An appeals court on Thursday ruled in favor of Microsoft in a patent battle with Google, further cementing an emerging legal precedent that may limit the amount electronics manufacturers must pay to license the key ingredients for standardized technologies.

microsoft33232313The Ninth Circuit Court of Appeals in San Francisco found that a lower judge had acted properly when he took it upon himself to determine what would be a fair price for Microsoft to pay to use standard-essential Motorola patents. The patents were acquired by Google as part of its acquisition of Motorola, and the dispute with Microsoft heated up before Google subsequently sold Motorola to Lenovo.

The lower court’s decision was an unusual move by the judge to set the parameters for licensing negotiations. But now, with Thursday’s ruling, that decision has been upheld.

The tech world has been watching the case closely given its potential to impact future patent negotiations. It’s an issue that has divided the industry for years, as it has been hotly debated in courtrooms from Seattle to California.

On one side are patent licensees, including Microsoft in this case, who argue they’ve been asked to pay exorbitant amounts to license technology that is required for them to adopt industry standards. On the other are patent holders, including Google in this case, who argue they need to be compensated for the billions they spend on the research and development that leads to those standards.

Companies like T-Mobile and Apple have weighed in on behalf of Microsoft, while Nokia and Qualcomm sided with Google.

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The case involved technologies in products including Xbox 360.

Everyone agrees we all benefit when companies adopt industry standards, like the size of an outlet socket or headphone jack. But by working together, the companies who own the standard-essential patents, or SEPs, could potentially charge more in licensing fees because everyone needs access to their technology.

In order to encourage cooperation, the courts and industry groups have established what they calls fair, reasonable and non-discriminatory terms, known as “RAND” or “FRAND.” That means companies who hold essential patents can only charge so much in licensing fees.

In this case, Microsoft filed suit in 2010, claiming that Motorola had demanded too much when it asked Microsoft to pay an amount that, according to Microsoft, came out to $4 billion per year to license WiFi and video technology for its Xbox and Windows devices.

Before the case reached a jury, U.S. District Judge James Robart in Seattle took the unusual step of coming up with his own formula to decide what would be a fair price. He interviewed 18 executives, experts and economists, and considered the quality of the technology and its impact on Microsoft.

Based on his process, Robart ruled in April 2013 that the Microsoft owed Motorola less than $1.8 million per year, instead of the $4 billion Motorola had sought. When a jury was presented with Robart’s calculations, it determined Motorola had demanded too much. The jury awarded Microsoft $14.5 million for Motorola’s breach of its obligation to offer a fair price.

After reviewing the process Robart used, Circuit Judge Marsha Berzon wrote in the court’s opinion on Thursday that he used “thoughtful and detailed analysis.” And while “Motorola criticizes the district court’s approach,” the company didn’t offer any better alternatives.

Because the courts denied Google’s appeal, Robart’s precedent for determining a fair price lives to see another day — and likely another court challenge.

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