When someone patents a new technology or product and want other people to use it, they typically allow licensing of the technology for a fee or a charge. The licensing terms are negotiated carefully and avidly by both the parties that allows the licensee to make money while the licensor gets to use the technology at a price that is sustainable to both the business. However, in some cases this licensing deal making does not go as planned and courts get involved.
One area where licensing is required when the use of patent technology has become the de facto standard and other companies are compelled to use it. In that case, the licensor can set terms that can be oppressive since the licensee is forced to settle for terms. However, it is expected that the companies licensing the technology use terms that are RAND (Reasonable and Non-discriminatory) and FRAND (fair, reasonable, and non-discriminatory).
A case in point is one between Motorola and Microsoft on H.264 video compression patents ended up in court because Microsoft felt that Motorola’s terms were unreasonable. It was understood that Microsoft was only supposed to pay royalties that they were worth and not excessive because they were the standard. Judge Robart considered about 15 factors that were used to calculate the royalties.
Judge Robart ruled that the correct value was 0.55c per unit for the H.264 patents rather than the 2.25% that was being demanded by Motorola. This means that if companies fail to resolve the licensing terms, the courts might take over and the terms may not be so beneficial to the licensor.