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Breach of contract lawsuit over patents could determine Xbox fate

Microsoft and Google are locking horns once again, this time in a war over Motorola Mobility’s patents. Recent court rulings have determined that Microsoft infringed on the patents, but depending on the outcome of a breach of contract lawsuit, those rulings could become moot.

Google purchased Motorola last year, along with its patents. Late last month an administrative law judge for the U.S. International Trade Commission ruled that Microsoft’s Xbox infringes four of those patents. Shortly thereafter, a judge in Germany also ruled that the Xbox and some versions of Windows infringed the same patents, and ordered the products removed from sale in the country.

But the Xbox ban won’t be implemented before the outcome of a lawsuit to be heard today. Microsoft argues in its breach of contract suit that Motorola failed to offer fair licensing terms on patents for inventions that are essential to industry standards for Wi-Fi and video technology, and that royalties for those patents would add up to about $4 billion a year, a figure that Motorola disputes. The hearing will also determine whether Microsoft lost the right to complain, since it failed to make a counter offer to Motorola’s request of a 2.25 percentage in royalties on the retail price of Microsoft products.

If the judge in today’s hearing sides with Microsoft, the ban on Xbox sales in Germany won’t be carried out. A ruling in Microsoft’s favor could also solve a trade dispute over whether the Asia-made gaming system should be banned in the U.S.

Standard-essential patents disclose and claim inventions that are required to practice an industry standard, and they’re essential to many gaming systems, smartphones and other top-selling technology. Both Microsoft and Apple, which is embroiled in its own battle with Motorola, have promised not to seek bans on the use of standard-essential patents as long as licensing agreements are made with patent users. But they want other companies, including Motorola, to do the same.

While Microsoft, Apple and Google may have the money to argue endlessly over infringements of standard-essential patents, many industry analysts point out that smaller companies aren’t able to afford some of these patent royalties, which in effect stifles their competition. As one research firm analyst puts it, “A patent is no longer something to promote innovation, but simply a weapon to be used in a court of law.”

Source: Thomson Reuters News & Insight, “Up Monday: Crucial hearing in Microsoft v. Motorola RAND case,” Alison Frankel, May 4, 2012

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