Microsoft and Samsung Settle Contract Dispute
Microsoft and Samsung have quietly settled a major contract dispute that threatened Samsung’s use of the Android mobile OS on its smart phones and tablets. The bad news: Absolutely no details about this agreement have been made public.
It doesn’t get any terser than this statement:
“Microsoft and Samsung have agreed on settlement terms that address both companies’ concerns regarding the terms of the contracts.”
Samsung, as you may know, had been making regularly patent license royalty payments to Microsoft that are based on the sales of its Android devices. Android infringes on numerous Microsoft patents and so the firm was able to convince most Android device makers to pay royalties rather than face off in court. But as Samsung became the world’s biggest maker of smart phones, its royalty payments grew bigger and bigger. And by 2013, Samsung’s royalty payments alone had become a billion dollar annual business for Microsoft.
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These ballooning payments were the real cause for Samsung’s sudden change of heart, Microsoft has said. But Samsung provided other reasons.
Samsung didn’t stop making royalty payments until Microsoft announced it would purchase Nokia’s devices and services businesses, in a deal that was consummated in mid-2014. It argued at the time that it no longer needed to pay because Microsoft’s Lumia line “competes directly” with Samsung’s smart phones. As such, it could no longer share certain sensitive information with Microsoft as it had been doing as partners because doing so would, in its words, violate US antitrust laws.
“The agreements were intended to embody a collaboration between a manufacturer and a supplier,” a November 2014 Samsung filing explained. “[But the Nokia acquisition] incentivized Microsoft to promote its own smartphones over those manufactured and sold by Samsung.”
That argument, Microsoft said, was an invention. For starters, antitrust regulators from around the world universally cleared Microsoft’s Nokia purchase, and none found any conflict of interest.
“Even partners sometimes disagree,” Microsoft deputy general counsel David Howard explained in an August 2014 announcement about Microsoft suing Samsung for violating the terms of its patent license. “After spending months trying to resolve our disagreement, Samsung has made clear in a series of letters and discussions that we have a fundamental disagreement as to the meaning of our contract.”
But back to the statement. Microsoft and Samsung say that their secret agreement addresses both companies’ concerns. But that can’t possibly be true: Samsung’s concern was that Microsoft was a direct hardware competitor, and that is not changing.
Microsoft’s concern is of course easily solved if Samsung once again starts paying royalties. But there’s no way to know whether this is happening—though the statement suggests it has—and, if so, the terms of the deal have changed.