(Reuters) – On Monday, U.S. District Judge Ricardo Martinez of Seattle ruled that Microsoft must comply with summonses issued by the Internal Revenue Service in the government’s seven-year investigation of the company’s cost-sharing agreements with affiliates in Puerto Rico and Asia. The decision, which Judge Martinez reiterated late Monday in a followup order responding to post-decision evidence submitted by Microsoft, seems to put an end to the company’s attempt to restrict the role of the IRS’s hired guns from Quinn Emanuel Urquhart & Sullivan.
For the first time ever, a federal district judge has decided what constitutes a reasonable license rate for a portfolio of standard-essential patents. U.S. District Judge James Robart ruled late Thursday that Motorola is entitled to royalties of a half cent per unit for Microsoft’s use of standard-essential video compression patents and 3.5 cents per unit for Motorola’s wireless communication patents. According to Microsoft, those terms would require it to pay Motorola a grand total of about $1.8 million a year in royalties – a far cry indeed from the billions Motorola requested in a royalty demand to Microsoft in 2010. It’s still to be determined at a trial this summer whether Motorola breached its obligation to license its essential technology to Microsoft on reasonable terms. But make no mistake: Robart’s ruling on reasonable royalties is a dreadful outcome for Motorola and its parent, Google.
The next great turning point in the war for global device domination comes next month, when Motorola faces two trials — one against Apple, the other against Microsoft — that will determine its ability to use its portfolio of standard-essential patents as leverage in IP disputes with its competitors. I’ve been harping on this theme for a while, but trials have a way of sharpening the issues. Both of these cases will be tried to judges, not juries, so we won’t get immediate results. But when U.S. District Judge Barbara Crabb in Madison, Wisconsin, and U.S. District Judge James Robart in Seattle issue rulings, Motorola and its rivals should have a very clear understanding of how valuable Motorola’s patents on essential wireless technology are.
If you stopped reading at page 21 of the 28-page summary judgment ruling that U.S. District Judge James Robart issued Wednesday in Microsoft’s contract case against Motorola, you’d figure Microsoft had won the all-important dispute over Motorola’s standard-essential patents. But this is an opinion you have to read all the way to the end.
For Microsoft, the last two weeks have brought bad news in its patent war with Motorola Mobility. On Apr. 24, an administrative law judge at the U.S. International Trade Commission issued an initial determination that Microsoft’s Xbox infringes four Motorola patents – rejecting Microsoft’s defense that three of the patents were essential to standard wireless device technology and that Motorola had breached an agreement to license the IP on reasonable terms. Then, on Wednesday, a judge in Mannheim, Germany ruled that the Xbox and certain versions of Windows infringe Motorola patents. He ordered the products removed from sale in Germany.
Thanks to Monday’s joint announcement of Microsoft’s $300 million investment in a new Barnes & Noble’s digital and college textbook subsidiary, we will never know who actually won the patent showdown between the software and bookselling giants. An administrative law judge at the U.S. International Trade Commission last week put off an initial determination in Microsoft’s patent infringement case against B&N, which was tried in February. Now that the two are partners in the e-book business, the patent litigation will end without a ruling on the merits from the ITC or from the U.S. district judge overseeing Microsoft’s parallel infringement suit in Seattle federal court.
With a single ruling this week, U.S. District Judge James Robart of Seattle federal court may have fundamentally altered the balance of power between Motorola Mobility and the leading opponents of Motorola’s soon-to-be-parent Google, Microsoft and Apple.
In a really smart piece last month, my Reuters pal Dan Levine wrote that Steve Jobs’ promise to kill Google’s Android operating system has not been fulfilled. Instead, wrote Levine and co-author Poornima Gupta, Apple’s patent war against Android users Motorola, Samsung, and HTC had become “a costly global war of attrition.” Both sides have won skirmishes, but no battle has been decisive. The Reuters story quoted Judge Richard Posner of the 7th Circuit Court of Appeals, who is overseeing a Motorola case in U.S. District Court in Chicago. “You’re not going to shut down the smartphone,” Posner told Apple’s lawyer. “[And] they’re not going to shut down the iPhone.”
On Tuesday, administrative law judge Theodore Essex of the U.S. International Trade Commission dealt a blow to Barnes & Noble. As the bookseller heads into trial next week on Microsoft’s claim that its e-readers infringe four Microsoft patents, Essex dismissed Barnes & Noble’s patent-misuse defense. B&N, you’ll recall, has waged an aggressive antitrust campaign against Microsoft, claiming that Microsoft is attempting to squelch the Android operating system by improperly asserting its patents. But next week’s trial won’t consider whatever evidence Barnes & Noble’s antitrust lawyers — at Cravath, Swaine & Moore and Boies, Schiller & Flexner — have amassed. The ALJ will determine only the validity of Microsoft’s patents and whether Barnes & Noble infringes them.
The big guns are rolling out on both sides of Microsoft’s patent infringement suit against Barnes & Noble at the U.S. International Trade Commission. Microsoft has no fewer than four firms (Sidley Austin; Orrick, Herrington & Sutcliffe; Woodcock Washburn; and Adduci, Mastriani and Schaumberg) working on the six-month-old case, in which it accuses Barnes & Noble’s Nook e-readers of infringing Microsoft patents. Barnes & Noble this week supplemented its team of Cravath, Swaine & Moore and Kenyon & Kenyon with Paul Brinkman‘s group from Quinn Emanuel Urquhart & Sullivan. The Quinn addition is notable because Barnes & Noble’s devices use Google’s Android operating system; Quinn, which is one of Google’s go-to IP firms, previously defended the Android system in Apple’s ITC case against HTC.