updated 02:39 am EDT, Thu June 21, 2012
License offer nearly 90x greater than industry norm
Microsoft has rejected a patent-licensing offer by Motorola to settle patent disputes that could stop Android devices, as well as Microsoft's Xbox 360, from being sold in the US. Last month, the International Trade Commission recommended an import ban on Motorola's Android devices as well as the Xbox 360 until the patent issues were resolved. Motorola's offer expected a low FRAND patent contract rate from Microsoft on the utility patent they must pay for, but demanded excessively-high royalties on the patents Microsoft must license from it.
Microsoft's Deputy Counsel Horacio Gutierrez said in reaction to the Motorola offer that while Microsoft "welcomes any good faith settlement effort, it's hard to apply that label to a demand that Microsoft pay royalties to Google far in excess of market rates, that refuses to license all the Microsoft patents infringed by Motorola, and that is promptly leaked to the press."
Motorola has allegedly offered to pay Microsoft 33 cents for each of its Android devices that uses Microsoft's ActiveSync technology, but demands 2.25 percent (at least $4.50) per Xbox and 50 cents on each copy of Windows that uses its H.264 video playback patents. Microsoft has sold 600 million copies of Windows 7 through June 2012, and 66 million Xbox 360 units through January 2012, leading to $300 million owed for Windows 7, and $297 million for the Xbox. Best estimates place an average of 16 million Motorola smart phones and tablets sold per year, so Motorola would owe Microsoft $5 million annually, versus $597 million owed to Motorola with estimated another $120 million annually, if the deal had been accepted.
The going rate for an H.264 playback license through MPEG LA is no royalty owed or for the first 100,000 units, 20 cents per unit up to 5 million. and 10 cents per unit after that, with an annual limit of $6.5 million per year. Assuming Microsoft wouldn't negotiate even better terms for itself, $6.5 million is still an order of magnitude smaller than what Motorola is demanding for the same patents.
Motorola's patents are considered standards-essential, and licensing for these patents must be attempted on a fair, reasonable and non-discriminatory (FRAND) basis by law. Motorola is on the losing end of statements given to the ITC by industry magnates in support of both Apple and Microsoft's use of Motorola's standards-essential patents.