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Jury Finds Google Guilty of Standards-Essential Patents Abuse Against MS
recoiledsnake writes "A federal jury in Seattle ordered Google to pay Microsoft $14.5 million in damages for breach of contract for failing to license at reasonable terms standard essential patents covering wireless and video technology used in the Xbox game console. Motorola had demanded Microsoft pay annual royalties of up to $4 billion for use of patents that are part of the H.264 video and 802.11 wireless standards, which are baked into Windows and the Xbox video game console. Microsoft said it was willing to pay royalties but not at the 2.25 percent of the product price that Motorola sought. We previously covered Motorola's exorbitant demands."
with some real reporting
"Microsoft has also fought numerous legal battles against private companies. The most prominent ones are against:
- Alcatel-Lucent, which won US$1.52 billion in a lawsuit which alleged that Microsoft had infringed its patents on playback of audio files. This ruling was overturned in a higher court.
- Apple Inc. (known as Apple Computer, Inc. at the time), which accused Microsoft in the late 1980s of copying the "look and feel" of the graphical user interface of Apple's operating systems. The courts ruled in favor of Microsoft in 1994. Another suit by Apple accused Microsoft, along with Intel and the San Francisco Canyon Company, in 1995 of knowingly stealing several thousand lines of QuickTime source code in an effort to improve the performance of Video for Windows. After a threat to withdraw support for Office for Mac, this lawsuit was ultimately settled in 1997. Apple agreed to make Internet Explorer the default browser over Netscape, and Microsoft agreed to continue developing Office and other software for the Mac for the next 5 years, purchase $150 million of non-voting Apple stock, and made a quiet payoff estimated to be in the US$500 million-$2 billion range.
- AOL, on behalf of its Netscape division. Netscape (as an independent company) also was involved in the United States v. Microsoft antitrust suit.
- Be Inc., which accused Microsoft of exclusionary and anticompetitive behavior intended to drive Be out of the market. Be even offered to license its Be Operating System (BeOS) for free to any PC vendors who would ship it pre-installed, but the vendors declined due to what Be believes were fears of pricing retaliation from Microsoft: by raising the price of Microsoft Windows for one particular PC vendor, Microsoft could price that vendor's PCs out of the market.
- Bristol Technology Inc., which accused Microsoft illegally withheld Windows source code and used its dominant position with Windows to move into other markets. A ruling later ordered Microsoft to pay $1 Million to Bristol Technologies (see also Windows Interface Source Environment).
- Caldera, Inc., which accused Microsoft of having modified Windows 3.1 so that it would not run on DR DOS 6.0 although there was no technical reason for it not to work. Some claim that Microsoft put encrypted code in five otherwise unrelated Microsoft programs in order to prevent the functioning of DR DOS in pre-releases (beta versions) of Windows 3.1. Microsoft settled out-of-court for an undisclosed sum.
- Opera, which accused Microsoft of intentionally making its MSN service incompatible with the Opera browser on several occasions. Sendo, which accused Microsoft of terminating their partnership so it could steal Sendo's technology to use in Windows Smartphone 2002.
- Spyglass, which licensed its browser to Microsoft in return for a percentage of each sale; Microsoft turned the browser into Internet Explorer and bundled it with Windows, giving it away to gain market share but effectively destroying any chance of Spyglass making money from the deal they had signed with Microsoft; Spyglass sued for deception and won a $8 million settlement.
- Stac Electronics, which accused Microsoft of stealing its data compression code and using it in MS-DOS 6. Microsoft eventually lost the subsequent lawsuit and was ordered by a federal court to pay roughly $120 million in compensation.
- Sun Microsystems, which held Microsoft in violation of contract for including a modified version of Java in Microsoft Windows that provided Windows-specific extensions to Sun's Java language; Microsoft lost this decision in court and were forced to stop shipping their Windows-specific Java Virtual Machine. Microsoft eventually ceased to include any Java Virtual Machine in Windows, and Windows users who require a Java Virtual Machine need to download the software or otherwise acquire a copy from a source other than Microsoft.
- WordPerfect
- Zhongyi Electronic, which, having licensed two self-designed fonts to Microsoft for use only in Windows 95, filed suit
Yes, even the court thought so.
They really were exorbitant for a Standards Essential Patent
As far as I know thins is the sequence of the events: Microsoft asked Motorola for a quote on a licence for the patents in object. Motorola quoted a 2.25% licensing fee on the product price. Microsoft sued motorola. Now, generally here someone acting in good faith would at least first complain that the fee is too much, and ask for a renegotiation. Microsoft just sued, as if this was their intention right from the start. (IIRC at this point Motorola countersued in Germany and won a temporary injunction on sales, that was overruled by an US judge. Apparently the US justice system overrules the european courts, but that's nothing new, I guess.)
in the mean time microsoft has no issue charging a similar percentage to android manufacturers
http://bgr.com/2013/05/01/microsofts-android-licensing-agreements-earnings/
If an experiment works, something has gone wrong.
Motorola requested royalties up to $4 billion, sure.
But "demanded" does not reflect that this was their initial offer.
Standard practice for licensing is
1-owner offers to license for $x
2-potential licensee offers to pay $y
3-owner lowers price
4-potential licensee raises offer
5-haggle over what is covered and what it's worth
The impression given is that this was after step 5.
It actually was after step 1; Microsoft sued before they made a counter-offer.
Can I ask about the FAT patents that are part of a standard (SD Card)? Why Microsoft is able to force OEMs into big cross licensing agreements for dumb patents like that?
I really miss Groklaw's coverage and analysis of this whole thing.
TCP: Why the Internet is full of SYN.
If it's a patent then it is a given monopoly to the owner of that patent to do what they want to. They can sit on it, not use it and prevent others from using it. How should there be such a thing as a Standards Essential Patent? That's just another example of how the patent system is broken in many ways.
-- ssoorrrryy,, dduupplleexx sswwiittcchh oonn.. -Quote found on actual fortune cookie.
And we all lose.
Microsoft makes money off Android, for what I suspect is patents they've never disclosed. Google was trying to make money from Microsoft.
In the end, we all pay more, and the market is locked up by large incumbents who won't let anybody else play in the sandbox.
If the intent of the patent system was to 'foster innovation', we're not seeing that actually happen.
Lost at C:>. Found at C.
Yes, the demands were exorbitant. The problem is that MS decided to immediately go to court rather than negotiate. Usually companies go back and forth and settle on a price. MS decided to short circuit that give and take and instead went straight to a court in Seattle. MS has never been one to compromise with anybody, and now all of a sudden when they have to negotiate with large companies they throw temper tantrums.
Believe nothing -- Buddha
That would be a problem... ...if $4 billion weren't an initial offer that MS never bothered making a counter offer on.
2% of the console's price is pretty exorbitant for open standards patents. The whole deal with (F)RAND stuff is "Reasonable and Nondiscriminatory". Now you don't have to license your stuff under that model, but that's how open standards like MPEG-4 and 802.11 are done. Companies pool their patents and set up a standard, and the licenses are fixed. The idea is that anyone can license it for the same amount, and that amount is fair and reasonable.
The reason companies do that is to get their patents used and licensed. I mean if I develop some cool new video compression, but I won't set licensing terms, everyone has to come to me and I decide if you get a license, and if so what it costs, well that will hamper adoption. Many companies will give that a miss since they don't know why it'll cost them. However if it is all out in the open, then it is much more likely to get used and licensed.
Also a lot of standards agencies require it. If you want your IP to be part of whatever standard they make, you have to disclose it, and license it under RAND terms. You don't want to, then it is excluded from the standard.
Well, if you decide to do that, you can't then go and decide to try and stick it to a company you don't like. You can't say "Yes, all our stuff is available under this fair license for all to use, oh except for you, we don't like you so you pay more." Sorry, you gave up that ability when you decided to do the open standards thing and RAND licensing.
Hence, the court decision. Google wanted to play hardball with MS, but they were doing it with patents they'd said they wouldn't do that with. So they got slapped down.
So ya, exorbitant demands. Particularly in context of what we are talking about. Remember Google doesn't own H.264 or 802.11. They only have a small number of the patents on it. So if their share was like 2%, then total cost could easily be 10-20%. If that was the kind of money demanded for those standards, they'd not be used. Google just wanted to screw MS.
The missing information is that Google bought Motorola Mobility, the Motorola unit involved in this case, in 2011.
Actually, 2.25% was the opening request - the same opening request they made to Nokia, Sony, and a bunch of other companies. MS ran to the courts to complain rather than negotiate. Not sure how it's abusive to make an initial offer that's higher than you expect to get. Now, had Motorola/Google refused to negotiate that 2.25%, it might be abusive - but that's not what happened.
If it's a patent then it is a given monopoly to the owner of that patent to do what they want to. They can sit on it, not use it and prevent others from using it. How should there be such a thing as a Standards Essential Patent? That's just another example of how the patent system is broken in many ways.
I have precisely the opposite reaction to yours. First, yes, nothing good can come from agreed vital standards with a barrier to use due to patents. All that emphasizes to me is that ALL PATENTS are EVIL, COUNTER PRODUCTIVE, and ANTI PROGRESS. They are an idea conceived to prevent moneybags from usurping all the profits from new ideas, that has ended up perpetuating exactly the problem it was intended to ameliorate. The patent idea is only broken in one single way: that it is implemented in law at all.
The only worthwhile patent is NO PATENT.
Motorola.
If you bought a company that did something prior to your buying it, are you evil?
In any case, Microsoft is the evil one in this case because, if you followed the case at all, you would have noticed that Motorola actually asked for a reasonable amount by industry standards but Microsoft didn't even attempt to negotiate and, instead, went straight to a court challenge arguing things that aren't quite even law.
Because they have not committed to a FRAND agreement obviously.
22%? um 2.25% as an opening bid with the normal ending point of 1.2% or 0% depending on cross licensing agreements. At no point was there a 22% offer on the table.
This is factually wrong. MS did negotiate. In fact the judge sent the parties to negotiate but obviously Google did not want money from MS but for MS to stop suing Android manufacturers. In this case they were expecting MS to trade patents worth millions for patents worth pennies (you may not agree with patents but this is the current law).
"Patents they've never disclosed" is acurate. They go to companies using Android and say - "Linux uses our patents, pay us or else.", but they never disclose which patents Linux infringes on - they just take the money for a no-sue promise.
Actually, the case is not about the amount. The case is about whether companies negotiating a patent licensing deal should have to negotiate, or whether they can get a jury to set a rate (or deny one) for them (after the court wisely decided not to do so).
Microsoft was the company that *proposed* the 2.5% rate, and then had the temerity to call it exorbitant after Google accepted their offer.
"Murphy was an optimist" - O'Toole's commentary on Murphy's Law
This has nothing to do with the USPO.
Motorola filed the patents which is perfectly in their rights, however what they choose to do was try to extort a lot of unreasonable royalties and licensing fees out of Microsoft which thankfully the courts have found in favour of Microsoft. Yes Microsoft ain't no saints, but thankfully the courts are waking up and stopping this kind of anti-competitive bullshit.
The USPO is not involved in setting the conditions of licensing, royalties, or any other arrangement or agreement for two parties to share or exchange patent IP. A patent filed does not come with a set of conditions on how it should be used, shared, or what fee schedule is applied for royalties or licensing. I am tired of people ignorant of the patent process just throwing out stupid diatribes about the patent office and patents in general. Sure if the USPO grants a patent in the first place that is trivial in nature or duplicates existing work, then by all means slam the USPO. This case is not the time for that.
There is nothing wrong with a patent. Someone that "invents" something has full right to protect their IP. They have a right to be compensated for the effort, time and money that went into creating the idea. I don't care if its a trivial bit of nonsense, or some elaborate mechanical wonder, everyone has a right to invent and turn that into a money making enterprise. The alternative is communism where all your ideas belong to the state and you just get some stale bread for all your effort. Do you want to live in that communist state? Keep slamming patents and decrying for their absolution and everything to do with capitalism and democracy in general.
However what has happened to the humble patent today is they are now are used in a cold war of stockpiling of ideas in a direct effort to prevent competition. The company that succeeds today will have the largest patent portfolio and hopes that the only way for their competition to survive is to have to pay them obscene royalties, or go out of business. Companies like Apple rarely even share their patents, they just make so much obscene profit that they patent every little stupid idea that comes into their heads and hope that each one cuts a tiny slice out of the ability for their competition to create a successful product.
The patent has been weaponized.
There is nothing about the patent that needs to be changed, but the laws surrounding how patents are shared, exchanged, that is the business surrounding the patent, needs to change and its up to courts to start setting precedent that extorting ANY company using and anti-competitive pricing structures or withholding a patent that is necessary to support the standardization of products and services should no longer be tolerated.
I haven't thought of anything clever to put here, but then again most of you haven't either.
Ahem.
Microsoft sued at least half a year before Google acquired Motorola.
And by the way: that $4 billion is 2.25%-which is the same rate that Microsoft charges.
That is irrelevant, we are talking about "Standards-Essential Patents Abuse" and Microsoft is a member of the SD Association
Nope, another fail in understanding patents.
Consider the USB "standard". Someone invented that and instead of being a bitch and sitting on it they decided to partner with many companies to implement the technology on many products. Those companies willingly paid the licensing or royalty structure set in place to use the USB standard, largely because the fee structure was not ridiculous or anticompetitive in nature. Once everyone started using USB it BECAME a standard because if you came out with your own proprietary data port then largely that would fail, except for bitches like Apple that created their own proprietary device ports, but they still hook into a USB port anyways.
Now if the original USB patent holder wanted to be a dick they would increase their USB fee structure only for certain companies they didn't like, say that no Microsoft device could use USB without paying $50 a device while other companies would only pay $0.05. If a prick patent holder decides to do that, then of course Microsoft, or any company, would sue and claim that they are impeded from being offered fair access to a parent that has become an essential standard for all devices in the category.
If a company choose to monopolize and sit on a patent, it ill NEVER become a standard. For instance if Apple decided that Thunderbolt was the only technology to use at both ends of the cable, and decided none of their products would have USB, and decided to not cross license Thunderbolt with their competitors, then Thunderbolt would not be a Standards essential patent. Nobody would bother to sue Apple because nobody would bother with Thunderbolt.
Microsoft wanted to use video codecs and wireless standards that almost every other product has, but Motorola choose to extort Microsoft with an unfair fee schedule. Regardless of who is the target of the extortion, the courts are clearly no longer willing to tolerate this bullshit and have ruled favorably to prevent Motorola from succeeding in this.
BTW if any company feels Microsoft wronged them in the past for the same thing, now is an excellent time to re-open those cases. But the comment about FAT is stupid because you have no idea what the licensing fee was for FAT and whether Microsoft did anything unfair in OEM cross licensing. Considering that at one time Microsoft had 95+% of the consumer computer market, it only makes sense that OEMs wanted to support FAT file system at all costs because it was a HUGE market to ignore. Sometimes a company is in a position where they can charge whatever they want because the OEMs will throw money at them to get into the business. If the OEM's felt the fee was fair then I am sure for something like SD cards, the billions they made AFTER the agreement pails to the licensing fees paid.
I haven't thought of anything clever to put here, but then again most of you haven't either.
The point is Microsoft did not submit the patent to a standards organization for inclusion in an established industry standard with an agreement to offer the patent under FRAND terms.
Morotola did.
Just because everyone uses a patent does not make it a standards essential patent. Standards essential is an actual term - it means that an entire industry has agreed that "this" is going to be the industry standard and to have your patents be a part of "this" you must agree to license them under FRAND terms. If you don't agree to that, your patent won't be a part of "this" - the industry standards board will find a different solution to the problem that your patent solves and will include that technology in "this."
FAT is not a standards essential patent because Microsoft did not submit it to an industry standards board and did not agree to license it under FRAND terms.
Motorola, in the case of these patents, did submit their patent for inclusion in an industry standard and did agree to license them at FRAND terms. And then broke that promise by attempting to demand non-FRAND patent royalty rates.
Yeah. As much as I dislike Microsoft and patents (which is quite a bit...) this is a pretty clear example of abuse by Google. It doesn't matter if the mess started before Google's acquisition -- Google could have elected to be reasonable post acquisition and chose not to. Google bought Motorola for its patent portfolio in a move that seems remarkably like Oracle's acquisition of Sun. The only possible difference is that Google may not have really intended to turn the patents into a cash cow (which was clearly Oracle's plan for Sun's assets), but instead for basic anti-competitive behavior.
And, yes, despite some opinions to the contrary, patents *are* for more than just anti-competitive behavior. They *can* be used to make money in a non-vexatious manner. The fact that there is little motivation to do so is part of the problem with patents but there is no necessity in it.
As to the licensing costs? In general there aren't limits to what a patent holder can ask (they are not even required to make licenses available), but for *some* patents this is so *obviously* bad there are *some* restrictions. Meaning FRAND (https://en.wikipedia.org/wiki/Fair%2C_reasonable%2C_and_non-discriminatory_terms) which definitely applies in this case. Google cannot require a free license for all of Microsoft's patents in order for Microsoft to get access to FRAND patents owned by Google. They attempted this by establishing a false dichotomy: free cross licensing of everything or $$$ for the FRAND where the $$$ far exceeded FRAND terms. I say a false dichotomy because the whole point was to set the fee prohibitively high leaving only one actual choice. Given the legal reality of patents it is no wonder that Microsoft took Motorola to court.
Its fine to be against patents (I am), but judging the actions of others by an ideal that doesn't exist is not realistic. And its unfair when the same standard is not applied to both sides.
Once everyone started using USB it BECAME a standard because if you came out with your own proprietary data port then largely that would fail, except for bitches like Apple that created their own proprietary device ports, but they still hook into a USB port anyways.
Nope. Firewire doesn't hook into a USB port. USB was never fast enough to support the kind of sustained throughput that FireWire was capable of. There are some ethernet dongles that plug into USB, but that's hardly proprietary. For that matter, FireWire isn't proprietary either -- it's an open standard with a small royalty attached, and Apple is hardly the only company holding patents on the standard.
Bitches.
People who say "sheeple" have about as much sophistication as an AOL user, and in fact are probably actually AOL users.
Actually, 2.25% was the opening request - the same opening request they made to Nokia, Sony, and a bunch of other companies. MS ran to the courts to complain rather than negotiate.
Not sure how it's abusive to make an initial offer that's higher than you expect to get. Now, had Motorola/Google refused to negotiate that 2.25%, it might be abusive - but that's not what happened.
It might not be illegal, but it's a ridiculous amount for the patent at issue and the height of arrogance to ask for such a large amount.
And I would like to point out that it's not illegal for Microsoft to take their complaint to the courts, either. Since the courts seemed to have sided with Microsoft here, I guess we can conclude that Microsoft made the right choice.
People who say "sheeple" have about as much sophistication as an AOL user, and in fact are probably actually AOL users.
If you bought a company that did something prior to your buying it, are you evil?
The takeover was apparently completed in May 2012; the story above links to another that goes back to *November* 2012, and the filing date on the PDF of the court filing that original story links to is also November 2012. (*)
That said, even if it had been, I don't like the principle of absolution of guilt by takeover. If being taken over absolves the company of moral guilt, that raises the possibility of moral hazard, since a company can do evil stuff and get taken over by another who don't have to worry about its reputation- hence the original owners/managers still get paid a high market value for their actions. If the immorality of the original company is more likely to tarnish the purchaser, that will reduce its market value and hence punish the original owners.
(*) I was almost going to say the PDF was dated July 2012- which seemed quite a long gap- which I might have taken to mean the chain of events was possibly set in motion before the takeover. Then I realised "11/07/2012" was in the ass-backwards US format and it *was* November!
"Slashdot - News and Chat Sites Deviant". (Click "homepage" link above for details).
It's mostly escalation. Microsoft has been trying to damage Android's marketability by making patent demands to everyone. Motorola is now attacking Microsoft in the same way. Nobody takes the high road.
I disagree. While I'm certainly no Microsoft fan, Motorola has dirty hands here. Attempting to weaponize a standards-essential patent to harm Microsoft is dirty pool, and the courts agreed. If Microsoft were trying to do the same with standards-essential patents, you'd have a point. But AFAIK Microsoft is using regular patents not encumbered by FRAND terms in their war.
Microsoft is using heavy artillery. Motorola is using nerve gas. Get the picture?
People who say "sheeple" have about as much sophistication as an AOL user, and in fact are probably actually AOL users.
Someone that "invents" something has full right to protect their IP.
No they don't. In neither law nor philosophy does anyone have a "right" to the exclusive use of an idea. Patents are justified because they are believed to be a net benefit to the public. The US Constitution states this explicitly.
The alternative is communism where all your ideas belong to the state and you just get some stale bread for all your effort. Do you want to live in that communist state?
This is a ridiculous argument. Capitalism has existed without patents in the past, and totalitarian communism is not the only alternative to our current IP laws.
There is nothing particularly "grown up" about passively accepting that a situation is fucked up.
Nor is there anything particularly "adult" about ignoring the vast bulk of the evidence in order to try and fixate on a vanishingly small set of corner cases.
Policies need to be judged by their results in aggregate. This is especially true for patents because this stuff doesn't represent any actual natural rights or any actual property. This is supposed to be about promoting progress.
The few good ones aren't good enough to make up for the bad ones. There is no imperative to put up with ANY of them if the system as a whole is not beneficial.
A Pirate and a Puritan look the same on a balance sheet.
Anti-competitive behavior is only bad insofar as it retards advancement. You have forgotten this and treat it as a bad value all by itself, which it is not.
Patents stop "competition" from people who did not think up the great idea from stealing it, without paying for any of the work that it took to develop that idea. It is akin to government protecting a farmer's field from raiding, so he can be secure in growing a crop and selling it.
In this, it enhances advancement, which is the real goal, and a good value.
(-1: Post disagrees with my already-settled worldview) is not a valid mod option.
Agreed. It's a pretty common tactic to open negotiations that way though. Patent holder says 2.25%, Licensee counteroffers 0.0001%, and eventually they arrive at a reasonable number. In this case though Microsoft didn't even make a counteroffer, they just went straight to the courts.
--- Most topics have many sides worth arguing, allow me to take one opposite you.
Huh, Google spends the most on lobbying among tech firms.
http://www.theverge.com/2013/6/4/4394234/google-eight-biggest-record-lobbying-washington
This space for rent.
Part of the problem with many of the software patents being enforced anti-competitively these days is the fact that patent holders are attempting to restrict the consumers of material created with the patent. So you get:
1. Video codecs, where the intellectual property resides in the encoding process, but for which patent rights are being used to restrict decoding. Once encoded, a video format is no different than any other file format. Decoding it is just consuming the media, and shouldn't require a patent license to do. Sure, if a poducer of video content wants to use the best compression tech out there, charge 'em for it. But don't charge the consumer for the 'intellectual property' involved in decoding the resulting file - unless they're using your code to do the decoding.
2. The notorious FAT32 patent, which seems to be the basis for Microsoft's royalty shakedown of Android OEM's. This 'intellectual property' is a workaround for a bad file system design. Using it in a device, which needs it in order to be able to plug into a Windows PC is not a question of Android taking a free ride on the intellectual brilliance of Microsoft. Nobody in their right mind would use FAT32 except for the fact that it's the common denominator that Windows understands. So, sure Microsoft ought to be able to charge you for it as part of Windows. But nobody should have to pay Microsoft for intellectual property needed to connect to Windows unless they are paying for a license to the actual code to do it.
It would seem that restrictions on patenting file formats would go a long way toward these kinds of potential abuses. A file format isn't the intellectual property - it's just the way to store the results of a patentable process.
Posted from my Android phone. Oh, I can change this? There, that's better...
He wasn't commenting on FRAND or anything else you mentioned. His statement was that patents are in practice the opposite of what they are in theory (and as originally prescribed). Therefore they no longer serve the purpose intended and should simply go away.
A fool throws a stone into a well and a thousand sages can not remove it.
He started out talking about FireWire, then shifted to Thunderbolt (and is apparently unaware that Thunderbolt is an Intel product, not Apple).
And you're apparently unaware that when FireWire was introduced, the royalty Apple demanded on chips implementing it was vastly higher than normal, which is why it was exceedingly rare for many years after its introduction. Apple demanded whole dollars per chip, which was outrageous, then and now. Motorola was proposing sticking Microsoft with the same kind of royalty schedule Apple had been demanding of Taiwanese chip manufacturers for a decade. But Motorola isn't Apple, so that didn't fly with the jury.
And, the argument being made by Microsoft and Apple is that patents on rounded corner or bouncing when you slide for a page, or any number of other non-SEP patents should cost more than the patents for the standard and that when a patent is contributed to a standard under FRAND terms that holder loses there ability to enforce that patent via injunction when others choose not to even negotiate a royalty rate. The end result is no patents being contributed to standards, and ending the standard process entirely because the standards can't avoid patents.
Basically, Microsoft and Apple are killing the goose that lays the golden eggs because without standards the whole ecosystem on which their non-essential patents gain their value goes away.