US Xbox business targeted in Motorola legal war

US Xbox business targeted in Motorola legal war

By Rob Crossley

May 8th 2012 at 4:18PM

Microsoft faces China import ban; Legal fees so far 'could finance a small country'

An increasingly complex and bitter legal dispute between Microsoft and Motorola Mobility has escalated to the US International Trade Commission and now threatens to throw the Xbox business into disarray.

Microsoft will no longer be permitted to import Xbox 360s from China to the US – a business practice considered vital in driving down production costs – unless the company wins two separate legal disputes in both court and at the US International Trade Commission.

On Monday a Seattle court heard that both companies “could finance a small country” with how much they have spent on legal fees so far.
 
At the heart of the issue is a patented Motorola technology that Microsoft uses across a number of devices and technologies such as Windows 7, Internet Explorer, Windows Media Player and Xbox 360.

Microsoft alleges that Motorola breached contract by demanding “unreasonable licensing fees” for use of the patents. It is believed the royalty rate would have been 2.25 per cent for each unit sale, something which is argued would cost Microsoft some $4 billion each year.

Motorola’s counter-claim is that Microsoft gave up its right to negotiate on the royalty rate as soon as it began lawsuit action.

District judge James Robart criticised both companies and suggested he would dismiss both claims. A jury trial case will commence November 19th if both legal teams do not reach a settlement.

Robart condemned Microsoft and Motorola for what he believed was the use of litigation as a bargaining tool.

"The court is well aware it is being used as a pawn in a global, industry-wide business negotiation," he said, as quoted by the Seattle Times.

He branded the conduct of both companies as “driven by an attempt to secure commercial advantage. To an outsider looking at it, it has been arbitrary, it has been arrogant and, frankly, it has been based on hubris."

The development in Seattle is complicated further by two separate cases.

Last week, an extraordinary ruling declared in a Mannheim court resulted in a ban on selling Xbox 360 consoles throughout Germany. Microsoft will no longer be able to distribute the console to retailers, and may be forced to recall systems sitting on shop shelves and have them destroyed.

That ruling will not be enforced until the Seattle court matter is settled.

However, Motorola has taken its complaint to the US International Trade Commission, of which a judge has also ruled that Microsoft infringes on Motorola’s patents.

On August 23rd, a six-person Commission panel will rule whether an injunction should be established to prevent Microsoft from importing Xbox consoles into the US from China.

If that goes ahead, it could force Microsoft to develop hardware within the UK.

Motorola Mobility is currently in the process of being acquired by Microsoft rival Google.