Will Microsoft and Google Both Lose In This Lawsuit?

Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT) will go head to head in Seattle for the latest round of patent gamesmanship between major tech companies. United States District Judge James Robart will hear Microsoft’s argument that Google is over-charging for licenses to use industry standard technologies.¬†

When Google acquired Motorola, it bagged a portfolio of patents that could be considered industry standard technologies. Among them, video codec and WiFi patents that are used in smartphones and Microsoft’s Xbox gaming console. The law indicates that once a technology is deemed as essential to operate in a given industry, the company that owns it must license it out in a fair and reasonable way.

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To Google, this means as much as $4 billion a year from Microsoft for the use of the patents in question. For Microsoft, this means about $1.2 million per year. The companies arrived at vastly different sums through different means of valuing the patents and calculating royalties.

Microsoft argues that the market price of similar patent deals suggests that $1.2 million per year would be a fair rate. Anything more — particularly Google’s comparatively high asking price — would be prohibitively expensive. On the other hand, Google argues that negotiations should be based on a standard 2.25 percent royalty rate, which it also bases on other licensing deals.

Microsoft refused to negotiate based on Google’s proposed royalty rate, and as a result lawsuits were filed in the United States and Europe. Google won an injunction against Microsoft in Germany that ostensibly banned sales of Microsoft products that infringed on the patents such as the Xbox 360, Windows 7, Internet Explorer, and the Windows Media Player.

The injunction was ultimately unenforceable because it remains to be determined whether or not the rates Google is asking for are excessive. The case being heard in Seattle could produce an answer to that question.