Why Microsoft is right to chase Android patent deals

Why Microsoft is right to chase Android patent deals

Summary: Microsoft is not only right to chase companies that use Android and get them to sign patent deals, it has a duty to do so in order to maximize shareholder return.

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TOPICS: Microsoft, Android, Legal
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As Microsoft continues to struggle to gain traction with its Windows Phone platform, Android is proving to be quite a cash cow for the Redmond, Wash.-based software giant, as the company signs more patent licensing agreements with companies that want to use Android.

The latest companies to sign up to Microsoft's intellectual property (IP) licensing program in exchange for being able to use Android without fear of being sued are handheld devices and terminals maker Hoeft & Wessel and Android tablet maker EINS.

While the details of the deals remain confidential, Microsoft admits that in both cases the deal involves Microsoft receiving a royalty. Similar deals that Microsoft has signed with companies such as LG, Samsung, and HTC net it some $15 for every Android device sold.

While on the face of these deals look like a Goliath pushing around the little guy (or, at the very least, smaller Goliaths), and making money off of a platform that, on the face of it, the company has nothing to do with, Microsoft is right to chase Android patent deals.

In fact, it has a duty to do so. Here's the deal.

Microsoft is a publicly held corporation, and like every other publicly held corporation it is beholden to its shareholders to maximize returns, even if this means hiring an army of lawyers and going after companies that it believes owes them money. That's how companies operate.

See alsoBest Android-powered tablets (December 2012 edition)

If Microsoft, or any other company in a similar position, chose not to take steps to maximize shareholder return then the company would be opening itself up to a shareholder lawsuit.

The issue here isn't whether it is fair for Microsoft to do this, or somehow morally or ethically wrong, it is legally sound. It has nothing to do with taking sides or playing fair and everything to do with following the law. Microsoft believes that Android infringes on its intellectual property, and as such Microsoft needs to show its shareholders that it is collecting money owed to it.

For the 2012 fiscal year, it was estimated that Android licensing deals would pull in some $440 million for Microsoft.

When Microsoft, or any other company, approaches another entity with intellectual property infringement claims, things can go one of two ways. The companies can come to an arrangement, as Microsoft has done in this case, or they can duke it out in the courtroom. Deals are preferable because they are quicker, easier, and a lot less painful, but sometimes things end up in the courts and the matter is put in front of a jury to decide what happens.

Forget the fanboys and their pseudo-religious chanting and see these deals for what they really are -- a big corporation maximizing profits and shareholder return.

Topics: Microsoft, Android, Legal

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69 comments
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  • at least

    MS is offering a fair deal where the handset can still be sold, unlike Apple.
    danjames2012
    • Apple came to Sumsung too late

      It has no money anymore to pay to Apple, Microsoft already took everything ...
      Nikolayev
      • Samsung Revenus and Profit

        Revenue US$ 247.5 billion (2011)

        Profit US$ 18.3 billion (2011)

        MS figures:

        Revenue US$ 73.72 billion (2012)

        Profit (or extortion) US$ 16.97 billion (2012)
        Alan Smithie
        • Errr.....

          Can telkl you are not a MIcrosoft fan.
          Look at it from an investors way [assuming you actually have correct figures]: Microsoft makes about 90% of the profit of Samsung with one third the revenue. I think any investor would say that Microsoft is "sound" compared to Samsung.
          Extortion? I'll assume you are a Samsung fan and by extension a Google fan. What did you think Google bought Mot Mob for? Their phones? Nope the patents. So they can "extort" others.
          You use someone's technology, you pay for it. How would you like it if you spent a few million on something you invented only to find that someone else took it as their own and paid you nothing.
          Gisabun
          • Normal

            Samsung sells "stuff" and Microsoft sells "bits." One has materials cost. Samsung is nicely profitable. MS's stock price reflects what investors think about it (flat over five years, including dividends to prop up the price).
            Bo Dangren
  • Microsoft believes that Android infringes on its intellectual property

    That sentence is my biggest issue with the whole thing. Microsoft should KNOW that Android infringes on its intellectual property before it seeks to send out a bill. I don't send a bill out to people who I believe used my services, I send a bill to people who I know have used them.
    Michael Kelly
    • Its been taken to court

      Its been taken to court more than once.... they still collect.... get over it.
      danjames2012
      • It has?

        That's news to me. Do you have a case you can cite?
        Michael Kelly
        • Microsoft vs Barnes and Nobel

          Now it was settled out of court and Microsoft did give money to them, but B & N will pay royalties to MS.

          So if MS's position is weak, then this settlement should cause others to take MS to court. But so far, nobody is willing to challenge MS.

          On the flip side, I read where only 70% of Android handsets sold in the US are bound by royalty agreements to MS, so why hasn't MS gone after the other 30%?
          otaddy
          • Who wants to fight MS's lawyers?

            It's all about who can afford the best lawyers and MS has deep pockets.
            T1Oracle
          • Some very big companies like Northrop Grumman have paid

            you're saying they cant afford good lawyers?
            William Farrel
          • You don't need lawyers

            You just start shooting the kneecaps of anyone who won't pay your protection money. If you're involved in extortion (victim pays or gets violent act inflicted on them) why stop at lawsuits?
            If you read the original article, acting any way other than a total thug leaves you open to a shareholder lawsuit. In fact, if some shareholders are underworld crime bosses, they may be doing this already on your behalf.
            Alan Campbell
          • Sorry, but all of these contracts are settlements out of court

            and that does not convince me. If a bully says give me a quarter every day or I'll beat you up every day and take all of your lunch money, I'm giving him a quarter every day at least until I find enough friends willing to stand up to him.

            I'm not saying that's what is happening, but I can't say MS is doing right or wrong unless they come out and detail the patents in question.
            Michael Kelly
          • otaddy, you got

            some details of the B&N vs Microsoft agreement and you clearly know how much royalties B&N (and others) pay?
            Just want to remind you that MS ended up with $300M of investments and that MS did not prove their case in court. Perhaps, they could, they chose not to and bought B&N out with a strange offer.
            By using the speculative methods you resort to, let's assume MS felt the case to be dead and feared publicity, mostly bad. The negative ruling of the Court was likely and might be devastating to the whole infringement theory of Android and Linux .
            MS would always hold on to the Non-disclosure nature of this. Why would they? Thanks to B&N, some of "patents" got disclosed...
            Lo and behold how ludicrous these patents are!
            eulampius
          • sorry, otaddy

            my apologies it wasn't your post I was referring to.
            Where is that f@*ing edit functionality!
            eulampius
        • Moto Vs. Microsoft on Android devices

          http://www.engadget.com/2012/07/27/microsoft-vs-motorola-decision-sees-droids-banned-in-germany-ov/
          Ram U
          • FAT patents

            are something I seriously question the common sense of, however since these patents were granted I do not blame MS for making the effort to enforce them. I would question why they were granted in the first place, but that's another issue entirely and would get us off topic.

            If FAT patents are the only issue here, then okay I can see the point. But if there is more to it than that, then I will still question the validity of MS charging license fees. I seriously do not think all these companies are resisting before they finally sign because they are trying to save a buck or two, I think they are resisting because they legitimately question whether any patents have been violated. And the secrecy behind all the details of these contracts does nothing but increase my doubts. The lack of openness in the process is the part I object to as a consumer of the products in question.
            Michael Kelly
    • That is a faulty analogy

      "I don't send a bill out to people who I believe used my services, I send a bill to people who I know have used them."

      There is a contract (implied or otherwise) when a service is performed for a fee. You wouldn't provide your services to someone who tells you that they may pay, if they feel like it, maybe.

      There was no contract (implied or otherwise) between any of these manufacturers and Microsoft. This is like a civil lawsuit. You go into that believing that the other party is wrong and then you try to get a settlement, either voluntary or court enforced.
      toddbottom3
      • Should be close to "know"

        Civil plaintiffs should be required to file documentary evidence with the court (including affidavits or depositions from witnesses) sufficient to establish the claims made (what the plaintiff "believes" should be irrelevant); failure to do so should result in dismissal. The defendant should then be able to refute the evidence presented if he can. Making unsubstantiated allegations and then using discovery as a way to dig up dirt on the defendant (ala SCO) should never be permitted.

        That isn't how the system works, but is how it should work.
        John L. Ries
        • Why does it have to be tested in court?

          What if Microsoft's belief is actually a legal slam-dunk and the companies paying the royalties are advised to do so by their own legal teams? The evidence here seems to indicate that would be the case, since some of the payees aren't known for being reluctant in court.
          jvitous