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updated: 11/6/2012 11:18 AM

Apple patent fee lawsuit against Google's Motorola dismissed

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  • Motorola Mobility Holdings in Libertyville

    Motorola Mobility Holdings in Libertyville

Bloomberg News

Apple Inc.'s breach-of-contract claims against Google Inc.'s Motorola Mobility unit were dismissed after a judge questioned why a trial should be held if it wouldn't resolve the licensing battle between the two.

U.S. District Judge Barbara Crabb canceled a trial that was scheduled to begin today in Madison, Wisconsin. The judge had planned to establish a royalty rate on Libertyville-based Motorola Mobility's patents that relate to industry standards. Apple said it wouldn't take a license to the patents unless the judge set the rate at $1 or less for each iPhone.

"There seems to be a bit of frustration," said David Long, a patent lawyer with Dow Lohnes in Washington, who has been following the case. "Generally, courts are not inclined to give advisory opinions. The Constitution doesn't allow it and courts have a lot of other things to do."

This was the first of two cases, 2,000 miles apart, in which judges were to hear complaints from Apple and Microsoft Corp. that Motorola Mobility is demanding excessive royalties on patents deemed essential to standards for how electronic devices function. Regulators in the U.S. and Europe are investigating whether Motorola Mobility is misusing those patents to curb competition in the $219 billion smartphone market.

The cases were to be the first in which courts were asked to define licensing obligations of patent owners who help create technological specifications. Now the focus will turn to the trial involving Microsoft, scheduled to start next week in Seattle, said Jorge Contreras, an associate law professor at American University in Washington.

Why Proceed?

The Wisconsin trial was sidetracked on the issue of whether any decision by the judge would resolve the companies' dispute about the amount of a fair and reasonable royalty.

Crabb on Nov. 2 questioned the need for a trial if Apple wouldn't pledge to license the Motorola Mobility patents on a rate she set. Apple, in a filing yesterday, said Motorola Mobility's failure to make a fair offer "was, in Apple's view, the single greatest impediment to a successful negotiation of a worldwide license."

Kristin Huguet, an Apple spokeswoman, said the company had no comment.

"We're pleased that the court has dismissed Apple's lawsuit," Jennifer Erickson, a Motorola Mobility spokeswoman, said in an e-mailed statement. "Motorola has long offered licensing to our extensive patent portfolio at a reasonable and non-discriminatory rate in line with industry standards. We remain interested in reaching an agreement with Apple."

Reaching Agreement

Related patent-infringement claims between Apple and Motorola Mobility, originally filed before Crabb, were thrown out by Circuit Judge Richard Posner in June after he rejected each company's damages theories. That decision is on appeal. Other patent claims are pending in federal court in Miami, with trial scheduled for 2014.

Apple and Microsoft raised the breach-of-contract claims in federal court in response to licensing demands and patent- infringement cases Motorola Mobility filed at the U.S. International Trade Commission in Washington, which could ban imports of Apple Inc.'s iPhone and Microsoft Corp.'s Xbox video- gaming system.

An ITC judge is considering whether Microsoft, based in Redmond, Washington, violated two patents for video decoding and a non-essential patent for a way to establish communication between the Xbox and accessories.

Patent Infringement

The agency in August said Cupertino, California-based Apple didn't infringe Motorola Mobility patents for standard wireless technology, while ordering a trade judge to review a patent for a sensor that prevents accidental hang-ups.

To allow products from different manufacturers to work together, companies get together in standard-setting groups to determine, for example, how data will be transmitted over airwaves or what plug will be used to recharge phones and electronic readers. Because companies may benefit from having their own ideas adopted for industrywide use, they pledge to license any relevant patents on fair and reasonable terms without discriminating against rivals.

The companies have signed thousands of licenses on standard-essential patents, said Erin-Michael Gill, managing director of MDB Capital Group LLC, a Santa Monica, California- based investment bank that specializes in patent issues.

World Changed

"It seems strange that these companies can no longer figure out what is fair and reasonable," Gill said. "Motorola, historically, was wildly successful at leveraging standard- setting boards and generating revenue from those standards. It's just that the world has changed."

Motorola Mobility had asked for royalties of 2.25 percent on the retail price of each product, which it has said was the standard opening offer it makes. It has said neither Microsoft nor Apple would negotiate.

Microsoft, in court papers, said that would amount to $4 billion a year in royalties on sales of the Xbox and Windows operating system, a figure no company would agree to pay. Apple, in its own case, said the technology is worth at most $1 per unit.

Not all of the patents asserted by Motorola Mobility at the ITC or in district court involve standard-essential patents, and none of the patent claims Microsoft and Apple asserted against Motorola Mobility involve industry standards.

Gaining Leverage

Still, resolving the issue of the standard-essential patents could alter the dynamics in Google's effort to use the Motorola Mobility patents as a bulwark against Apple's claims that Google's Android operating system for wireless devices copied the iPhone. Apple's largest smartphone competitor, Samsung Electronics Co., uses Android.

Mountain View, California-based Google has said it bought Motorola Mobility in part because of its history of innovation in mobile phones.

"These patents are very important and, if they can make Apple and Microsoft pay them something, it can give them a lever," said Tom Scott, a patent lawyer with Goodwin Procter in Washington.

A non-jury trial on Microsoft's claim against Motorola Mobility is scheduled to begin Nov. 13 before U.S. District Judge James Robart in Seattle. Robart has said he will set a range for what is the appropriate rate, so a jury could later determine if Motorola Mobility's offer was fair.

Working Together

Motorola Mobility's licensing program has been criticized before. Research In Motion Ltd., maker of the BlackBerry, accused the company of refusing to offer fair licensing terms in 2008, when the two were embroiled in a fight over wireless technology. The issue was never resolved by the courts because the companies settled in 2010.

One in seven people worldwide has a smartphone, with the number exceeding 1 billion in the third quarter, according to an Oct. 17 report by researcher Strategy Analytics. While it took 16 years to reach that milestone, the research group estimates another billion people will have smartphones within the next three years.

As a result, the Motorola Mobility disputes, as well as the global fight between Apple and Samsung, have prompted congressional hearings and investigations by the European Commission and the U.S. Federal Trade Commission.

Setting Standards

Standard-setting boards, rather than courts or regulators, may have to resolve the dispute, said Robert Stoll, former commissioner of patents at the U.S. Patent and Trademark Office and now with Drinker Biddle in Washington.

"There should be a standard-setting body that oversees standard-setting bodies," Stoll said. "They should also be able to determine what the values of all these things are, and that doesn't seem to happen. They just say 'fair and reasonable' and leave it at that. The devil is in the details."

The cases are: Apple Inc. v. Motorola Mobility Inc., 11cv178, U.S. District Court for the Western District of Wisconsin (Madison); and Microsoft Corp. v. Motorola Mobility Inc., 10cv1823, U.S. District Court for the Western District of Washington.

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