Microsoft Sues Motorola Over 'Unreasonable Royalties' Related To Xbox

Microsoft this week sued former partner Motorola for charging "excessive and discriminatory" royalties for Motorola patents used in Microsoft's Xbox 360, smartphones, and Windows products, and for breaching its contract with wi-fi and video coding standards groups. In the federal court complaint, a copy of which was obtained by Gamasutra, the Xbox 360 maker said Motorola "broke its promises" to license wi-fi (802.11) and H.264 video coding patents "under reasonable rates, with reasonable terms, and under non-discriminatory conditions." Microsoft said Motorola broke those promises by allegedly breaching contracts with the Institute of Electrical and Electronics Engineers Standards Association (“IEEE-SA”), which is behind the 802.11 standard, and the International Telecommunications Union, which oversees the H.264 video coding specification. The complaint alleges Motorola openly and publicly submitted "Letters of Assurance" to the IEEE which ensured the company would offer to license any of its patents that were "essential" to applicable wi-fi standards under "reasonable rates on a non-discriminatory" basis. Microsoft argues that Motorola did not live up to that agreement with the IEEE, or a similar agreement with the ITU. A standard such as wi-fi (802.11) includes a long list of patents from many different inventors. Microsoft argues that the applicable Motorola patents are not essential to Xbox 360's primary functionality, as the console can connect to the internet through an Ethernet wire or be played without being connected to the internet at all. Even excepting that, Microsoft also said it actually "doesn't accept" that any of the Motorola patents related to wi-fi are necessary to implement 802.11 or H.264 standards in its products. The Xbox maker also claimed that the "particular implementation" of wi-fi and video coding in its Xbox 360, smartphones and Windows products doesn't use an elements from the Motorola patents. But Microsoft said that it was still willing to pay royalties to Motorola as long as they were "reasonable and non-discriminatory," in accordance with Motorola and other patent holders' agreements with IEEE and ITU. "Because Motorola promised that it would license any such patents on reasonable and non-discriminatory terms, companies that rely on those commitments are entitled to avoid becoming embroiled in patent controversies and to receive the benefit of an offer of a reasonable and non-discriminatory license," Microsoft's complaint reads. The suit also cites a letter from Motorola Corporate VP of Intellectual Property Kirk Daily from October this year, which said that Motorola's royalties are based on the the "price of the end product" -- or the retail price -- of Microsoft products such as the Xbox 360 and notebook computers. But Microsoft contends that the technology Motorola lays claim to make up only a "small fraction of the overall cost" of those Microsoft products. "Motorola thus seeks a royalty on software and hardware components of Xbox 360 and other devices which are unrelated to its identified patents and has declined to offer a license unless it receives exorbitant royalty payments to which it is not entitled," the suit said. Microsoft asks that the court rule the royalties unreasonable and seeks compensation from Motorola for damages caused by the allegedly unreasonable royalties, as well as an injunction against Motorola from further demanding "excessive royalties" from Microsoft. This new suit comes after Microsoft sued Motorola last month for allegedly infringing on Microsoft patents in Motorola Android products.