Apple and Microsoft United by a Common Enemy

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Remember when we talked about how Motorola Mobility (NYSE: MMI  ) is trying to ransom tech bigwigs Apple (Nasdaq: AAPL  ) and Microsoft (Nasdaq: MSFT  ) with its handful of industry-essential patents? And how would-be suitor Google (Nasdaq: GOOG  ) hypocritically has Moto's back?

Well, Cupertino and Redmond have inadvertently teamed up, united by a common enemy that is trying to make a mockery of the FRAND (fair, reasonable, and non-discriminatory) terms that require Motorola to license its IP.

Apple recently filed an official complaint with European Union antitrust regulators over the case. The issue lies in Motorola's sky-high demands for what it considers a reasonable licensing fee but really amounts to 10-digit royalty payouts. The Mac maker is asking for some intervention and clarity, since it thinks Motorola is asking way too much for what it referred to as "an old pager patent."

Now Microsoft has joined Apple and similarly filed a complaint with the European Commission for the same issue, although its battle with Motorola stems from a different video-encoding patent that affects Windows laptops and Xbox game consoles. Mr. Softy even detailed its stance in an official blog post titled "Google: Please Don't Kill Video on the Web," since the H.264 video standard in question facilitates a large chunk of online video.

The software giant's post even gives us some extra financial context into how absurd Motorola's 2.25% demands are. H.264 is built using a pool of more than 2,300 patents, including Motorola's. That means that for a $1,000 laptop, Motorola wants a $22.50 cut for its 50 patents related to H.264. The entire patent pool has a royalty maximum of $0.20 per unit, while Microsoft pays only $0.02 thanks to volume discounts.

So Motorola wants more than 100 times what it costs to license the entire pool, just for its sliver of related IP. That figures goes even higher when you start looking at higher-end notebooks fetching price tags as high as $2,000.

Apple was able to get the European Commission to open an investigation into Samsung for the same reason, so I'd expect it to be practically guaranteed that the regulators will start scrutinizing Moto after Apple and Microsoft put in their respective complaints.

Googorola looks like it's almost a done deal, with U.S. and EU regulators signing off on the deal. The pair is still waiting for China, Taiwan, and Israel to turn in their ballots, so they can jointly hold the rest of the tech world hostage.

The patent warfare continues to rage on with no signs of letting up. If you're looking for a way to play the mobile revolution that's relatively safer from all the patent warfare topside, then you're in luck. The Motley Fool has just released a new special free report on "3 Hidden Winners of the iPhone, iPad, and Android Revolution." In it, you'll find the names of three component suppliers that are quietly cashing in from the inside by providing the guts that nearly all mobile gadgets depend on. Check out the 100% free report now.

Fool contributor Evan Niu owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Google, Apple, and Microsoft. Motley Fool newsletter services have recommended buying shares of Google, Microsoft, and Apple and creating bull call spread positions in Microsoft and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 23, 2012, at 10:39 AM, maverik013 wrote:

    Motorola didn't go after Microsoft and Apple in spite of having an arsenal of patents. Remember it was Mr Softy and Apple who fired the first salvo by suing Motorola for various patents many of which have been turned down and/or are under investigation. Wouldn't it be natural for Motorola to return in kind to such attacks and now are crying foul and hiding behind FRAND. Well just because patents are adopted by standard doesn't dilute the value of it in fact quite the contrary. On the other hand, would you think that Apple's and Microsoft's non-essential/non-standard patents are more valuable?

    Btw, did Mr Softy and Apple pay you to write this article? There was not an ounce of objectivity in the entire piece. Makes Motley Fool look really foolish.

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