Google-owned Motorola has offered to settle a patent dispute with Microsoft, but the software giant has rejected it, claiming the terms are "far in excess of market rates."
Microsoft and Motorola Mobility (MMI), which became a wholly-owned subsidiary of Google last month, are currently in talks to resolve a two-way patent dispute.
Microsoft is seeking to have MMI's Android smartphones banned in the US because MMI is not paying Microsoft a licencing fee for using its ActiveSync technology - which is used to keep calendars up to date on your phone. Microsoft has agreed licensing deals with all other major Android smartphone manufacturers.
On the other side, MMI is seeking to get Microsoft's best-selling Xbox games console banned in the US for infringing patents held by MMI related to H.264 video decoding. It is also seeking payment for use of the patents in each copy of Winodws sold.
Normally in patent resolution talks, we only learn at the end who is the net payer and never details of the amounts involved.
Reuters is reporting that the settlement conditions offered by MMI include a payment of 33 cents per Android phone sold to Microsoft, but in return MMI want a royalty of 2.25 percent on each Xbox sold and 50 cents per copy of Windows for using its patents.
According to the Guardian, Microsoft's general counsel, Moracio Gutierrez responded by saying; "While we welcome any good faith settlement effort, it's hard to apply that label to a demand that Microsoft pay royalties to Google far in excess of market rates, that refuses to license all the Microsoft patents infringed by Motorola, and that is promptly leaked to the press."
And Gutierrez's claim of "far in excess of market rates" seem to be true, as it is far above what anyone else holding patents related to the H.264 technology is receiving.
According to patent expert Florian Meuller, there are a large number of parties involved in the H.264 technology (270 patent families have been declared essential to the technology) and on the basis of what others are receiving, Motorola's 17 H.264 patent families would result in a per-unit royalty of well below 2 cents.
The amount of money in total Microsoft has to pay for using the H.264 technology in its Windows software is capped at $6.5m a year and at the very most, MMI is eligible for 10 percent of this, which equates to $650,000.
Under the terms of the offer reported today, MMI would be seeking annual payments of $150million if Microsoft sells 300million copies of Windows each year. At one point in 2011, Microsoft was selling 650,000 Windows 7 licences per day, equating to around 240 million licences each year.
However with Windows 8 about to launch on tablets as well as laptops and desktops, the figure of 300 million licences a year does not seem too fantastical.
Meuller adds: "That's the luxury you can afford if you ask for the moon: you can slash your demand by a factor of 20-25 and still be hundreds of times above the actual market level."