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8/4/2014
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Microsoft vs. Samsung, Explained

Microsoft claims Samsung is trying to renege on its obligation to pay patent licensing fees. Could the billions Microsoft earns from Android-related patents be at stake?

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5 Inexpensive Smartphones: No Perfect Choice
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Microsoft filed a lawsuit late last week against Samsung, alleging the South Korean electronics giant has refused to pay interest on late patent royalty payments and threatened to withhold future payments.

The royalties are tied a three-year-old cross-licensing agreement that calls for Samsung to pay Microsoft an undisclosed fee for every Android smartphone or tablet that Samsung sells. Though Android is a Google offering, Microsoft claims a wide range of patents related to the OS and has signed licensing agreements with many Android device makers.

In the lawsuit, Microsoft alleges that Samsung not only delayed royalty payments that were due last fall, but also refused to pay interest after finally remitting the late payments. Microsoft further claims that Samsung considers Microsoft's acquisition of Nokia's device business to be a breach of contract.

[Microsoft vows to fight ruling that it must release emails in foreign data center. Read Microsoft Privacy Case: What's At Stake?]

According to Microsoft, Samsung has tried to use the alleged contractual violation as a justification to cease payments. Samsung has also purportedly asked Korean authorities to eliminate the company's obligation to pay future fees. Microsoft claims that if Korean regulators attempt such a move, it would not pass legal muster. Samsung, for its part, hasn't said much, other than that it is looking into Microsoft's complaints.

In a blog post, Microsoft corporate VP and deputy general counsel David Howard alternated between diplomatic language and more pointed accusations. He took pains, for example, to paint the lawsuit as an almost routine disagreement between large companies.

"We don't take lightly filing a legal action, especially against a company with which we've enjoyed a long and productive partnership. Unfortunately, even partners sometimes disagree," he wrote. Elsewhere, he emphasized that Microsoft "values and respects" its partnership with Samsung and expects it to continue.

"We are simply asking the court to settle our disagreement, and we are confident the contract will be enforced," he added.

Nevertheless, Howard implied Samsung wants to stop making payments simply because it sells substantially more devices than it did three years ago and is presumably unhappy that its royalty obligations grew alongside its market share. "Samsung predicted it would be successful, but no one imagined their Android smartphone sales would increase this much," Howard wrote.

He also dismissed Samsung's claim that Microsoft breached its contract. He said Samsung used Microsoft's acquisition of Nokia's device business as an "excuse," adding, "Curiously, Samsung did not ask the court to decide whether the Nokia acquisition invalidated its contract with Microsoft, likely because it knew its position was meritless."

As is typical in the secretive world of patent agreements, many of the dispute's particulars remain unknown. Microsoft's lawsuit includes many redacted passages, for example, and does not make clear how much money it believes Samsung owes. Microsoft is believed to earn billions of dollars per year from its licensing agreements with Android device makers. Though Howard waved off Samsung's breach-of-contract claims, Microsoft is no doubt mindful that a negative ruling could establish a precedent that would allow other Android device makers to challenge these agreements.

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Michael Endler joined InformationWeek as an associate editor in 2012. He previously worked in talent representation in the entertainment industry, as a freelance copywriter and photojournalist, and as a teacher. Michael earned a BA in English from Stanford University in 2005 ... View Full Bio

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TerryB
IW Pick
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TerryB,
User Rank: Ninja
8/5/2014 | 3:39:01 PM
Re: MS has patents that apply to Android?
Dude, I write software for a living. Android is not a copy of Windows, XBox, Windows Phone, etc, etc etc.

What I have a problem with is someone who patents an idea like "click on this icon and program execution begins". I've seen some of these stupid patents, using the word "intellectual" is pushing it.

These people are gaming the system with specific intent of extracting royalties later, so they enter the most generic freaking algorithmic patent they can get away with.

That's not exactly the same as Thomas Edison inventing the light bulb, so get off your high and mighty horse. If someone can make one of these crappy phones last more than a day on a charge, now then you are talking about a real patent.
Steve__S
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Steve__S,
User Rank: Strategist
8/5/2014 | 3:20:46 PM
Re: MS has patents that apply to Android?
You have to love it when people with no understanding or respect for intellectual property expect everything to be free.  Perhaps one day if you invest your own time and money in the development of a product, you might better appreciate why it's not appropriate for others to steal your work.
TerryB
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TerryB,
User Rank: Ninja
8/5/2014 | 12:47:03 PM
MS has patents that apply to Android?
Am I the only one surprised by this? How does what MS does overlap with Android phones?

Just more evidence software patents are ridiculous. Especially since MS would not even exist if not for technology IBM was stupid enough to hand over to them. Strange world we live in.
rradina
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rradina,
User Rank: Ninja
8/5/2014 | 11:30:35 AM
Billion Dollar Revenue Stream
The article claims significant income is at stake.  (I say income because aren't royalties pure profit?) Regardless, can someone disclose the rough math used for the article's assertion?  Is it something like Samsung sold 250M phones x $4 MS royalty = $1B in Microsoft Income?
Steve__S
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Steve__S,
User Rank: Strategist
8/5/2014 | 8:59:03 AM
Typical Samsung
Honestly, is anyone really surprised by Samsung renegging on their contractual obligations?  Samsung's actions over the past few years are simply shameful.  I steer clear of their products because of their behavior.  
Lorna Garey
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Lorna Garey,
User Rank: Author
8/5/2014 | 8:47:18 AM
Re: Win win
I guess if you can't beat 'em, make some money from 'em. Seriously though, why not do both -- try and get your own market share, while meanwhile grabbing what you can from competitors. 
SaneIT
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SaneIT,
User Rank: Ninja
8/5/2014 | 7:43:48 AM
Re: Win win
I think that's a lot of what we're seeing now.  At first I assumed Microsoft was fighting because they were trying to gain market share with their older Windows phones.  Now we're seeing new fights and not a whole lot of movement from Microsoft on their mobile devices.  It seems like a fight over a revenue stream now.  Maybe this is the future of Microsoft, collecting fees from hardware manufacturers.
Brian.Dean
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50%
Brian.Dean,
User Rank: Ninja
8/5/2014 | 2:40:47 AM
Re: Win win
This could turn into a dangerous situation, Microsoft being a software company and Samsung being a hardware company, both with billion dollar assets ready to be deployed in a legal battle. The outcome might be unclear but if it does intensify, it could lead to a loss in market share with competitors deploying resources into the market rather than, the legal system.
Thomas Claburn
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Thomas Claburn,
User Rank: Author
8/4/2014 | 7:24:35 PM
Re: Win win
Sounds like Microsoft can just sit back and rest on its royalties and licensing fees. Oh, wait, that's sort of how we got here.
Michael Endler
IW Pick
100%
0%
Michael Endler,
User Rank: Author
8/4/2014 | 4:06:34 PM
Re: Win win
And with Office on iPads now, Microsoft is making a decent chunk of change on iOS too. It's rather nifty, for a company so woefully behind in mobile, to have engineered from its competitors one proven multi-billion dollar revenue stream, and another likely one.
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