Microsoft is taking Samsung to court, claiming that Samsung has stopped honoring an Android patent licensing agreement both companies have entered back in 2011.
Following fruitless discussions with Samsung over its refusal to continue paying royalties to Microsoft for every device running on Google's Android operating system it sells, Microsoft filed a lawsuit before the U.S. District Court in New York's Southern District on Friday, asking the court to take over the resolution of the dispute between it and Samsung.
In its complaint, Microsoft says Samsung was late in paying its royalties to Microsoft in the fall of last year and claims that Samsung is again threatening to pay its obligations because of Microsoft's recent acquisition of Nokia's Devices and Services division. Microsoft is also seeking interest payments that currently go unpaid after Samsung's late royalties payments.
David Howard, corporate vice president and deputy general counsel for Microsoft, says in a blog post that the two companies have gone through "months" of discussions to no avail, citing a "fundamental disagreement" in the companies' understanding of their contract.
"We don't take lightly filing a legal action, especially against a company with which we've enjoyed a long and productive partnership," Howard writes. "Unfortunately, even partners sometimes disagree."
Microsoft also alleges that Samsung's dominant rise to the top of the Android market is likely the reason why it has refused paying royalties. Howard cites data from research firm IDC that says Samsung shipped 314 million Android phones in the first quarter of 2014, a significant jump from the 82 million units shipped in 2011 when Samsung entered the multi-year agreement with Microsoft.
"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," says Howard.
Surprisingly enough, both companies extended the coverage of their contract into 2018 in November last year, after Microsoft's announcement that it was buying out Nokia's phone business and Samsung's late royalties payment for Fiscal Year 2.
Microsoft's Android patent licensing business is a profitable one, generating about $2 billion every year in revenues with a margin of around 95%, says Nomura analyst Rick Sherlund. Microsoft itself has said that nearly every Android device maker pays the company an alleged $5 to $15 in royalties for each device the company sells. The profits, Sherlund says, is used to conceal losses in Microsoft's own entertainment and devices business consisting of Windows Phone, Xbox and Skype.
For its part, Samsung refused to say anything beyond the fact that the company is reviewing Microsoft's claims and will come up with an appropriate response based on its evaluation.
