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What Motorola’s German win over Microsoft really means

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Welcome to Germany, where Microsoft (s MSFT) is banned from selling Windows 7, the Xbox 360, Internet Explorer and Windows Media Player… sort of.

Why only sort of? Because of a complex patent case that — unusually — involves courts in both the US and Germany, which saw its verdict handed down on Wednesday.

That’s when Judge Holger Kircher of the Mannheim district court granted Motorola (s MMI) a permanent injunction against those specific Microsoft products because they infringed on two video compression patents that Motorola owns. But the ban won’t actually come into force until Motorola applies for that to happen.

Motorola’s not yet said whether it will take this drastic step, and it’s unlikely to do so soon. Microsoft knows it, too. This from their statement:

“Motorola is prohibited from acting on today’s decision, and our business in Germany will continue as usual while we appeal this decision and pursue the fundamental issue of Motorola’s broken promise.”

Confused? That’s not a surprise.

The underlying reason for this state of affairs is that the two patents in question are essential to the H.264 video codec — the same codec that’s used by the world and its dog. And when a patent is that important, it generally has to be made available by the patent holder to rivals under fair, reasonable and non-discriminatory (FRAND) terms.

Motorola has lots of patents that are supposed to be covered by FRAND terms, but in recent years it’s been making a habit of going to its rivals and demanding royalties that amount to a chunky 2.25 percent of the sales price of products in question.

German courts seem more eager than most to allow FRAND patents to be used as legal weapons, as shown recently when Motorola got the iPad and iPhone briefly banned in the country. However, Apple (s AAPL) and Microsoft complained to European regulators over the practice, and the result is that Motorola is now the subject of two official antitrust investigations.

The transatlantic connection

Meanwhile in the U.S. last month, a judge granted Microsoft an injunction and restraining order that prevents Motorola from enforcing Wednesday’s Mannheim verdict, which everyone was expecting (Microsoft even moved its distribution operations out of Germany in anticipation).

Because the two companies are duking it out over precisely the same patents in the US courts, the judge said it would be wrong for Motorola to take advantage of the German court’s sympathies before the US legal system can decide whether Motorola is playing fair or not.

On top of that, Microsoft is going to appeal the Mannheim decision. If Motorola wants to enforce the judgment in the meantime, it has to pay hundreds of millions of euros as a bond, which it will lose if the appeal prevails.

All of which is why Motorola only has this to say right now:

“We are pleased that the Mannheim Court found that Microsoft products infringe Motorola Mobility’s intellectual property. As a path forward, we remain open to resolving this matter. Fair compensation is all that we have been seeking for our intellectual property.”

Whether that compensation is fair or not, is now a matter for several very high-profile investigations to determine.

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