Artificial IntelligenceCryptocurrencyMetaverseCybersecurityTech Forward

Google used patents in bad faith against Microsoft, appeals court confirms

July 31, 2015, 2:46 PM UTC
People walk past the Xbox section at E3 - the Electronic Entertainment Expo - an annual video game conference and show at the Los Angeles Convention Center on June 16, 2015 in Los Angeles, California. AFP PHOTO / FREDERIC J. BROWN (Photo credit should read FREDERIC J. BROWN/AFP/Getty Images)
Photograph by Frederic J. Brown — AFP/Getty Images

The patent-fueled litigation frenzy among tech companies has finally subsided but, even as firms make nice with each other, there’s a lot of mopping up to do from the earlier fights that peaked around 2012. Take, for example, that time when Google (GOOG) bought Motorola and its patents in order to fight rivals, including Microsoft (MSFT) and Apple (AAPL), who had ganged up to attack its Android devices.

The patent part of the Motorola purchase did not turn out well. Instead of giving Google the upper-hand when it launched an infringement against Microsoft, the patents turned into a boomerang that resulted in an unusual $14 million jury award in Microsoft’s favor – a ruling the 9th Circuit Court of Appeals has just upheld.


So what happened? The crux of the problem for Google is that the Motorola patents it sicced on Microsoft were not any old patents, but rather a special family of standards-essential patents that Google was obliged to license on the cheap (a so-called FRAND obligation in patent lingo).

The patents themselves covered industry standard technologies for local area networking and video coding. Microsoft integrated those technologies into its Windows software and Xbox video console, believing it could obtain a license at the going rates of .555 cents (half a penny) or 3.71 cents per unit. But Google had other ideas.

It sent a letter telling Microsoft it could have a license to the patents, but only if it agreed to pay 2.25% of the selling price of every Xbox and Windows computer it sold. And when Microsoft did not immediately reply to the demand, Google sued for patent infringement and sought injunctions to bar the sale of the company’s products in the U.S. and Germany.

It was these hardball tactics that led a court to blame Google for breach of contract under the industry standards arrangement, and for a jury to order the company to pay $14.52 million. That amount was based on the $11.5 million Microsoft paid to ship its production facilities out of Germany, and another $3 million legal fees.

Google appealed, saying that it should not be punished for trying to enforce its rights, and that the court did not have the authority to make the findings it did. The 9th Circuit, however, rejected all these arguments and said repeatedly that Google had acted in “bad faith.”

So what’s the upshot of all this? First off, note the money is irrelevant; $14 million is barely a rounding error for companies this size. Instead, the value of the ruling for Microsoft is as a PR victory against its bitter rival. As for Google, the new decision is another reminder of how it made a big tactical mistake in dragging standard essential patents into the larger patent battles, and came out looking like a bad guy (this is perhaps ironic since Google has generally avoided dirty patent tricks such as privateering, used by Microsoft and others).

[fortune-brightcove videoid=4384339926001]


More broadly, the case is a reminder of the danger patents can pose to innovation, when companies game the standards-setting process. The ruling also comes a timely moment since an industry group this week is pressuring the tech industry to adopt its patent-protected format for a key video streaming technology, rather than an open standard many prefer.

Here’s a copy of the ruling, which is very technical in parts, but also a good primer for anyone interested in the inside-baseball world of patents and standard-setting. I’ve underlined some of the key bits.

MSFT Motorola

Sign up for Data Sheet, Fortune’s daily morning newsletter about the business of technology.