Friday, August 1, 2014

Microsoft sues Samsung over Android royalties -- a contract dispute, not an infringement case

Today Microsoft filed a contract lawsuit in the Southern District of New York against Samsung over the companies' Android-related patent license agreement, which was concluded in 2011. So far only Microsoft's version of the story (the first link above) is known: Samsung allegedly doesn't believe to be bound by the 2011 agreement as a result of Microsoft's acquisition of Nokia's handset business, a position that Microsoft describes as "meritless". The most positive aspect of the announcement is that Microsoft still hopes to continue its partnership with Samsung, despite this disagreement. As a consumer, I hope so, too.

Microsoft would certainly have preferred to bring this complaint in the Western District of Washington (where it prevailed over Motorola in another contract matter, which is now on appeal) but presumably the contract required any lawsuits to be filed in New York.

Microsoft's position on the interdependencies of the Nokia acquisition with its Samsung license agreement is no secret. Back in September 2013 (when the Microsoft-Nokia deal was announced) I blogged about some Microsoft slides relating to patent licensing in the Nokia context, and here's the key bullet point again:

"Microsoft's agreement with Samsung will provide coverage for these additional devices without added payments"

It's not hard to see why Microsoft would like this to be the case, and why Samsung would not want it to be the case. The net effect would be that

  • Samsung would pay Microsoft per-unit royalties on all Android devices,

  • Microsoft would pay Samsung nothing for the use of any Samsung patents (such as wireless standard-essential patents) in the former Nokia devices, and

  • Nokia is, as a result of its Microsoft deal, free to collect patent royalties from Samsung.

This is obviously not the kind of outcome that Samsung could have foreseen when it entered into the Microsoft license agreement in 2011. But the key legal question is going to be whether the Microsoft-Samsung contract covers this situation regardless of whether Samsung could have reasonably anticipated it.

I guess Microsoft will do all in its power to obtain sealing orders for its contract terms, but it won't be able to get everything sealed, especially not in the event that the matter ultimately goes to trial (I guess it won't because they will settle beforehand, but you never know). GeekWire has published a redacted version of Microsoft's complaint.

Microsoft's Android patent licensing program is a huge dealmaking success. The outcome of Microsoft's Android-related patent enforcement efforts against Motorola is a separate story. Microsoft is currently able to enforce one patent against Motorola's Android devices. It won three injunctions in Germany but all three patents -- and a few more that Motorola hadn't been found to infringe in the first place -- have since been declared invalid by the Federal Patent Court of Germany (the related decisions are presumably being appealed). In the U.S., Microsoft asserted nine patents against Motorola at the ITC. The ITC ordered an import ban over one of them, and the Federal Circuit upheld that decision and sided with Microsoft on a second patent, but that one had already expired, so Microsoft can only seek damages for past infringement over that one.

It's possible that Samsung now feels it would have been a better choice to do things the Google-Motorola way and take its chances in court than to agree three years ago to pay royalties. Motorola has been defending itself against Microsoft for almost four years, and apart from being temporarily unable to ship products into the German market (for four months according to Motorola's counsel's representations in court), Motorola has been doing just fine -- unless Microsoft at some point gets decisive leverage over Motorola, in which case the ultimate conclusion could be that licensing would have been a better choice than litigation, though as of now, Motorola has almost certainly spent much less on its defense than it would have paid in royalties. And, by the way, Samsung and Motorola use the same law firm (Samsung against Apple, maybe now also against Microsoft; and Motorola against Microsoft as well as Apple): Quinn Emanuel.

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