And, Price said, it was a “let’s get things started” figure, subject to further negotiation.
The case stems from a lawsuit Microsoft filed in November 2010.
The first part of the trial — on what a reasonable royalty rate and range would be for Motorola to ask of Microsoft — took place last November.
In April, U.S. District Judge James Robart issued his ruling, setting a rate and range far closer to what Microsoft had suggested than what Motorola had asked for.
That rate would amount to Microsoft paying Motorola about $1.8 million, Microsoft said.
While that could be one factor in determining whether Motorola breached its agreement, Robart also outlined several other guiding principles Monday:
Motorola’s initial offer did not have to be on fair and reasonable terms, but that any offer from Motorola needed to be made in good faith.
One way to determine a good-faith offer is to compare it with the reasonable royalty rate and range determined by the court, the judge said. But that comparison is not the sole factor for determining whether Motorola breached its contract.
The trial is expected to run through the middle of next week.
Janet I. Tu: 206-464-2272 or firstname.lastname@example.org. On Twitter @janettu.