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Xbox manufacturer Microsoft has rejected a settlement offer from Motorola in an ongoing patent dispute between the two hardware giants. Had Microsoft accepted, the settlement would have resolved a long-running court case that affects the future of both Android phones and Xbox 360s in the United States.

For some background, Microsoft previously accused several Android phone manufacturers of violating its patent for ActiveSync, a technology that powers calendar syncing on some Android phones. While multiple manufacturers reached settlements with Microsoft, Motorola (owned by Google) did not, instead countersuing on the grounds that Microsoft is in violation of five Motorola patents on both the Xbox 360 and Windows, including built-in WiFi and video decoding technology. Motorola believes that Microsoft should pay royalties for the use of this technologies.

The case gained attention back in April when a judge ruled that Microsoft did indeed infringe upon four out of the five Motorola Mobility patents it was accused of violating. At that time, the judge decided that a six-person commission would need to review the extent of each infringement, and a decision against Microsoft would prevent imports of the Xbox 360 to the United States. Since the Xbox 360 is manufactured in China, blocking imports would effectively kill U.S. sales of the console.

Separately, an international ruling in favor of Motorola in early May similarly found that Microsoft had violated Motorola’s patents, banning sales of Xbox 360, Windows 7, Internet Explorer, and Windows Media Player in Germany. Microsoft immediately planned to appeal.

Later that month, things looked worse for Microsoft as a judge recommended against continued sales of Xbox 360 consoles in the United States. While this decision was only a recommendation (the final decision will be made by the International Trade Commission later this year), it could have a great deal of influence on the final call.

That brings us to this week, when Motorola offered to pay Microsoft 33 cents for each Android phone sold. In exchange, Microsoft would pay Motorola 2.25% of each Xbox sold (we've contacted Microsoft to clarify whether that's 2.25% of the retail price or of Microsoft's profit per console) and 50 cents for each copy of Windows. Microsoft rejected those terms, arguing that it’s unfair of Motorola to request royalties “far in excess of market rates.” In the past, Microsoft has noted that it believes Motorola should “make its standard essential patents available on fair and reasonable terms.”

What this boils down to is that neither side is willing to compromise. For now, the International Trade Commission has recommended an import ban on all Android devices using ActiveSync and all Xbox 360 consoles until the patent issues are settled. If settlements continue to be rejected, the ITC will declare its verdict to the White House, at which point the office of the President will have 60 days to finalize the decision.

We’ve reached out to Microsoft for comment and will update with any statement they provide. Until then, keep checking back for continued coverage of the case as new details unfold.

Source: Reuters