Wednesday, June 29, 2011

Android device makers sign up as Microsoft patent licensees -- an overview of the situation [UPDATED, TWICE]

[Updated TWICE]

  • on Thursday, June 30, following the announcement of a license deal between Microsoft and Japanese consumer electronics company Onkyo -- the third announcement of its kind during that week

  • on Tuesday, July 5, following the announcement of a license deal between Microsoft and Taiwanese device maker Wistron

[/Updated TWICE]

In a little more than a week, Microsoft announced four new license deals with Android device makers:

In April 2010, Microsoft had already announced a license deal with HTC. So as of July 5, 2011, there have been five such announcements

There are also patent agreements in place with other device makers such as Samsung and LG that may or may not extend to their Android devices. There may be even more: many patent license deals are never talked about in public.

I thought it might be helpful to analyze the information that is available on Microsoft's smartphone patent license deals. Those deals aren't just between Microsoft and its licensees. This should also be of concern to Google.

Personal perspective

I fought hard against Microsoft when the EU was considering a piece of legislation on software patents and continue to disagree with them on the desirability of such patents. My views are consistent. However, I recognized in a blog post last summer that their focus on licensing (rather than litigation) reflects a cooperative approach that allows all players to innovate.

The primary reason I campaigned against software patents was a concern over patents being used for exclusionary purposes. In a hypothetical world in which every patent holder grants licenses on reasonable terms, I would still oppose software patents but my concerns would mostly relate to such problems as the ones posed by Lodsys and MacroSolve.

Business perspective

On this blog I report a lot on smartphone-related patent litigation. Earlier today I wrote about Samsung's ITC complaint against Apple. Yesterday I discussed Oracle's damages claims against Google, amounting to $2.6 billion, and on Monday I evaluated the potential impact of certain reexaminations on the dispute between Oracle and Google. Tomorrow the ITC will hand its decision on Kodak's compaint against Apple and RIM. All of those stories are exciting to read and write about. But I've been active in this industry for more than 25 years, so I know that litigation (however exciting to watch) is a distraction and license deals that help to avoid or settle litigation are generally good news from a pragmatic, business-like point of view.

That said, I'm sure that Google is very unhappy about the fact that its vision of a "free" smartphone operating system is reduced to absurdity on a daily basis. Most people have understood by now that Android isn't truly "open" in light of Google's heavy-handedness. Android is neither "free" as in "beer" nor "free" as in "speech". I still like Android and use it extensively: my current phone is a Samsung Galaxy S II. But the facts are still the facts concerning Android's intellectual property issues.

Every device maker who feels forced to take a patent license on Android disagrees with Google's claims in the sincerest form: by putting his money where his mouth is. That is exactly what Google fails to do: it doesn't indemnify device makers because it's aware of Android's infringement.

This week's new licensees: General Dynamics Itronix, Velocity Micro, Onkyo

Frankly, if you had asked me last week to name the most famous makers of Android-based devices, I would have named more than half a dozen but I wouldn't have thought of General Dynamics Itronix, Velocity Micro, or Onkyo. However, at a closer look those are interesting licensees.

Itronix is a subsidiary of General Dynamics, a major defense contractor with a market cap of (as I write this) $27 billion. Its "rugged" (in terms of "robust") computers are "wearable": soldiers can attach them to their forearm, for example.

Not only would General Dynamics have had the financial strength to defend itself against a possible patent infringement lawsuit but it's also a company that's pretty patent-savvy. The patent database of the U.S. Patent and Trademark Office lists General Dynamics as the assignee of almost 1,000 patents (over the last few decades). By comparison, the same kind of search delivered only 701 results for Google. So it's a safe assumption that General Dynamics had the knowledge that's required to analyze patent infringement assertions, and arrived at the conclusion that taking a license was the way to go.

Since the other new licensee, Velocity Micro, is a privately-held company, it's harder to find information about it except for the company info section of its website and a Wikipedia entry, which also mentions several awards that the company has won.

What's interesting about Microsoft's license deal with Velocity Micro is that it extends to (among other devices) the Cruz Reader tablet computer. This is yet another addition to the list of tablet computers on which Microsoft collects patent royalties. That list also includes's Linux-based Kindle and HTC's tablets (such as the HTC Flyer).

With Thursday's announcement, Onkyo Corp. also agreed to take a patent license from Microsoft that covers Android-based tablets. (Onkyo also has some patent expertise, being the assignee of more than 100 U.S. patents.)

The fourth licensee to be announced in this series of four announcements, Wistron, states the following on its website about its history:

Until the separation from Acer [in 2002], Wistron operations were known as the Design, Manufacturing and Sergice (DMS) arm of Acer Inc.

So this is a company that supplies components to others. Microsoft's license agreement with Wistron may, therefore, relate to Android devices sold under a variety of different brands.

By contrast, Barnes & Noble refused to take a license for its Nook and Nook Color tablets and now has to defend itself against Microsoft in an ITC investigation and in court. When Microsoft's lawsuit against Barnes & Noble was announced, I already pointed out that it's a matter of of a level playing field that Microsoft has to require all competitors in that market to pay so as not to put those who pay at a disadvantage vis-à-vis non-paying infringers.

License deals between Microsoft and major smartphone and tablet makers

In the first part of this post I mentioned Microsoft's announcement of a royalty-bearing patent license deal with HTC relating to Android devices. The exact amount of the license fees paid by HTC under the deal was not revealed. More recently, Citigroup analyst Walter Pritchard claimed to know that HTC pays $5 per device and that Microsoft asks other Android device makers, according to him, for $7.50 to $12.50 per device. Those numbers could be accurate. The actual numbers could also be more or less. Licensors and licensees don't have any obligation to disclose their deal terms to the general public. HTC is a fast-growing, profitable company whatever the license fee may be.

An HTC competitor, Motorola Mobility, preferred to be sued. Considering how things are progressing at the ITC, I believe Motorola will ultimately have to pay royalties as well.

Several other major Android device makers -- including Samsung, LG and HP -- had or have patent license agreements in place with Microsoft according to this press release issued in August 2010 (on Microsoft's settlement with But the scope of those agreements isn't clear. Android-based devices may or may not be included. In that same press release, Microsoft also mentioned a license agreement with Apple. That agreement could also be broad or narrow. Maybe we'll find out one day.

What's clear is that Microsoft routinely enters into patent license agreements with companies of all sizes. There are about three dozen Android device makers out there, and we may see more announcements of license deals over time.

Android's problem: royalty demands by many right holders

Android doesn't have a "Microsoft problem". Microsoft is just one of many right holders who believe Android infringes on their intellectual property rights. It's obviously an important one with its portfolio of 17,000 patents, but it's by far not the only one.

Oracle is suing Google (as I mentioned). Apple is suing Samsung, Motorola and HTC. Nokia just settled with Apple and plans to grow its patent licensing business. Gemalto is an example of a medium-sized company asking for royalties. And there are literally dozens of smaller patent holders.

As a result, we'll see many license deals, and unfortunately also many more lawsuits. No single right holder is the issue. But Android device makers face a significant total cost of paying royalties to all those right holders.

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