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. Last Updated: 07/27/2016

Motorola Beset by Criminal Inquiry

Itar-TassC115 phones confiscated from Yevroset being destroyed in Moscow in April.
Motorola is gearing up for a legal battle with RussGPS, whose allegations of patent infringement have mired the world's No. 2 cell phone maker in an unusual criminal investigation.

Motorola will file a defamation suit "in a matter of days," Sergei Kozlov, the head of Motorola in Russia, said Friday. The allegations of patent infringement are "absolutely false," he said.

Satellite navigation technology company RussGPS, which says its client roster includes the Russian military, has maintained that seven types of Motorola cell phones violate its patent for a "mobile communications terminal." In an unprecedented development for the telecoms industry, RussGPS has sidestepped the arbitration court and turned directly to the Interior Ministry, which opened a criminal investigation into the case.

RussGPS presented another complaint about a second patent when the companies met at the Prosecutor General's Office last week, RussGPS manager Pavel Panov said Friday. "We own many more patents that Motorola is violating," he said, adding that complaints might be filed regarding more than 10 others.

The Prosecutor General's Office could not provide any immediate information on Friday. Calls to the Interior Ministry's high-tech crimes department went unanswered Friday.

The patent dispute coincides with the seizure in late March of 167,500 Motorola phones bound for sale in Russia and an ongoing investigation into the legality of the phones.

Eldar Murtazin, head of Mobile Research Group, said it might be part of a campaign to squeeze the American company from the shrinking mobile phone market in Russia.

The Prosecutor General's Office has denied this. In a statement posted last Tuesday on its web site, it said that its investigators, Federal Customs Service representatives and other officials had met recently with Motorola executives about an investigation into the illegal import of cell phones by a customs certification company employee and criminal negligence by a Sheremetyevo Airport customs official. "The prosecution of certain individuals for contraband products and for negligence is not aimed at obstructing Motorola's business in Russia," the statement said.

Motorola was notified of the criminal investigation into the patent dispute after its shipment was seized in late March, Kozlov said. The shipment was originally impounded on suspicion that the phones were illegally imported, but Interfax reported that those charges had been withdrawn. Last month, police said they would destroy 50,000 of the seized phones, all C115s, saying the amount of radiation emitted exceeded acceptable levels.

Kozlov, who denied that Motorola phones were a health hazard, said he could not speculate on whether his company's troubles in Russia were related to the patent-infringement allegations. "This is the first patent dispute in all the 13 years that Motorola has been working in Russia," he said.

Murky disputes such as this one contribute to uncertainty on Russia's mobile phone market, which reached $5.2 billion in 2005 but was expected to shrink by 30 percent this year, Murtazin said.

Because prices have risen roughly 30 percent since last summer's crackdown on illegal imports of electronics, users of mobile phones now tend to buy new models less often, he said. In this environment, a protracted legal battle may take a serious bite out of Motorola's business in Russia, where the American company is the largest market player after South Korea's Samsung.

Kozlov declined to say whether Motorola had been forced to halt shipments of any of its phone models because of the investigation. He also declined to say whether Motorola was incurring any losses because of the affair, citing a quiet period ahead of next month's publication of second-quarter financial results.

There is nothing unusual about patent disputes, which "go hand in hand with technological advancement," Kozlov said. But they are not normally handled by the prosecutor's office because they require a great degree of technical expertise, he said.

There has been only one instance of Article 147 of the Criminal Code on infringement of inventors' and patent rights being used to pursue a patent dispute, and that was in the construction sector, said Vladimir Dementyev, head of the intellectual property division at law firm Gowlings in Moscow.

The punishment for violating Article 147 ranges from a fine to several years of imprisonment, he said.

Panov said RussGPS went directly to the prosecutor's office because it did not want the case to drag on for years in an arbitration court. The aim was to get Motorola to sign a license agreement for using the patents or to buy the patents from RussGPS, he said. Panov estimated that the two already under investigation, patent No. 31183 and patent No. 34300, had a combined value of $67 million.

Kozlov said Motorola, which is preparing the defamation suit, expected to resolve the dispute in the near future.

To win the suit, Motorola would need to prove that the information disseminated by RussGPS was false and that it hurt Motorola's business reputation, according to Dmitry Ragulin of Dmitriyev, Ragulin and Partners law firm.