Earlier today, Microsoft filed a formal competition law complaint with the European Commission (EC) against Motorola Mobility and Google. We have taken this step because Motorola is attempting to block sales of Windows PCs, our Xbox game console and other products. Their offense? These products enable people to view videos on the Web and to connect wirelessly to the Internet using industry standards.
You probably take for granted that you can view videos on your smartphone, tablet, PC, or DVD/Blu-ray player and connect to the Internet without being tied to a cable. That works because the industry came together years ago to define common technical standards that every firm can use to build compatible products for video and Wi-Fi. Motorola and all the other firms that contributed to these standards also made a promise to one another: that if they had any patents essential to the standards, they would make their patents available on fair and reasonable terms, and would not use them to block competitors from shipping their products.
Motorola has broken its promise. Motorola is on a path to use standard essential patents to kill video on the Web, and Google as its new owner doesn’t seem to be willing to change course.
In legal proceedings on both sides of the Atlantic, Motorola is demanding that Microsoft take its products off the market, or else remove their standards-based ability to play video and connect wirelessly. The only basis for these actions is that these products implement industry standards, on which Motorola claims patents. Yet when the industry adopted these standards, we all were counting on Motorola and every contributor to live up to their promises. Watching video on the Web is one of the primary uses of computers these days. And we’ve all grown accustomed to “anytime, anywhere” access to the Internet, often made possible by the Wi-Fi standard. Imagine what a step back it would be if we could no longer watch videos on our computing devices or connect via Wi-Fi, or if only some products, but not others, had these capabilities. That would defeat the whole purpose of an industry standard.
The European Commission and the U.S. Department of Justice are both focused on this problem. At the urging of competition law officials, Microsoft recently announced that it will not seek injunctions against other firms’ products on the basis of standard essential products (and Microsoft had never done so). Apple and Cisco made similar statements. Unfortunately, Google refused. Not surprisingly, the European Commission does not seem to be satisfied. Joaquin Almunia, the European Union’s Competition Commissioner, said “I can assure you that the Commission will take further action if warranted to ensure that the use of standard essential patents by all players in the sector is fully compliant with EU competition law and with the FRAND commitments given to standard setting organisations.” The Department of Justice issued a similar statement. We know other companies in the industry share our concerns. Last week, Apple filed its own complaint against Motorola with the European Commission.
There is an obvious way out of all this. Motorola should honor its promises, and make its standard essential patents available on fair, reasonable and nondiscriminatory (FRAND) terms. Microsoft is certainly prepared to pay a fair and reasonable price for use of others’ intellectual property. Within just the past few years, Microsoft has entered into more than a thousand patent licenses. We know how it’s done.
Unfortunately, Motorola has refused to make its patents available at anything remotely close to a reasonable price. For a $1,000 laptop, Motorola is demanding that Microsoft pay a royalty of $22.50 for its 50 patents on the video standard, called H.264. As it turns out, there are at least 2,300 other patents needed to implement this standard. They are available from a group of 29 companies that came together to offer their H.264 patents to the industry on FRAND terms. Microsoft’s patent royalty to this group on that $1,000 laptop?
That’s right. Just 2 cents for use of more than 2,300 patents. (Windows qualifies for a nice volume discount, but no firm has to pay more than 20 cents per unit.) Motorola is demanding that Microsoft pay more than 1,000 times that for use of just 50 patents.
And that is for a mid-level, $1,000 laptop. For a $2,000 laptop, Motorola is demanding double the royalty – $45. Windows is the same on both laptops, and so is the video support in Windows. But the high-end laptop will have a bigger hard drive, more memory, perhaps a titanium case—and Motorola is demanding a hefty royalty on all of this, even though none of these features implements Motorola’s video patents.
Imagine if every firm acted like Motorola. Windows implements more than 60 standards, and a PC supports about 200. If every firm priced its standard essential patents like Motorola, the cost of the patents would be greater than all the other costs combined in making PCs, tablets, smartphones and other devices. Obviously, this would greatly increase the prices of these devices for consumers.
How does Motorola justify this pricing, for so few patents? In German court proceedings earlier this month, Motorola’s economics expert likened Motorola’s patents to bullets: “It only takes one bullet to kill,” he testified. At least we know what this particular lawsuit is trying to accomplish.
Google says that it is just trying to protect manufacturers of Android devices against patent actions by Microsoft and others. But there are big differences between Google’s approach and Microsoft’s. Microsoft is not seeking to block Android manufacturers from shipping products on the basis of standard essential patents. Rather, Microsoft is focused on infringement of patents that it has not contributed to any industry standard. And Microsoft is making its patents—standard essential and otherwise—available to all Android manufacturers on fair and reasonable terms. In fact, more than 70 percent of Android devices are now licensed to use Microsoft’s patent portfolio.
Google has a chance to make a change. For a company so publicly committed to protecting the Internet, one might expect them to join the growing consensus against using standard essential patents to block products. Every firm that is willing to pay a fair royalty ought to be able to implement industry standards. Adherence to this basic point is essential to keeping computer costs down and preserving the Internet as an open, interoperable platform.
Google’s unwillingness so far to make this commitment is very concerning. That’s why you can pretty well count on a chorus from across the industry: “Google: Please don’t kill video on the Web.”