In an effort to draw a line in the sand in the smartphone market, an “innocent bystander” has been caught in the legal crossfire. Following a successful sales ban of the Xbox 360 in Germany, Motorola set its sights on the gaming console’s home turf, and currently, things are not looking good for Microsoft in the US.
The main issue of the dispute is concerning Microsoft’s use of the H.264 codec for video recording, compression and distribution. It is one of the most commonly used formats in the computing industry and used almost ubiquitously for all high definition video. Microsoft uses the codec in a number of the programs PC-owners use on a regular basis (such as Internet Explorer and Windows Media Player) and within its gaming system – the Xbox 360.
A Mannheim, Germany court ruling given in late April would have the effect of instituting a ban on sales of Microsoft products such as Windows 7 and the gaming console. Currently, Motorola has been unable to institute the sales ban due to another lawsuit between the two companies that is being conducted in Seattle. Not long after the German ruling, the US International Trade Commission that was also hearing the matter and has recently determined that the patents had been infringed by Microsoft. Following the decision, Judge David P. Shaw of the ITC has recommended a sales and import ban on the infringing products, a decision that could have huge implications on the profits of the tech giant. Microsoft still has some breathing room as the decision needs to be passed on to both the ITC board of commissioners and the Obama administration.
During the proceedings, Microsoft stated that Motorola’s approach to licensing the codec did not follow the FRAND (fair, reasonable, and non-discriminatory) principles – guidelines that are applied in order to promote healthy and competitive markets worldwide. The nature of many products requires the use of industry-standard technologies – the patents to which must be licensed at reasonable rates to allow other companies to compete. Issues will begin to arise when the companies that own these patents begin to abuse their position.
As a result of a number of lawsuits concerning similar issues between tech companies, Jon Leibowitz – Chariman of the Federal Trade Commission, has stated that the FTC will likely look into injunctions issued over the use of standard and essential patents. These investigations would likely relieve Microsoft in the interim of a sales ban, and would at least provide some time to deliberate with Motorola on a reasonable licensing fee for the infringed technologies. During the ITC hearing, Motorola had suggested that Microsoft should make a royalty payment which would amount to roughly $4 billion annually.
Many lawsuits have arisen in recent years due to the growing market share of smartphones and technological devices. Patent rights were developed to spur innovation, but as the tech giants like Google and RIM have padded their patent portfolios through acquisitions and mergers, the trend seems to be moving towards patents as a means to attack other companies and reduce or eliminate competition. While I hope that Motorola is not attempting to abuse their position of patent power, they should keep in mind that there is a fine line between utilizing patents to protect innovation and using them to gain an unfair advantage in business dealings.
Adam Del Gobbo is a JD Candidate at Osgoode Hall Law School.