Two of Microsoft’s top engineering executives took the stand this morning in the company’s patent dispute with Motorola, laying the groundwork for Microsoft’s contention that Motorola’s proposed royalties for its patented wireless and video technologies would have fundamentally disrupted the Xbox and Windows businesses.
“I have never encountered a demand like this one on standard-essential patents,” said David Treadwell, the Xbox corporate vice president in charge of engineering for Xbox software and services.
That was a reference to Motorola patents considered essential to implement the 802.11 and H.264 standards in Xbox. Microsoft alleges that Motorola breached its agreement to offer those patents on fair and reasonable terms when it sent letters seeking 2.25 percent of sales of Xbox and Windows.
Microsoft Windows engineering executive Jon DeVaan offered similar testmony earlier in the day as it related to Windows.
The case is part of a broader set of disputes between Microsoft and Google, which acquired Motorola for $12.5 billion last year.
By Microsoft’s calculations, Motorola’s initial demands would have resulted in more than $4 billion in annual royalty payments. U.S. District Judge James Robart found after a bench trial last year that a fair and reasonable rate would actually be less than $2 million a year, a small fraction of Motorola’s initial licensing offer. An eight-person jury is now determining if Motorola breached its agreements.
Cross-examining the witnesses, Motorola lawyer Bill Price, of the law firm Quinn Emanuel, questioned whether Microsoft’s engineering teams actually took Motorola’s licensing demands into account in their decisions. Motorola says that its original offers were merely intended to be the opening round in negotiations between the companies.
Treadwell said the specific letters themselves didn’t play a role in the Xbox leadership team’s decisions, but they extensively discussed the potential of injunctions and litigation.
Microsoft relocated a German distribution center as a result of a patent case by Motorola in the country. It’s seeking $23 million in damages as part of the case, to compensate for the cost of relocation. Motorola contends that Microsoft had other business reasons for moving that facility.
Motorola lawyer Price told the jury during opening statements that they should consider the smartphone maker’s October 2010 patent licensing offer to Microsoft in the context of the broader discussions and disputes taking place between the companies at the time.
Motorola at the time had shifted from Windows Mobile to Android, posing a new competitive threat to Microsoft just as the iPhone was gaining additional traction. Microsoft had also filed a separate suit against Motorola, part of its broader initiative to collect patent royalties from Android device makers.
Cross-examining DeVaan, Price sought to lay the groundwork for Motorola’s contentions, trying to get the Microsoft executive to acknowledge that Apple was first to market with a touch-screen smartphone.
“I don’t think so, but they made it popular,” said DeVaan, prompting an explanation of the difference between capacitive touch devices such as the iPhone and earlier resistive touchscreen devices.