Tuesday, September 9, 2014

Judge plans to take Microsoft-Samsung contract dispute over Android royalties to trial in early 2015

While there are ever clearer signs of Apple v. Samsung coming to an unspectacular end (including yesterday's order in California), the contract dispute between Microsoft and Samsung over Android patent royalties and the implications of Microsoft's acquisition of Nokia's wireless devices business has just begun. Microsoft filed its complaint in the Southern District of New York about a month ago. Meanwhile it has been served on Samsung (which always takes a little longer in international disputes), and Samsung has appointed counsel for this case. While Samsung is represented by Quinn Emanuel against Apple and the Rockstar consortium (whose two largest owners are Apple and Microsoft) and QE has so far defended Motorola extremely successfully against Microsoft (after almost four years of litigation, Motorola still hasn't seen a need to pay royalties on Android to Microsoft), Samsung has chosen O'Melveny & Myers for this case. Microsoft is represented by the Dechert firm and antitrust experts from Orrick.

Apple and Samsung's relationship can be characterized as "coopetition", but this is even more so the case with respect to Microsoft and Samsung, given that the latter builds all sorts of Windows devices. even though Android is now the much bigger opportunity for Samsung (Windows was not mentioned at all in Samsung's presentation of new key products at last week's IFA in Berlin), it's also in Samsung's strategic interest that Windows remain a viable alternative to Android in at least some market segments. But it's also in Microsoft's interest to maintain good relations with the leading mobile device maker in the world. That's why a mid-August report by the Korea Times on working-level settlement talks made sense to me. But later in August, Business Korea reported that Samsung as well as LG (another major Korea-headquartered Android device maker) feel they are paying Microsoft too much under their Android patent license deals. If even a fraction of the rumored amounts is what they pay, then I can understand this in light of litigation results, but they signed those deals before Motorola fended off one Microsoft patent assertion after the other. After almost four years of litigation against Motorola without a license deal, Microsoft has yet to prove that it owns valid patents that are infringed by Android and can't be worked around without major commercial implications (and some of the asserted patents have expired by now anyway). But that's an issue only in connection with new deals, not with existing contracts. Samsung and LG chose not to fight. They signed. What the court in the Southern District of New York has to clarify now is what bearing the Microsoft-Nokia deal has on that license agreement. Microsoft says Nokia's devices are covered post-acquisition; Samsung evidently disagrees.

If Samsung can bring infringement claims against the devices formerly made by Nokia, the deal will have to be renegotiated or at least Samsung could offset some of the royalties it forks over to Microsoft by collecting royalties on Microsoft's own phones. In Germany, Samsung has defended amended versions of two of its standard-essential wireless patents before the Federal Patent Court in the Apple dispute. If the amended versions are still standard-essential, they'll be extremely useful in any litigation that may arise between Samsung and Microsoft. No other litigant in the smartphone patent disputes between large players has been able to salvage more than one patent before the Federal Patent Court, which is a very significant success for Samsung's lead patent attorney in the German litigations, Zimmermann & Partner's Dr. Joel Naegerl ("Nägerl" in German), who was also key in having several Apple patents declared invalid. About twice as many Microsoft patents (as Samsung patents) came to judgment in that forum, and only one of them survived in an amended form, which I attribute to the fact that those patents were in no small part about how to structure program code. Motorola did better, relatively speaking, because it salvaged its only patent that came to judgment. Several Apple patents came to judgment, and none of them survived in any form whatsoever, which says something. It would have been very interesting to see some decisions on Nokia's patents, but HTC settled before any Federal Patent Court hearing was held.

The sooner the Microsoft v. Samsung contract matter is clarified, the better. That also appears to be the opinion of Judge Rakoff, who has set a case schedule that culminates in a mid-February final pretrial conference, suggesting that this case could go to trial in February or March 2015 barring an unexpected delay.

Here's the order:

14-09-05 Microsoft v. Samsung Case Management Plan by Florian Mueller

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