Here's something you don't see every day: A Fortune 100 company and big-name technology business is shifting its distribution operations because of a lawsuit.
According to various news sources, including the Wall Street Journal and Reuters, Microsoft Corp. (Nasdaq: MSFT) is moving its European logistics activities from Germany to the Netherlands as a risk-avoidance measure related to its ongoing legal battle with Motorola Mobility Inc. (NYSE: MMI).
Microsoft says that, even though it would prefer to stay in Germany (an important regional technology center and Europe's largest economy), the risk was too great to stay there. It is reportedly concerned that a court decision expected April 17 on patents could halt sales and distribution of its Xbox gaming consoles and Windows 7 software. To sidestep any potential business fallout from the ruling, the company opted to head across the border, where it's considered safer to warehouse physical goods, because there's less of a chance of facing court-imposed injunctions.
Motorola Mobility, which is being bought by Google, filed a lawsuit accusing Microsoft of infringing on a video technology patent. If the court in Mannheim, Germany, rules in favor of Motorola, Microsoft may be banned from distributing some of its products in the country. That would affect shipments to other countries supplied through the German hub. By moving its shipping base outside Germany, Microsoft is ensuring a court order would not affect deliveries to other parts of Europe.
According to the Financial Times, this is the first time a company has implemented such a workaround to Germany's stringent patent laws, which make it easy for patent holders who believe their rights have been infringed to obtain injunctions.
In the last few years, Germany has been a hotbed of patent disputes involving tablet, smartphone, and software makers. Last year, Samsung Electronics was banned from selling two Galaxy tablet models that allegedly imitated Apple's iPad. In February, Motorola enforced an injunction that briefly compelled Apple to stop selling certain devices. A higher court, citing antitrust issues, later said Motorola couldn't demand that from Apple.
I'm just imaginning the impact of Microsoft moving its logistic to Netherland as a result of patent war, Germany workers will definitely lose their job.
Microsoft decision is good because if Motorola should secure the patent injunction, it could lock down their European distribution and since patent law is practiced differently in every country, Netherland can be a better source of European distribution.
It is kind of ironic that Microsoft just ponied up $1b-plus for AOL patents. As I suggested in another post, maybe that's less expansive than getting sued.
The court is still looking at this, so however easy it is to get an injunction, it still must mean an expensive effort to substantiate a claim of infringement. If Germany has done it right, the law would include disincentives for claims that are frivolous or in bad faith. In my eyes, Microsoft's move amounts to an admission of guilt.
Interesting that Microsoft chose to make the move to the Netherlands, where sympathy towards Germany is known to have gone chilly over the past century. This tests the spirit if not the letter of the EU conventions.
I agree with DWeil that there are probably other reasons for the move. For one thing the Netherlands has the biggest port in Europe, and better access to ocean-going distribution.
@Eldredge: Absolutely, patents are one of ways that encourage enterprises to reveal their innovative ideas to the public. Sometimes, it is because of these patents that innovative ideas are marketed to the public instead of being kept in R&D of corporations or the Government.
@Waqas: I am not familiar with corporate law so I am not sure how these battles are fought. However, what I read in the news and on the internet there is always a benchmark that is being violated by an enterprise that results in a lawsuit.
In technology it is not necessary that one copies the product piece by piece. Today, it is the technological innovation that matters. Lets say, a company comes up with a unique way of representing graphics and gets a patent for it. By law they are protected and for a while they will reap financial benefits of being the innovators. So if another firm copies their idea the innovator has the right to go to a court of law.
I agree - eliminating the granting of patents places those inventors and companies that don't have both the infrastucture and capital at a tremendous disadvantage. There is nothing to prevent another entity that has those resources from stealing IP at will. In principal, the purpose of granting patents is to encourage innovators to disclose their inventions in full to the public, in exchange for a short term, limited right to prevent others from making, using or selling the invention without permission.
I got your point. However, the way legal battles are fought over patent issues represents misuse of patent laws. Recently, besides this Microsoft-Motorola battle, there are legal suits being contended in courts involving every big name IT firm you can think of. A slight resemblance is taken as a excuse for filing a patent infringement suit.
I do accept your point about R&D expenses pay back through patents but we should also keep in mind that currently a debate is going on over patent laws-validity over internet forums and soon it may end up being debated in court of laws.
@Waqas: I would disagree with you on this. I think the reason behind getting patents in the first place is to make money over an innovation. This way the enterprises feel safe that their innovation will not be copied and they will get returns on the funds invested in research and development.
Today, most products are competing on cost basis. If an innovative design is copied by competitors they might be able to sell them on a lower cost. Hence, causing a dire threat to the innovating firm.
"Does Germany just have a much firmer stance on patent infringement than other EU countries? Or does Microsoft think it can't win in Germany, and do they think that because they have a weak case"
@ Jennifer
To me this is a move that looks suitable to Microsoft experts in the long because they might be seeing too many legal suits and complications while using hindsight unless German government lays it hands off from the neck of corporations. Corporations would never like focusing and spending their resources on legal battles instead of R&D areas and business expansion ideas.
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