News

Microsoft Sues Samsung over Android Royalty Payments

• By Kurt Mackie
• August 04, 2014

Microsoft on Friday filed a lawsuit against its hardware partner Samsung, accusing the device maker of violating the terms of a 3-year-old Android licensing agreement between the two companies.

In 2011, Samsung signed a contract agreeing to pay Microsoft royalties for using the Linux-based Android mobile operating system in Samsung tablets and mobile phones. As part of the deal, Samsung also agreed to market Windows Phone devices and the two companies shared some patented technologies.

Now Microsoft is complaining that Samsung has "stopped complying with its agreement," according to a Friday announcement attributed to David Howard, Microsoft corporate vice president and deputy general counsel. The announcement of the lawsuit heavily implied that Samsung stopped complying with the 2011 contract after Microsoft announced the acquisition of rival device maker Nokia last September. Moreover, Howard contended that Samsung is resisting now because it currently makes more money from its Android-based devices than it did when it inked the deal back in 2011.

Microsoft's announcement stated that the two companies have "a fundamental disagreement as to the meaning of our contract." For its part, Samsung indicated that it's reviewing the lawsuit.

"We will review the complaint in detail and determine appropriate measures in response," a Samsung spokesperson replied to a press inquiry.

Microsoft's Patent Deals
Many device makers have signed intellectual property deals with Microsoft over Android use. Microsoft has claimed that about 70 percent of hardware manufacturers using the Linux operating system have inked such licensing deals. Only Motorola Mobility and Barnes & Noble contested Microsoft's intellectual property claims in court. B&N settled in 2012.

Google largely fostered the Android mobile OS, which is offered royalty free to hardware manufacturers. Android is the No. 1 operating system in use around the globe at present. However, Google does not provide any legal indemnity to the manufacturers using it. For many years, Microsoft did not disclose exactly which of its patent holdings were infringed by Linux. However, in March of 2013, Microsoft rolled out a searchable patent database that it published to be more transparent about all of its intellectual property holdings.

Still, an Ars Technica article has claimed that Microsoft maintains a "secret list of Android-killer patents" that were reviewed by the Chinese government and purportedly leaked after its review of the Nokia acquisition. The Chinese government listed "310 patents and patent applications" versus the 200 that Microsoft said the Chinese Ministry of Commerce (MOFCOM) reviewed.

"In reaching its decision, MOFCOM concluded after its investigation that Microsoft holds approximately 200 patent families that are necessary to build an Android smartphone," Microsoft's Howard stated in April.

Renewed Legal Resistance?
M-Cam, a Charlottesville, Va.-based investment bank that advises clients on intellectual property issues, claimed that China's apparent disclosure of Microsoft's patents could be an attempt "to counteract Microsoft's chokehold on the smartphone market" in terms of its extraction of royalties from Android use.

"By disclosing the detailed list of these patents, companies who currently pay a license to Microsoft for the Android platform may discover that they have patents on the same technologies which precede Microsoft's patents," M-Cam's analysis states. "This may create an opening for them to either negotiate a better deal or demand that Microsoft license from them."

M-Cam, which is involved in the patent litigation business, claims that Microsoft generates $1 billion to $2 billion each year from its intellectual property claims on Linux use.

It's not entirely clear that the Chinese government did actually disclose secret Microsoft patents, though. And it still remains to be seen why Samsung doesn't agree with Microsoft about the 2011 contract. Microsoft filed its lawsuit in the U.S. District Court for the Southern District of New York on Friday.