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 am one who is in favour of 'no patent' laws. If someone innovates something, he should be confident enough that even if his product's design and specifications get copied, his product would remain superior due to better marketing and due to the fact that people admire it being the innovator.
I am not defending counterfeiting here, though.
Germany should also perform feasibility analysis that whether benefits due to it becoming a manufacturing hub in Europe are greater or benefits due to enforcing strict legal regulations are more.
I guess when your patent portfolio is so large, it is easy to step on other's toes.. until they fight back and have maybe as large a portfolio. At least they're smart enough to back down gracefully and not waste tons of $$$ in litigation.
Big companies cannot and do not always disclose the real reasons behind their decisions. It is unlikely that we find out whether the patent question is only a pretext and the real reasons to move are others or whether it is at least among the many real reasons why Microsoft moves or not at all. If it is, what weight has it among those reasons to tip the scale towards the Netherlands? I would expect that such a decision was taken after weighing many pros and cons against each other, not only on a single issue.
In the past Microsoft obviously found the combination of pros and cons in Germany advantageous and now not anymore. So what? In a few years that may be different again, and they may go to a different country again or might even come back to Germany. We all know that big companies are cherry pickers and don't think much of being loyal to a place or to people.
I don't know if Germany shoots itself in the foot or if Microsoft does. Microsoft is also patent holder and may benefit from strict patent law enforcement when somebody infringes their patents, so moving to the Netherlands could well backfire. Just think of the constant wailing about the business and money lost in certain Asian nations where patents are systematically ignored.
By the way judges don't make laws in Germany. They interpret and apply them. Judges are as different as any group of humans, so one judge may come to a totally different assessment and conclusion than another while applying the same law on the same case. A series of sentences in favour of the plaintiff doesn't make Germany patent holder's paradise and everybody else's nightmare.
Why do we have so many variations of the laws on patents in the EU not to mention the United States, China, etc. If the laws had been similar, Microsoft would have been more certain of the grounds under its corporate feet. The EU was supposed to bring some level of uniformity to these nations but it seems huge differences exist.
This is fascinating stuff. It is clear that rulings market to maeket differ: every day, Apple or Samsung are upheld in one region and reversed in another. It must get very confusing. Maybe Microsoft has the better idea: flight rather than fight. Not to mention the millions that can be saved by not fighting these battles in court.
jbond - you hit on a few good points, and it might be hard for us on the outside to tell which dynamic is really playing out. 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, because Motorola has more proof of infringement or does it go back to te first question - is it because Germany's too tough on this issues? I'm not sure...
FlyingScot - I agree with you for exact reasons you mention. Wouldn't be surprised if more companies start evaluating logistics against legal risks, especailly now given the widespread, high-stake patent lawsuit fever we're seeing in the tablet and smartphone space lately.
This is an interesting situation going on with Germany. It would appear that if Germany continues to take such a stance against these large companies, they could lose out on some serious business. Doesn't seem too smart in light of the current financial situation throughout the globe. On another note it would appear that Microsoft believes they are guilty of violating Motorola's patents, or they wouldn't chose to leave one of Europes strongest economies.
Germany wil need to watch it does not shoot itself in the foot. The Netherlands has always been a good choice for US companies to set up in Europe because of the central location and fantastic language skills of the Dutch.
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