Googorola Fails to Take Microsoft Hostage

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Search titan Google (NASDAQ: GOOGL  ) may have just detailed a new open-source patent initiative aimed at facilitating IP cease fires, but those good intentions don't apply to a long-standing legal battle between subsidiary Motorola and Microsoft (NASDAQ: MSFT  ) . Google did say it would only return fire if "first attacked," and Motorola and Microsoft have been going at it for years.

The pair has been duking it out in a patent court of law since 2010 over numerous standards-essential patents that Motorola is required to license to Microsoft. At issue is how much the software giant should pay for access to these patents, since standards-essential patents must be licensed at fair, reasonable, and non-discriminatory, or FRAND, rates. Trouble is that there's plenty of wiggle room, since FRAND is a somewhat objective description.

The IP in question relates to 802.11 Wi-Fi and H.264 video encoding standards, both of which are virtually unavoidable in today's gadgets. Motorola has been trying to finagle an outrageous 2.25% royalty rate from both Microsoft and Apple for years. Such a high rate would effectively take related products hostage, since that's a huge cut to send to Moto. That would include all Xbox 360 gaming consoles and all PCs running Windows 7.

The total annual royalty revenue stream that Motorola was originally hoping to extract from Microsoft was an incredible $4 billion. Microsoft maintained that it shouldn't have to pay a penny more than $1.2 million per year. To put Motorola's figure into perspective, that's nearly a fifth of Microsoft's operating income over the past four quarters from all segments.

Suffice it to say, that's hardly reasonable (the "R" in "FRAND").

The U.S. District Court for the Western District of Washington is siding with the software giant, and has determined appropriate FRAND rates for the dispute. The court's total was just under $1.8 million, or 99.96% less than what Motorola was asking for. Sorry, Moto.

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