Advertisement

Blog

Microsoft Logistics Fleeing Germany Because of Patent Fears

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, {complink 3426|Microsoft Corp.} is moving its European logistics activities from Germany to the Netherlands as a risk-avoidance measure related to its ongoing legal battle with {complink 12925|Motorola Mobility Inc.}.

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.

19 comments on “Microsoft Logistics Fleeing Germany Because of Patent Fears

  1. FLYINGSCOT
    April 5, 2012

    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.

  2. jbond
    April 5, 2012

    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.

  3. Jennifer Baljko
    April 5, 2012

    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.

  4. Jennifer Baljko
    April 5, 2012

    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…

  5. Barbara Jorgensen
    April 5, 2012

    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.

  6. bolaji ojo
    April 5, 2012

    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.

  7. DWeil
    April 7, 2012

    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.

  8. itguyphil
    April 7, 2012

    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.

  9. ITempire
    April 8, 2012

    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.

  10. ITempire
    April 8, 2012

    “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.

  11. syedzunair
    April 8, 2012

    @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. 

  12. ITempire
    April 8, 2012

    @ syedzunair

    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.

  13. Eldredge
    April 8, 2012

    @syedzunair,

    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.

  14. syedzunair
    April 9, 2012

    @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. 

  15. syedzunair
    April 9, 2012

    @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. 

  16. stochastic excursion
    April 9, 2012

    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.

  17. Barbara Jorgensen
    April 10, 2012

    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.

  18. JADEN
    April 12, 2012

    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.

  19. Anne
    April 12, 2012

    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.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.