News

Samsung Case Shows Microsoft Reaping Billions from Android Use

• By Kurt Mackie
• 10/06/2014

Microsoft had been collecting more than $1 billion a year from Samsung via an Android cross-licensing contract, a court record disclosed on Friday.

However, Samsung stopped paying the interest owed for a late payment during the second year of that seven-year contract, and it even began to dispute the contract terms. At least that's the scenario depicted in Microsoft's breach-of-contract legal complaint, which was filed by Microsoft on Friday in the Southern District Court of New York.

The lawsuit is dated Oct. 3, although Microsoft publicized these legal claims against Samsung back in August. Apparently, the details were just recently unsealed by the court in this document.

Samsung is the largest maker of smartphones and tablets worldwide that use the Linux-based Android OS. Microsoft has long claimed that Android, fostered by Google, infringes many of its patents. A review this year by the Chinese Ministry of Commerce estimated that Microsoft has about 200 patents associated with the use of Android in smartphones.

Microsoft Claims
Microsoft is seeking $6.9 million in late-payment interest penalties for Year 2 of its contract with Samsung. It also wants the court to recognize the legitimacy of its Nokia subsidiary as being part of the cross-licensing agreement that was inked with Samsung. As part of the original contract, signed in September 2011, Samsung agreed to pay to license certain Microsoft patents associated with Android use in its mobile devices. In addition, Samsung agreed to license some of its own patents to Microsoft.

However, Samsung agreed to that cross-licensing deal before Microsoft had announced its intention to acquire Nokia, a major competitor to Samsung in the smartphone business. Microsoft announced the Nokia acquisition in early September 2013. Microsoft's court filing claims that Samsung is trying to use the Nokia acquisition as an excuse to back out of its earlier contractual relationship. It also contends that applying the cross-licensing terms in the Samsung deal to Microsoft's Nokia subsidiary is permitted under the contract's language.

Samsung had no comment on Microsoft's Friday court filing. Microsoft issued a synopsis on Friday, attributed by Deputy General Counsel David Howard:

Samsung has suggested that Microsoft has breached the business collaboration agreement. We disagree, and that's why we asked the court to rule that Microsoft is not in breach. Second, Microsoft has asked for $6.9 million in damages due to unpaid interest from last year.

Mobile Platform War
So far, Microsoft has mostly succeeded in the courts over its Android intellectual property claims, meeting resistance only from Motorola Mobility and Barnes & Noble, although Microsoft and Barnes & Noble later reached a settlement. Microsoft's lawsuit against Samsung claimed that "approximately 80 percent of Android-based smartphones sold in the U.S. are licensed to use Microsoft's patents."

In addition, Microsoft's Samsung lawsuit claimed that more than 25 companies (along with Samsung) currently participate in its Android patent licensing program. It listed some of those companies as follows: Acer, Alutrek, Barnes & Noble, Coby Electronics, Compal Electronics, EINS, General Dynamics Itronix, Hoeft & Wessel, Hon Hai Precision Industry, Nikon, Onkyo, Pegratron, Quanta Computer, Velocity Micro, ViewSonic, Wistron and ZTE.

Microsoft, while making billions each year from its intellectual property claims on Android, has had a tough time in the competitive mobile OS space. Its Windows Phone mobile OS slipped to 2.5 percent of the market in the second quarter of 2014, down from 3.4 percent in the prior year, according to IDC stats. Microsoft even has resorted to giving away its Windows Phone OS licensing for free to certain mobile phone makers, according to reports. Ironically, this royalty-free strategy was the very method Google used to make Android the No. 1 mobile OS in the world, although Google doesn't provide legal indemnity to the equipment makers using it.

Windows Phone OS eventually will disappear as a discrete product. Microsoft indicated late last month that Windows 10 will replace it, although Windows 10 is expected to ship sometime in 2015.

Microsoft also is expected to drop the Nokia brand name by the end of this year, according to media reports.