Google Will Battle Microsoft (Again) Over the Value of Patents in Tech Standards

Google and Microsoft will face off in a San Francisco appeals court Wednesday in a case that could define just how much tech companies are entitled to when they contribute to industry standards.

While there are boatloads of patent disputes, especially in the mobile space, this case is significant because it is the first where a court has tried to establish what exactly constitutes a “reasonable royalty” when patents are used as part of a standard. This is important as nearly every company that builds tech products relies on such standards to make sure their products work with those from other companies.

Companies that adopt technologies such as 3G, LTE, Wi-Fi and Bluetooth want to know they can do so without having to pay huge patent royalties forever.

Meanwhile, companies that specialize in standards-based technologies, companies such as Qualcomm and Nokia, also want to make sure they are getting fair value for their inventions.

Let’s back up and explain the case and how things got where they are.

The case was originally between Microsoft and Motorola, long before it was sold to Lenovo and even well before it was in Google’s hands.

Motorola sued Microsoft in late 2010 before the International Trade Commission, seeking to block sales of the Xbox console game system over patent infringement, while Microsoft filed a federal suit of its own arguing that Motorola was breaching its contract with various standards bodies by failing to license on a fair and reasonable basis patents related to the H.264 video and 802.11 Wi-Fi standards.

Sources have said the case was actually close to settling before the Google deal was announced in August 2011. Google and Microsoft, though, opted to duke it out in court.

These negotiations weren’t happening in isolation. At the same time as this dispute was going on, Microsoft was seeking patent royalties of its own from makers of devices using Google’s Android operating system, arguing that it made use of some Microsoft patents. While many companies, including Samsung and HTC, took such a license, Motorola has so far held out, declining to take an Android license and pursuing its own case against Microsoft over the standards-essential patents.

The case involving Motorola’s patents eventually went to trial in 2013. The case was split in two, with the first part being done without a jury. In that phase, the trial judge ruled that a reasonable royalty should have been about $1.8 million a year rather than the $4 billion per year Motorola had sought.

A jury then ruled in September 2013 that Motorola had breached its covenant of good faith in its dealings with Microsoft given its obligations to offer a fair, reasonable and non-discriminatory license to standards-essential patents. It also awarded Microsoft more than $14 million in damages and attorneys’ fees.

It is Motorola’s appeal of the case that is before the court Wednesday. While Google has now sold Motorola, it has kept the company’s patents and its interest in the case. Microsoft is seeking to have the trial court’s ruling upheld, while Google is making several arguments as to why the case should have been handled differently.

Microsoft maintains this is a breach-of-contract issue, versus a dispute over the patents themselves. Motorola argues it is really a patent case and should have been the purview of a different court, the Federal Circuit court, which handles patent matters.

Motorola also claims that the case should not have been split the way it was. Microsoft argues that Motorola consented to that approach at the time and cannot now seek a different process, while Motorola argues it never agreed to the trial court’s methodology.

(For those who really like to read legal documents, we’ve posted Microsoft’s appeals court brief and Motorola’s response. They are also embedded at the end of this story.)

Both sides have top-of-the-line legal representation, with Microsoft’s case being argued by Carter Phillips of Sidley Austin. Phillips is an appellate all-star who has argued 71 cases before the Supreme Court.

Google is represented by Quinn Emanuel, the firm that represented Samsung in the Apple-Samsung case. The firm’s Kathleen Sullivan is an appellate specialist whose name was even mentioned as a potential Supreme Court nominee.

T-Mobile and Apple, among others, have weighed in with filings in support of Microsoft’s position, while Qualcomm and Nokia filed papers arguing that the trial court erred in its methods for calculating a reasonable royalty.

Wednesday’s hearing is before a three-judge panel of the 9th Circuit Court of Appeals with each side making oral arguments. A ruling is not expected for several months.

If either side is unhappy with the ruling they could ask for the full circuit to hear the case or appeal to the Supreme Court, which might just decide it is a reasonable case to take, given all the uncertainty around patents and their value.

Here’s Microsoft’s brief:

and Motorola’s reply brief:

This article originally appeared on Recode.net.