Since August 2014, the two technology giants Microsoft and Samsung have been battling it out in court over unpaid royalties. However, on Feb. 10 they announced that they had come to an agreement and that the dispute was over.
Since 2011, Microsoft and Samsung have had a contract stating that Microsoft would provide patents to Samsung; Samsung would pay them royalties in return. Last year Microsoft filed suit in New York, claiming that it had not been paid what it was owed. Microsoft claimed that Samsung owed the company $6.9 million in interest on the $1 billion in royalties with which it was late.
Samsung is a multinational conglomerate company headquartered in Seoul, South Korea. It invests in many different areas including construction, shipbuilding and life insurance, but it is most well-known today as a seller of smartphones, tablets and TVs. It has been the world’s largest mobile phone provider since 2011, the year of its agreement with Microsoft. In terms of phones, it is probably most known for its Samsung Galaxy line, which has proven to be incredibly popular. Since 2006, Samsung has been the world’s largest TV seller as well.
Samsung has become a large company, but it has a lot of growing to do before it catches up to Microsoft. Microsoft was founded in 1975 and quickly grew with a series of operating systems, the most famous of which is, of course, Microsoft Windows.
Today, it is considered one of the most valuable companies in the world. Since the ‘90s, it has started diversifying its holdings, for example, by acquiring Skype in 2011. Recently, as its partnership with Samsung reflects, Microsoft has started getting into the smartphone industry, especially with its creation and promotion of Windows phones.
The current lawsuit claimed that Samsung refused to pay interest on payments that were late, while at the same time threatening to stop future payments. Furthermore, Microsoft alleged that Samsung had asked Korean courts to release Samsung from their contract. Microsoft claims that even if Korean authorities did give Samsung permission, such permission would not be legal.
Microsoft also claimed that Samsung referred to Microsoft’s purchase of Nokia as a breach of their contract. In April of 2014, Microsoft finalized the purchase of Nokia, another smartphone company. They bought the company for $7.2 billion. Since then, Nokia phones and tablets are sold as a subdivision of Microsoft.
David Howard, the corporate vice president and deputy general counsel of Microsoft, pointed out in a blog post on Aug. 1 that if Samsung felt that the purchase of Nokia was truly a breach of contract, then they should have taken it to court. The fact that they didn’t, Howard claimed, is evidence that they know it isn’t true.
However, in October of 2014 Samsung filed paperwork claiming that once Microsoft bought Nokia, its arrangement with Samsung breached antitrust regulations. As part of its agreement with Microsoft, Samsung agreed to share confidential business information and promote the Windows operating system. In exchange for Samsung selling a certain number of Windows phones, Microsoft would give it a discount on the royalty payments. Once Microsoft bought Nokia, it became a competitor of Samsung with which Samsung was still sharing information. However, antitrust regulators in the U.S. have stated that Microsoft’s acquisition of Nokia was not a problem.
In the same blog post, Howard also implied that Samsung wanted to stop royalty payments simply because the business was unhappy with how high they have gotten. In 2011, Samsung shipped 82 million Android phones worldwide. In 2014, that number had jumped to 314 million. With its success, Samsung’s payments to Microsoft have presumably also grown.
Microsoft has been focusing on making Windows phones a larger part of the international smartphone business. However, despite this fact and also that the Android platform was created by Google, Microsoft does own several patents related to Android technology, which they provide to many different smartphone manufacturers. Last year, Android phones made up 80 percent of the global market, while Windows phones only made up three to five percent.
Unsurprisingly, many of the details of the suit remain unknown, as does the agreement to which Microsoft and Samsung came. In October, some of the lawsuit was unsealed and more details were made available. In 2013, the year that the case revolves around, Samsung calculated that it owed Microsoft $1,041,642,161.25. Microsoft agreed to this amount. Based on analysts’ guesses that Samsung sold 265 million smartphones and 40 million tablets that year, Forbes Contributor Ewan Spence calculated that Microsoft’s royalty payment comes out to about $3.41 per device.
Michael Ender, an associate editor for InformationWeek, has suggested that this suit was particularly important to Microsoft because if they lost, it could have set a very bad precedent. If Samsung could get out of its contract with Microsoft, many of the other companies Microsoft offers patents to may have been able to get out of contracts as well. No one knows precisely how much money Microsoft makes from its licensing agreements with Android makers, but experts believe that Microsoft could have seen billions of dollars in losses.
Both companies posted the same statement on their blogs on Feb. 9. Howard and Jaewan Chi, the executive vice president of Samsung, released a joint statement saying that they have ended their contract dispute, but all details are confidential.
