Is Motorola Doing Google’s Bidding with Patent Suits on Microsoft & Apple?

After playing defense for months, Google (NASDAQ:GOOG) looks to be on the offensive in the patent wars, with its acquisition target Motorola (NYSE:MMI) providing some much needed ammunition. The target of these first assaults are Google’s two main rivals – Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL). Motorola has already tried to block the sales of the iPhone in Europe, but it saw its lawsuit rejected by a German Court last week. However, it may get lucky with its patent lawsuit against Microsoft. It is targeting Microsoft’s top moneymakers – Windows 7 and Xbox 360 – and some other products with patent infringement lawsuits. ^[1]

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Motorola is alleging that some Microsoft’s products – Windows 7, Xbox 360, Internet Explorer 9 and Windows Media Player – infringe on two FRAND patents related to the H.264 video codec owned by it. It is demanding a royalty of 2.25% on the sales of each of the aforementioned products.

Windows 7 and Xbox are two of Microsoft’s most profitable products and generate a major portion of its total revenue. Motorola could stand to earn hundreds of millions of dollars from licensing agreements with Microsoft should it win the lawsuit. The licensing burden would also depress Microsoft’s operating margins in its most valuable businesses.

Microsoft currently earns billions of dollars in patent licensing revenue from the sale of Android devices, thanks to its licensing agreements with almost every major Android device maker. Looks like Google will finally get some payback.

Windows and Xbox account for nearly 40% of Microsoft’s $32 Trefis price estimate, which stands around 5% above its market price.

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1. Motorola wants patent royalties from Xbox, Windows 7, Seattle Times [↩]