Bad Microsoft Android patents may lie behind Samsung lawsuit

Microsoft's wrestling match with Samsung may just be a contract fight, or it could be the beginning of a war over the validity of Microsoft's Android patents.
Written by Steven Vaughan-Nichols, Senior Contributing Editor

At this point, it's hard to say exactly what's going on in Microsoft's patent contract dispute with Samsung. The two companies may just be fighting out their contract terms or it could be the first shot at Microsoft's Android patent portfolio.

The roots to the contract dispute between Microsoft and Samsung may lie in Microsoft's Android patent claims.

Microsoft's heavily redacted lawsuit was filed on August 1st in the US District Court in the Southern District of New York. In a blog posting by David Howard, Microsoft's Corporate Vice President and Deputy General Counsel, claimed that the two companies have "a fundamental disagreement as to the meaning of our contract."

Specifically, Microsoft claims that since Samsung's Android business has exploded from 82 million Android smartphones in 2011 to 314 million Android smartphones, "Samsung decided late last year to stop complying with its agreement with Microsoft."

This agreement had been the biggest of Microsoft's Android patent wins. These deals may make Microsoft as much as two billion dollars a year, more than five times what Windows Phone brings in.

Howard asserted that Samsung was trying to weasel out of the deal because Microsoft was acquiring the Nokia Devices and Services business. Microsoft also licensed the Nokia patents for 10 years in the same deal.  Nokia also granted Microsoft an option to extend its  patent agreement in perpetuity. 

Samsung also had a patent deal with Nokia. Ironically, that November 2013 deal was heralded as a first-rate example of patent peacemaking.  

Samsung's only public response to date on Microsoft's lawsuit has been a terse comment that the company will "review the complaint in detail and determine appropriate measures in response."

So, what's really going on?

Andrew "Andy" Updegrove, a founding partner of Gesmer Updegrove, a top intellectual property (IP) technology law firm, said that "Since it's a contract dispute rather than an external dispute, it's really not possible to comment without knowing the specifics."

But, Updegrove continued, "One possibility is that it's something of a 'rock/paper/scissors' situation where there's a disagreement over which terms apply now that Microsoft owns both patent portfolios. Under a cross license, you balance the value of the two portfolios and then come up with a net difference in value that results in a payment that flows from the holder of the lesser value portfolio to the greater. So if Nokia struck a better deal for Samsung's patents than Microsoft did, Microsoft would say that they are now gaining access to the patents in question under Nokia's agreement with Samsung rather than their own."

Updegrove believes it possible that "The agreements between Samsung and Nokia, and between Samsung and Microsoft, would have covered Microsoft patents in addition to Nokia patents, and maybe not all of the same Samsung patents. Samsung might be saying it's an apple to an orange, and you can't select which patents you want to handle under one agreement and which under the other."

He predicts that, "At the end of the day, it sounds like a judge or a jury will end up deciding. That's not a job I would envy, given the weeks of highly technical testimony that this would entail if the parties don't settle before going to trial."

There may be another, far more important issue behind the battle between the two companies.

M-Cam, a global financial institution that advises corporations and investors on corporate finance and asset allocation by underwriting IP and intangible assets (IA), thinks that "Microsoft's acquisition of Nokia's patent portfolio may be more redundant than additive to its own."

M-Cam's analysts found that "Nearly 20 percent of Microsoft’s patent portfolio either coincides with or is subsequent to Nokia’s patents on similar technologies." Indeed, M-Com speculated that Microsoft may have reverse-engineered that 20 percent of Nokia's patents in its own patents.

This, in turn, calls into question the validity of the patents within both patent portfolios.

M-Cam's earlier analysis of Microsoft's recently revealed Android patent portfolio, showed that only "one fifth of [Microsoft's "Android" patent] portfolio was commercially relevant, casting doubt on the overall viability of the Microsoft licensing packages." Samsung may be gearing up to challenge Microsoft's Android patent portfolio directly.

Pamela Jones, paralegal and founder of Groklaw, the well-known IP legal news site, said in an e-mail interview that, "We may be beginning to see what M-Cam's recent analysis suggested, a backlash against Microsoft for claiming Android supposedly infringes Microsoft patents. The curtain has been pulled aside, and now signers-up for licenses may be feeling a measure of anger, after the Chinese revealed the questionable merit of Microsoft's claims. I mean, did you see any patents in that collection that are Android-specific?"

Jones concluded, "So it could be Samsung wants out and their lawyers may view the contract as giving them a way that is easier to pursue and prevail with than any other strategy. But that's just my guess from the limited information currently available. We'll learn more if the case continues into the discovery phase."

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