Friday, October 31, 2014

Samsung asks court to declare it can terminate its Android patent license agreement with Microsoft

A new filing was made on Thursday in the Southern District of New York in the contract dispute between Microsoft and Samsung over a 2011 Android/Chrome patent license agreement (redacted versions of the two contracts at issue, the patent license agreement on the one hand and a closely-related business collaboration agreement on the other hand, became publicly accessible last week). While seeking a stay pending arbitration, Samsung has (since the motion hasn't been adjudicated yet) timely filed its answer to Microsoft's amended complaint (published earlier this month, it revealed that Samsung paid more than a billion dollars in Android/Chrome patent royalties to Microsoft between mid-2012 and mid-2013) and its counterclaims.

Microsoft wants the court to hold that Microsoft's acquisition of Nokia's mobile devices business does not give Samsung the right to unilaterally terminate the patent license agreement (though the two agreements are undoubtedly interconnected). It also says that the case shouldn't be stayed since any termination, if allowed (which in Microsoft's opinion it's not), would affect only future royalty reports and not the royalties Microsoft says Samsung owes for the period between mid-2013 and mid-2014). Samsung's key counterclaim is now a request for a judicial "declaration that Samsung may terminate the [business collaboration agreement] and [patent license agreement] pursuant to BCA Sections 9.7 and 8.5." (emphasis added)

If Samsung obtained such a declaration (by the court in New York or by an arbitration panel), it would be in a position to renegotiate the terms of the patent license agreement. Since the signing of that contract more than three years ago, smartphone patent assertions by all of the major players have been largely unsuccessful (less than 10% had merit based on final or interim results):

Microsoft has, to put it diplomatically, not outperformed the others so far:

But for now, there is no indication of Samsung actually having provided notice of termination. It appears that Samsung prefers to negotiate with Microsoft from the position of having the option, but not the obligation, to terminate the existing contracts. There could be different reasons for that approach. To me, the most likely reason is that Samsung wants to avoid further escalation of the controversy not for fear of Microsoft's patent assertions (the results in court speak for themselves and some of Microsoft's relevant patents have expired) but because of an interest in continuing to build Windows-based devices.

That interest, however, is not heightened by the fact that Microsoft has become a mobile device maker through the acquisition of Nokia's handset business. For example, Samsung's filing says the following:

"After the Nokia DSB Merger, the agreements, now between competitors, invite charges of collusion. No reasonable business would knowingly undertake the risk of contractually obligating itself to coordinate and collaborate with a competitor—particularly, as here, with respect to setting third-party incentives and controlling the 'out of box' experience of a competitor's products."

Samsung's lawyers even raise antitrust concerns over this kind of horizontal cooperation:

"Additionally, the sharing of product roadmap information, which the BCA contemplates (Sections 2.1 and 2.2 of Exhibit B), now takes on a new and dangerous meaning when viewed through the lens of antitrust law: these provisions could give rise to accusations that two handset competitors, Microsoft and Samsung, are engaged in market allocations in terms of how and when products are developed and distributed to the market. This problem did not exist prior to Microsoft's merger with Nokia['s handset business]."

If you're interested in further detail, here's Samsung's filing:

14-10-30 Samsung Answer to Microsoft Contract Complaint by Florian Mueller

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