Microsoft Gets Legal in Patent Pact Spat With Samsung

Source: Thinkstock

Source: Thinkstock

Microsoft (NASDAQ:MSFT) has filed a lawsuit against Samsung (SSNLF.PK) that alleges that the Android-based smartphone maker is violating a patent-licensing agreement between the two companies. Microsoft corporate vice president and deputy general counsel David Howard announced the legal action in a posting on the company’s official blog on Friday. “After spending months trying to resolve our disagreement, Samsung has made clear in a series of letters and discussions that we have a fundamental disagreement as to the meaning of our contract,” wrote Howard. Microsoft’s complaint was filed in U.S. District Court in Manhattan on Friday. In an emailed statement obtained by Bloomberg, Samsung spokesperson Adam Yates said that “We will review the complaint in detail and determine appropriate measures in response.”

As noted by Howard, the dispute is related to a cross-licensing intellectual property agreement that both companies entered into in 2011. Under the deal, Samsung pays Microsoft royalties for each mobile phone and tablet it sells that uses the Android operating system, while it licenses various technology patents that it holds to Microsoft. Samsung also agreed to help develop and market the Windows Phone platform. It should be noted that while Android is an open source operating system that was originally developed by Google (NASDAQ:GOOG) (NASDAQ:GOOGL), Microsoft has claimed that Android uses some of its patented technology and has struck patent-licensing deals with over twenty-five Android-based mobile device makers, including Samsung, Acer, Hon Hai Precision Industry (Foxconn), and HTC. As noted by intellectual property law expert Florian Mueller, Microsoft has also been engaged in long-running litigation against Google subsidiary Motorola Mobility over its alleged patent infringement.

However, unlike Motorola, Samsung actually has a licensing agreement with Microsoft that acknowledges the validity of the software giant’s patent claims. So what changed? While we currently only have Microsoft’s perspective on the disagreement, Samsung apparently believes that Microsoft’s recent acquisition of Nokia’s (NYSE:NOK) mobile devices and services business breached the 2011 licensing and collaboration agreement between the two companies.

According to a heavily redacted copy of Microsoft’s complaint provided by GeekWire, Samsung delayed a royalty payment to Microsoft last year while it was raising various objections over the Nokia acquisition. While the Korea-based company eventually made the patent royalty payment, it has since refused to pay interest on the late payment and is now threatening to stop future payments due to Microsoft’s acquisition of Nokia’s mobile division.

As a result, Microsoft is asking the court to affirm that the Nokia acquisition does not invalidate the original licensing and collaboration agreement and that it “does not give Samsung the right to terminate the License Agreement or relieve Samsung of its ongoing obligation to make [redacted] future royalty payments.” Microsoft is also asking the court to compel Samsung to pay the interest that it owes for its late royalty payment.

While many of the sections that detail Samsung’s objections to Microsoft’s Nokia acquisition are redacted, FOSS Patents’ Mueller noted that under Microsoft’s interpretation of its licensing and collaboration agreement with Samsung, any former Nokia devices that use Samsung’s patented technology would be covered under the previous deal. This means that Samsung would get nothing from the Nokia devices brought under the Microsoft umbrella. Even worse — from Samsung’s perspective — Nokia would be able to continue to collect royalty payments from Samsung based on patent-licensing agreements that it made prior to its acquisition by Microsoft.  Meanwhile, Microsoft would continue to collect Android-related royalties from Samsung. In other words, Microsoft’s acquisition of Nokia leaves Samsung holding the short end of the patent-licensing stick.

However, the court will not be determining the overall fairness of the deal to Samsung, only whether or not the acquisition of Nokia is a breach of the original contract. If it isn’t, Samsung will have to continue making royalty payments to Microsoft and Nokia, whether or not it feels it is fair. From Microsoft’s perspective, Samsung has benefitted greatly from its 2011 Android licensing agreement. Microsoft’s Howard cited recent IDC data that showed “when Samsung entered into the agreement in 2011, it shipped 82 million Android smartphones. Just three years later, it shipped 314 million Android smartphones.”

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