News

Samsung Claims Microsoft Voided Android Deal with Nokia Buy

• By Kurt Mackie
• 11/05/2014

Samsung has filed its response Microsoft's breach-of-contract legal claims, which involve an Android intellectual property deal.

The counterclaim, filed on Oct. 30, 2014, cited contract terms that allegedly permits Samsung to terminate its deal with Microsoft under certain conditions. The two companies inked a deal in September 2011 that assigned Microsoft royalty payments for Samsung's use of the Linux-based Android mobile operating system. That deal also included a patent sharing arrangement and a Windows Phone marketing agreement.

Microsoft issued its legal complaints in August after Samsung allegedly refused to pay $6.9 million in interest owed on a late payment associated with the deal.

In essence, Samsung's legal filing argues that the two companies were partners and collaborators back in 2011 when the intellectual property deal was originally signed. However, after Microsoft merged mobile phone-maker Nokia into its operations in April 2014 after its acquisition of that company and began selling smartphones, the two companies became competitors.

The original 2011 deal was based on a "Patent Licensing Agreement" (PLA) and a "Business Collaboration Agreement" (BCA), which are "interconnected and mutually dependent" legal documents, according to Samsung's legal filing. The PLA specifies a cross-patent licensing arrangement with Microsoft, while the BCA specifies the terms. The BCA includes termination rights based on an "anti-assignment provision," which prohibits the assignment of the contract in cases of "a merger of a party with a third party," among other such details.

In essence, Samsung found itself in the position of sharing its intellectual property with a competitor (Microsoft), which wasn't in accord with the original terms of the 2011 deal. It then initiated written communications to Microsoft, warning that the Nokia acquisition had jeopardized the agreement. Instead of working to resolve the dispute, Microsoft filed its lawsuit against Samsung, according to Samsung's claims.

The original 2011 deal wasn't just an arrangement for Samsung to pay royalties on intellectual property claimed by Microsoft on Android use, which amounted to $1 billion a year, according to court records. Samsung also shared some of its patents with Microsoft but that posed a problem with the Nokia acquisition.

"As a result of Microsoft's acquisition of Nokia's former mobile business, which has now been consummated, Samsung cannot continue to disclose to Microsoft certain confidential information that Samsung considers commercially or technically sensitive under the BCA as presently in effect," Samsung noted in an April 13, 2014 letter to Microsoft's legal counsel, according to its legal filing.

Microsoft claims that it has the right to transfer the use rights of Samsung's intellectual property under the 2011 deal to its Nokia acquisition. However, based on the BCA terms, Samsung claims it has right to void the whole 2011 deal because of that transfer.

Samsung also had agreed to market Windows Phone under the 2011 deal, but it now views those marketing arrangements to be potential antitrust violations of the Sherman Act. The joint marketing could be considered as colluding with a competitor, according to Samsung's legal filing.

The Samsung case treads new ground regarding Microsoft's intellectual property claims over Android use. Microsoft is estimated to have about 200 patents that apply to the Google-fostered Android OS. Microsoft has claimed that about 80 percent of Android-based smartphones sold in the United States are licensed to use its patents.

So far, Microsoft has successfully sued its hardware partners that have resisted its intellectual property claims. Samsung, though, seems to be the first hardware partner to suggest that Microsoft's emergence as a devices and services company may have altered the terms of its previously inked intellectual property sharing agreements. Possibly, other hardware partners could make the same claim.

The Microsoft vs. Samsung case is filed in the U.S. District Court of the Southern District of New York.