Microsoft Sues Samsung Over Android Royalties

Microsoft (MSFT) broke a three-year truce with mobile device giant Samsung late last week, suing the Korean manufacturer in a New York federal court for allegedly reneging on patent royalty payments it agreed to in a 2011 cross-licensing deal between the two companies.

Microsoft claimed Samsung stopped paying royalties for using the software maker’s intellectual property (IP) in the device manufacturer’s Android smartphones and tablets. Microsoft said Samsung further is refusing to pay interest for the payment delay and has claimed Microsoft’s purchase of Nokia’s mobile business breached the original contract.

Microsoft’s lawsuit doesn’t detail how much money it believes it is entitled to recover from Samsung. The two companies signed a cross-licensing agreement in September 2011 for each other's patent portfolios that included royalty payments for Microsoft IP associated with the Android platform. Part of the deal included a collaboration on developing and marketing Microsoft’s Windows Phone mobile OS.

“We don’t take lightly filing a legal action, especially against a company with which we’ve enjoyed a long and productive partnership,” wrote David Howard, Microsoft corporate vice president & deputy general counsel, in an Aug. 1 blog post. “Unfortunately, even partners sometimes disagree,” he said.

“After becoming the leading player in the worldwide smartphone market, Samsung decided late last year to stop complying with its agreement with Microsoft,” Howard wrote.

At the time of the initial licensing deal in 2011, Samsung shipped some 80 million Android smartphones but the company has emerged as the worldwide shipment leader, having moved more than 310 million units as of Q1, 2014, according to researcher IDC.

Samsung said it was reviewing the complaint and would “determine the appropriate measures in response.”

Howard suggested the real reason Samsung stopped making royalty payments owed to its meteoric success selling Android smartphones and that it’s using Microsoft’s Nokia acquisition as a diversion.

“After becoming the leading player in the worldwide smartphone market, Samsung decided late last year to stop complying with its agreement with Microsoft,” he wrote. “In September 2013, after Microsoft announced it was acquiring the Nokia Devices and Services business, Samsung began using the acquisition as an excuse to breach its contract. 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.”

Howard said Microsoft spent “months trying to resolve our disagreement,” but the companies have a “fundamental disagreement as to the meaning of our contract.”