Monday, November 29, 2010

Motorola's ITC complaint against Microsoft regarding "certain gaming and entertainment consoles"

Motorola just added another suit to its assortment of patent disputes with Microsoft: an ITC complaint targeting the Xbox 360.

In October, Microsoft filed patent infringement complaints against Motorola with a US district court as well as the US International Trade Commission. Those complaints related to Android-based smartphones. Observers generally expected at the time that Motorola would, like many other defendants, countersue. Motorola indicated that intention to the Associated Press before it even saw Microsoft's complaint:

"Motorola has a leading intellectual property portfolio, one of the strongest in the industry, and we will vigorously defend ourself in this matter."

Further below I'll get to the strength Motorola claims to possess. Firstly, let's continue with the evolution of the dispute. On 9 November 2010, Microsoft sued Motorola for failure to comply with licensing commitments related to RAND-based industry standards (RAND stands for "reasonable and non-discriminatory"). A day later, Motorola filed its widely anticipated countersuit: more precisely, three suits in two US district courts.

In the latest move, Motorola added an ITC complaint against Microsoft on Monday (22 November 2010), claiming that different Xbox products infringe five of its patents (which I'll list further below). The ITC 337 Law Blog has published the complaint as well as a summary of its content.

Why Motorola wants an ITC investigation

Last month I wrote about the fact that the US International Trade Commission (USITC or just ITC), a "quasi-judicial federal agency", has become an important forum for patent infringement disputes. That posting inspired a ZDNet article on the same topic.

The short version is that the ITC can order import bans on infringing products within approximately 18 months of the filing of a complaint, while proceedings in federal courts usually take years. If a low-margin product is manufactured at a lower cost outside of the United States, an import ban is similarly effective as an injunction.

On 2 November 2010, the ITC voted to investigate Microsoft's complaint against Motorola. The investigation number is 337-TA-744. Should Microsoft prevail, Motorola would face an import ban in the spring of 2012 while probably still being a year or two (or more) away from a possible injunction. Therefore, an ITC proceeding would be strategically desirable for Motorola.

ITC proceedings already go both ways between Apple and Motorola. On 3 November, the ITC voted to investigate Motorola's complaint against Apple, and on 23 November, it decided to also investigate Apple's complaint against Motorola.

But Apple and Motorola have in common that they sell smartphones that are imported into the United States, whereas Microsoft is primarily a software company. In that business, manufacturing costs aren't a strategic issue, putting Microsoft -- at least in its core business -- out of reach for ITC import bans.

The only Microsoft product line Motorola's ITC complaint relates to are gaming consoles. It mentions two different Xbox 360 S configurations. According to reports such as this recent Forbes article, "[t]he Xbox 360 outsold every competing console in the U.S. over the past four months, with sales growing 38%." It's certainly an important product group to Microsoft, but it doesn't play the essential role to it that smartphones have for Motorola. In the federal courts, Motorola also tackles Windows, Windows Phone and Office, but that effort will take time (if it ever gets anywhere).

If Motorola wanted to attack Windows Phone 7 in the ITC, it would have to try indirectly by complaining against device manufacturers. However, those hold many patents of their own and in some cases may already have cross-license deals with Motorola in place. Widening the conflict wouldn't necessarily increase Motorola's chances of winning.

Portfolio strength vs. specific impact

Further above I quoted the pride that Motorola takes in the strength of its portfolio. I can understand that. It's a company that's 82 years old, and as a former Commodore Amiga owner, I fondly remember the Motorola 68000 family of microprocessors.

At this stage, Motorola holds approximately 9,000 US patents in force, not too far away from Microsoft's roughly 15,000. The five areas in which Motorola's portfolio seems to be strongest are the following USPTO main classes:

  1. Telecommunications (main class code 455)

  2. Multiplex communications (370)

  3. Pulse or digital communications (375)

  4. Registers (235)

  5. Communications: electrical (340)

I can hardly see that many patents in those categories would be relevant to Microsoft's business -- maybe to Microsoft's hardware partners, but not to the software company itself. By contrast, Microsoft has a very broad and deep portfolio of approximately 15,000 US patents, with a particular strength in operating system (including user interface) technologies. Since Google appears to have failed completely to resolve patent issues concerning Android, its partners among device makers such as Motorola now need licenses from third parties such as Microsoft for a variety of technologies.

I pointed out in another posting that numbers of patents -- such as the numbers different players assert in those disputes -- must not be confused for strength. There can be a correlation, but a company that has only a handful of patents may try to use all of them in court while another one may pick a few really strong ones out of a huge portfolio, knowing it can always add patents or start additional suits if necessary.

Portfolio strength is important in some ways. But the example of Microsoft and Motorola shows that the bottom line is not how many patents a company has. It's all about how much of a need the other party has to obtain a license. I don't see them on an equal footing in that regard. I believe that Android makes Motorola the needier one of the two parties, by far and away.

Also, Motorola's strategic options will be quite limited if Microsoft's claims are correct that Motorola failed to meet the RAND (reasonable and non-discriminatory) licensing commitments it made to certain standard-setting organizations and their members, one of which is Microsoft. In that case, the worst-case scenario for Microsoft would be that at the end of the litigation it may end up having to pay royalties (for those patents, which may be Motorola's most important ones in this context) above the level it considers reasonable, while Motorola could not ask a court to determine that Microsoft has an obligation to grant a license and to set a maximum level of royalties at all.

All in all I believe it's better not to overestimate Motorola's relative strength in its dispute with Microsoft. The name of the game is the specific impact you will ultimately have on your opponent -- not how many complaints you file, let alone in how many fora.


Finally, let's look at the five patents Motorola asserts in this ITC complaint against Microsoft.

Those include four of the six patents Motorola asserts against Microsoft in the large one of the two suits it filed in the Western District of Illinois:

  • US Patent No. 5,319,712 (on a "method and apparatus for providing cryptographic protection of a data stream in a communication system") also appeared in a complaint filed against Apple in the Northern District of Illinois as well as in complaints against Research in Motion (with the ITC and in the Northern District of Texas). The dispute with Apple is ongoing; between Motorola and RIM, there was a settlement.

  • US Patent No. 5,357,571 (on a "method for point-to-point communications within secure communication systems")

  • US Patent No. 6,980,596 (on a "macroblock level adaptive frame/field coding for digital video content")

  • US Patent No. 7,162,094 (on "frequency coefficient scanning paths for coding digital video content"; another codec patent)

The fifth patent was not previously asserted by Motorola against Microsoft (nor against Apple):

  • US Patent No. 6,069,896 (on a "capability addressable network and method therefor"). It appears to describe a network in which the capabilities required by one end of the connection and the ability of different connected peers to deliver them on the other end are somehow taken into account. The peers can request, provide or relay a diversity of services, and the objective appears to be to facilitate the use of different devices with different capabilities in such a wireless setup. The description claims that the patent describes a more efficient solution than a regular computer network (in which devices offering particular services, such as a dedicated printer, are common) from a configuration and usability point of view, but I must admit that I failed to see the point in this patent even though I tried.

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