Microsoft has turned down a settlement offer by Motorola Mobility that would have brought an end to an extraordinarily expensive patent dispute which could ultimately outlaw sales of some Xbox consoles in the US.
The Xbox firm is feverishly trying to escape one of the most disastrous legal rulings imposed on the company in its thirty-seven-year history, after the International Trade Commission (ITC) was advised in May to ban the import and sale of Xbox 360 systems in the United States unless the dispute was settled.
At the heart of the legal war is a patented Motorola Mobility technology - called ActiveSync - that Microsoft uses across a number of devices and technologies such as Windows 7, Internet Explorer, Windows Media Player and Xbox 360 S.
In its settlement offer, Motorola Mobility has asked for a royalty of 2.25 per cent on each Xbox sale, and $0.50 per copy of Windows, that use its patented technology. Microsoft has rejected this offer, though the company is running out of room for negotiation.
In April, Judge David Shaw said Microsoft should be handed a cease-and-desist order on sales of Xbox 360 Slim consoles across America unless the dispute was settled. He claimed that Microsoft should also be banned from importing the console from China, and pay Motorola Mobility 7 per cent of the value of any unsold systems remaining in US stores.
The ITC commissioners can either allow the initial determination stand, or amend certain terms, or send it back for a rewrite. If Shaw's recommendation is enacted, President Barack Obama will have 60 days to review the decision.
The legal war between Microsoft and Motorola Mobility - fought in courtrooms in Germany, the US and an ITC panel - has proven to be extraordinarily expensive for both parties. A Seattle judge recently claimed that attorney fees already spent "could finance a small country".
Microsoft alleges that Motorola Mobility breached contract by demanding "unreasonable licensing fees" for use of the patents. It argued that it would have needed to spend some $4 billion each year to cover licensing costs.
Motorola's counter-claim is that Microsoft gave up its right to negotiate on the royalty rate as soon as it began lawsuit action.
In April, a court in Germany declared Microsoft consoles should be banned across the country. This verdict will not come into effect until the US lawsuit is concluded.
Microsoft, which has defied all major outcomes of the case, has warned the ITC that banning Xbox 360 across the US would not serve the public interest, because it would leave the market with a choice between PlayStation 3 and Nintendo's Wii.
Shaw rejected the argument, claiming that enforcing intellectual property rights takes precedence.
Most Xbox 360s in the US are imported from China - a business practice considered vital in driving down production costs.
Motorola Mobility was recently acquired by Google.