Wednesday, June 19, 2013

Google refuses $7 million in patent royalties from Microsoft, prefers to keep $100 million bond

Microsoft and Google's Motorola are preparing for a breach-of-contract trial scheduled to commence in late August, but they also have some clean-up to do with respect to last year's anti-enforcement preliminary injunction that barred Motorola Mobility from enforcing a set of German permanent, provisionally-enforceable injunctions relating to two H.264 standard-essential patents (SEPs) and in late November 2012 was replaced by a summary judgment ruling denying injunctive relief.

In order to enforce the U.S. anti-enforcement injunction Microsoft had to post a $100 million bond to ensure that even in the (no matter how inconceivable) scenario of a Microsoft bankruptcy Google's Motorola would be made whole. Microsoft had even offered Motorola a $300 million bond and indicated a potential willingness to increase the amount, but Motorola wanted to ban Windows and the Xbox in Germany rather than receive security for royalties, so the court had to decide, and Judge James Robart felt that a $100 million bond was easily adequate. That bond was posted on April 13, 2012.

In the meantime, a FRAND royalty determination has been made, finding Google entitled to a few million (not several billion) dollars. A letter Microsoft filed with the court late on Tuesday shows that on June 5, 2013 Microsoft's counsel told Google's (Motorola's) counsel that "Microsoft is prepared to remit to Motorola immediately the approximately $6.8 million that represents the 'to date' sum that would be due under [F]RAND licenses at the royalty identified in the Court's April 19, 2013 ruling subject to Motorola releasing the [$100 million] bond currently in place" and politely asked to be advised as to Motorola's position. Yesterday's letter to the court now states that "Motorola did not accept the tender, and has indicated that it would oppose Microsoft's current request to release the bond".

The letter also says that Microsoft "has undertaken to make future royalty payments that arise based on the same [rate-setting] rulings".

From a purely commercial point of view it would actually make far more sense for Google to accept Microsoft's payments. It's better to physically receive money than to have merely a bond, especially when the debtor's ability to pay is beyond reasonable doubt anyway.

Having been unable to reach an agreement with Google, Microsoft now requests that the court order the release of the $100 million bond, which Microsoft says "is unnecessary to secure Microsoft's payment", given that its amount "far exceeds any sum that could ever be due to Motorola under [Judge Robart's rate-setting] Order". If Motorola still refuses to accept its royalty payment, "the bond should be reduced to reflect the actual sums due under the Court's April 19, 2013 [rate-setting] order".

It will be interesting to see how Google seeks to justify a $100 million bond under these circumstances. I guess it just wants to preserve the record for an appeal and avoid doing anything that looks like recognizing that it's entitled to only a small royalty amount. I don't want to speculate on other possible motives.

Microsoft presumably has to pay a considerable amount of ongoing bank charges for a bond of this magnitude. It's not a lot compared to the commercial implications of the wider patent dispute with Google, but too much for any responsible company to leave on the table. Microsoft routinely seeks adjustments of bonds. Last November the Munich Higher Regional Court brokered an agreement between Microsoft and Motorola, further to a Microsoft motion for reduction, that lowered a bond or deposit from 242 million euros ($308 million) to 18.5 million euros ($23.6 million), less than 8% of the original figure. That one related to Microsoft's enforcement of an injunction it had won in May 2012 over a multi-part text messaging layer patent. Tomorrow morning the same appeals court will hold a hearing on a Microsoft motion for reduction of a bond relating to its enforcement of another injunction it won against Motorola in Munich, based on a soft input panel patent.

If you're interested in the full text of Microsoft's letter to the Seattle-based court concerning the $100 million bond, you can view it here or on Scribd:

13-06-18 Microsoft Letter Re. Release of $100 Million Bond

Google (Motorola) will get to respond tomorrow, and Microsoft can reply to Google's answer on Monday. In parallel, Motorola raised a discovery issue, which is on the same briefing schedule. The court will hear argument on both issues over the phone on Tuesday (June 25, 2013).

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