Microsoft is taking Samsung to court,
claiming that Samsung has stopped honoring an Android patent licensing
agreement both companies have entered back in 2011.
Following fruitless discussions with Samsung over its
refusal to continue paying royalties to Microsoft for every device running on
Google's Android operating system it sells, Microsoft filed a lawsuit before
the U.S. District Court in New York's Southern District on Friday, asking the
court to take over the resolution of the dispute between it and Samsung.
In its complaint, Microsoft says Samsung was late in paying
its royalties to Microsoft in the fall of last year and claims that Samsung is
again threatening to pay its obligations because of Microsoft's recent
acquisition of Nokia's Devices and Services division. Microsoft is also seeking
interest payments that currently go unpaid after Samsung's late royalties
payments.
David Howard, corporate vice president and deputy general
counsel for Microsoft, says in a blog post that the two companies have gone
through "months" of discussions to no avail, citing a
"fundamental disagreement" in the companies' understanding of their
contract.
"We don't take lightly filing a
legal action, especially against a company with which we've enjoyed a long and
productive partnership," Howard writes. "Unfortunately, even partners sometimes
disagree."
Microsoft also alleges that Samsung's dominant rise to the
top of the Android market is likely the reason why it has refused paying
royalties. Howard cites data from research firm IDC that says Samsung shipped
314 million Android phones in the first quarter of 2014, a significant jump
from the 82 million units shipped in 2011 when Samsung entered the multi-year
agreement with Microsoft.
"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," says Howard.
Surprisingly enough, both companies extended the coverage of
their contract into 2018 in November last year, after Microsoft's announcement
that it was buying out Nokia's phone business and Samsung's late royalties
payment for Fiscal Year 2.
Microsoft's Android patent licensing business is a
profitable one, generating about $2 billion every year in revenues with a
margin of around 95%, says Nomura analyst Rick Sherlund. Microsoft itself has said
that nearly every Android device maker pays the company an alleged $5 to $15 in
royalties for each device the company sells. The profits, Sherlund says, is
used to conceal losses in Microsoft's own entertainment and devices business
consisting of Windows Phone, Xbox and Skype.
For its part, Samsung refused to say anything beyond the
fact that the company is reviewing Microsoft's claims and will come up with an
appropriate response based on its evaluation.
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