Those of us who watch legal developments in the video games and new media industries have been following the Xbox 360-related battle between Motorola (now owned by Google) and Microsoft for quite some time. We at DevelopingConcerns been waiting for a resolution from the International Trade Commission before writing a post, so that we can provide our dear readers with those little nuggets of wisdom we've become (not all that) famous for (as opposed to our atrocious attempts at humor, which of course have subjected us to public ridicule the Internet over).
Well, waiting until a final resolution isn't going to happen; we're writing this up midstream. Why? Because the recent involvement by Capitol Hill lawmakers, and potential impact of the ITC granting an exclusionary order (more on his later), make this a perfect time to jump in.
By way of background, the International Trade Commission is an independent governmental agency which conducts investigations and provides general trade research to both the executive and legislative branches of government. The ITC is responsible for, among other things, investigations under Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337), prohibits certain unfair practices in import trade, including the infringement of certain statutory intellectual property rights and other forms of unfair competition in import trade to be unlawful practices. A lot of Section 337 investigations involve allegations of patent or registered trademark infringement, although other forms of unfair competition (e.g., misappropriation of trade secrets, trade dress infringement, passing off, false advertising, and violations of the antitrust laws) may also be asserted.
The instant case - the Motorola v. Microsoft Xbox 360 case - focuses on patent infringement issues. More specifically, it focuses on the use of so-called "standard essential patents" (or "SEPs") in Xbox 360s. SEPs are those patents that are an integral and necessary part of an industry standard, and typically are shared amongst all players in a particular industry in order to ensure that all devices/technologies within that industry adhere to the applicable standard. In exchange for contributing the SEP to the standard, the company holding the patent will be paid a license on reasonable and non-discriminatory (or "RAND") terms. [Note: internationally, the term is often referred to as "FRAND," or "fair, reasonable, and non-discriminatory" - the two acronyms are basically interchangeable).
In this case, the most important SEPs at issue are those covering the H.264 video compression standard, and the 802.11 WiFi standard. Theoretically, if Motorola demanded RAND fees, and Microsoft paid them, then Microsoft would have the right to incorporate these SEPs into the Xbox 360, so as to ensure that the device plays nicely with everything else that makes use of these SEPs (wireless routers, Internet video playback, etc.). And life would go on as normal.
Of course, that didn't happen. The reason is because Motorola and Microsoft could not come to an agreement on the nature of RAND fees. The potential reasons for the failure to agree are too numerous to speculate, so suffice it to say that the parties couldn't come to terms, and so an ITC complaint was filed and an investigation was launched.
That was in 2010 (see 75 FR 80843 for the official announcement of the launch of the investigation). A lot has occurred since then. For a blow-by-blow recap, read through the excellent coverage that Florian Muller at FOSS PATENTS has put together - complaint, announcement of initial decision, and the release of initial decision. Here's what you need to know:
- The Administrative Judge (the first hearing officer at the ITC) has found that through incorporation of the at-issue SEPs into the Xbox 360, and by not coming to terms on RAND licensing fees, Microsoft has infringed upon the patent rights of Motorola
- Motorola, however, has appeared to act in ways that are somewhat disingenuous, and contrary to the entire ideal of SEPs. Specifically, Motorola did not seek "reasonable" licensing fees from Microsoft.
- Notwithstanding Motorola's actions, Microsoft did not prevail the equitable defenses, and so the Administrative Judge recommended an exclusion order (an import ban) on Xbox 360s (at least until the parties agree on licensing fees for the SEPs).
Read the full public version (which is redacted in part) of the initial decision (via Wired.com). The judge has some very choice words for Motorola's conduct, and indeed suggest that Motorola never intended to grant RAND terms. That's what's really interesting about this case: if a system is built upon all industry members agreeing to a particular standard, what happens when the holder of the patent related to that standard starts acting in ways that are not "reasonable" or "non-discriminatory?"
Fortunately for this blog, lawmakers from both sides of the aisle (or perhaps more accurately, from different parts of the country) are weighing in on this question, and both companies are seeing support from Congressmen for their respective positions. Predictably, Microsoft is getting support from Washington's Congressional delegation, and Motorola is getting support from Illinois (former home of Motorola, before the Google acquisition). The Congressmen and Congresswomen are casting the battle as one of public policy versus strong IP protection - of fair play and the American economy over rewarding those who spend time and money inventing new technologies. Only time will tell which side - if either - is victorious.
In the meantime, does this mean that the Xbox will be banned from the US? Certainly not in the short run. Now that the Administrative Judge's initial decision has been rendered, the case will go to the six-member Commission, which can review, modify, overturn, or accept the initial decision. The deadline for this is August 23rd. After that, the Commission's decision will go the President, who has 60 days to decide whether to accept or overturn the decision. Therefore, Xbox 360's won't be yanked from store shelves anytime soon. In the long run, I'd say it's unlikely that Xboxs will be banned in the US because Motorola's conduct (as reported in the initial decision) suggests it never intended to grant Microsoft a license. My personal feeling is that, at some point, public policy will come into play (perhaps at the ITC, or perhaps at the administration level), and Motorola's apparent unwillingness to negotiate RAND fees will come back to bite it. The law may require a different answer, but my gut says that somehow, we'll find a solution to this issue that allows Xboxs to stay on the market.
Of course, no gut feeling is ever 100% right, so we will keep watching this case (and so should you) as the eventual result could have significant ramifications throughout any industry that takes advantage of mutually agreed-upon standards. If our legal system can be used to destroy the current status quo of standards-related industries, then either industry will need to come up with a new legal solution (escrowing the IP for blind distribution as determined by a neutral trustee?) or we will find ourselves back to the format wars. The later is not the most efficient way to progress. Ask anyone who bought into laser discs over DVDs, or HD-DVDs over Blu-rays, how great format wars are.