Microsoft and Samsung, in exchange for royalty payments from Samsung, have had a three-year-old contract that grants Samsung the rights to some Microsoft patents involving Android-based devices.
Last fall, Samsung temporarily stopped paying these royalties, citing Microsoft's acquisition of Nokia as a "breach of contract" with Samsung. Microsoft's attorneys say that's all just wind in the sail. They opined that the real reason Samsung is not meeting their obligations is due to a quadruple increase in Samsung Android smartphone sales since 2011, when the agreement was signed.
Although the terms of the agreement are confidential, in most cases royalty payments are based on unit sales, so a quadruple increase in phone sales would mean larger payments to Microsoft. Conservative estimates place the value of Microsoft's various patent-licensing deals at over $20 billion.
Samsung has caught up to the payments it suspended last fall, but it has refused to pay interest charges on those funds. That is what the two companies are now litigating.
Microsoft's position was articulated in a blog post by David Howard, corporate vice president and deputy general counsel for Microsoft, who wrote, "In 2011, after months of painstaking negotiation, Samsung voluntarily entered into a legally binding contract with Microsoft to cross-license IP (intellectual property) -- an agreement which has been extremely beneficial for both parties.
"After becoming the leading player in the worldwide smartphone market, Samsung decided late last year to stop complying with its agreement with Microsoft. In September 2013, after Microsoft announced it was acquiring the Nokia Devices and Services business, Samsung began using the acquisition as an excuse to breach its contract.
"Curiously, Howard said, "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."
Microsoft purchased Nokia's handset business in September 2013 for $7.2 billion, ostensibly to capture a bigger share of the smartphone market and promote Windows Phone OS. Most recently, Microsoft announced that half of Nokia's workforce of 25,000 employees will be laid off at facilities in Finland as part of Microsoft's restructuring plans.
Samsung, which has been involved in many legal entanglements with Apple and other industry suppliers, has responded to the filing of the lawsuit by saying that it was reviewing the complaint and would respond appropriately.
"Microsoft values and respects our partnership with Samsung and expects it to continue. We are simply asking the court to settle our disagreement and we are confident that the contract will be enforced," wrote Howard.
