Home The Hats Swap Heads: Microsoft Uses EU Leverage to Pin Google on Patents

The Hats Swap Heads: Microsoft Uses EU Leverage to Pin Google on Patents

Microsoft confirmed to ReadWriteWeb this morning that the formal competition law complaint it filed this morning with the European Commission is against both Motorola Mobility (MMI) and Google, its would-be parent company. The office of the EC’s Competition office confirmed to ReadWriteWeb this morning it has received Microsoft’s complaint and will review it in due course, but will not yet release a copy to the public due to court rules.

Today’s move marks perhaps the final step in Microsoft’s spectacular transformation from the de facto force of evil in all matters of intellectual property, to the champion of the oppressed and the standard bearer of the people. Wearing the black hat now is Google, which just two years ago considered a bold solution to the video patents problem: open sourcing the technology and dare others to sue.

If Google completes its acquisition of MMI (only a few roadblocks remain), the newly combined company will be the holder of essential patents pertaining to the H.264 video standard. In an early morning blog post today, Microsoft VP and General Counsel Dave Heiner noted that MMI presently charges a 2.25% fee for rights to some 2,300 essential H.264 patents, for roughly $22.50 shaved off the sale price of a $1,000 laptop. By contrast, the MPEG LA group (whose name Heiner omitted, though we all know to what he refers), which collectively licenses rights to other essential patents also surrounding H.264, charges a somewhat different fee.

“Microsoft’s patent royalty to this group on that $1,000 laptop? Two cents,” Heiner writes. “That’s right. Just 2 cents for use of more than 2,300 patents. (Windows qualifies for a nice volume discount, but no firm has to pay more than 20 cents per unit.) Motorola is demanding that Microsoft pay more than 1,000 times that for use of just 50 patents.”

Heiner added that Microsoft ends up paying a kind of penalty whenever a PC manufacturer implements Windows in a premium model – hike the hard drive capacity, and Microsoft pays more. “Windows implements more than 60 standards, and a PC supports about 200. If every firm priced its standard essential patents like Motorola, the cost of the patents would be greater than all the other costs combined in making PCs, tablets, smartphones and other devices,” he argues.

Neither Google nor MMI have issued a response.

The timing of Microsoft’s move is interesting. If its motivation were to block approval of the Google + MMI acquisition, it could have acted well before the EC Commissioner for Competition, Joaquin Almunia, issued his approval of the deal last week. Instead, Microsoft’s strategy may be to see the deal go through and then sink MMI. When Google offered $40 per share for MMI last August, that 75% premium on its public share price at the time reflected the perceived value of MMI’s patent portfolio – the principal reason, investors believe, Google wants the company.

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MMI shares are trading unchanged as of this morning. In his approval of the deal last week, Comm. Almunia indicated he believed Google would have no reason to raise MMI’s royalty rates after the deal goes through. That’s not exactly a statement of skepticism, although Almunia did warn that his office would continually ensure that the combined Google’s conduct would be “fully compliant with EU competition law and with the FRAND commitments given to standard setting organizations.” If Almunia’s stance changes even slightly in the wake of Microsoft’s complaint, the needle on MMI’s public share price could start ticking negative.

And perhaps that’s the idea. If the new Motorola is compelled to charge significantly lower fees for its portfolio, Google may end up propping up a deadweight property at the same time Microsoft is going for broke.

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