Microsoft, Samsung, And Expensive Free Software

In a world where Windows is cheaper than free software, things get weird.

Microsoft and Samsung are currently locked in a public pissing match over royalties. Samsung previously agreed to pay Microsoft for use of the software company’s intellectual property relating to the South Korean firm’s sale of Android-based devices.

Samsung, like a host of other Android OEMs, pays Microsoft dollars for what the software company views as stepping on its intellectual properties’ toes. However, unlike other Android OEMs, Samsung stopped sending checks.

According to Microsoft, Samsung decided that it didn’t have to follow the contract it signed in 2011 after Microsoft announced its intention to buy Nokia’s hardware assets. It vigorously pushes back against the idea in its suit, going on to claim that Samsung is “attempting to convert a commercial contract dispute governed by U.S. law into a Korean regulatory issue.”

Samsung, according to Microsoft, has asked “Korean competition authorities to change the parties’ private contract by reducing or eliminating Samsung’s contractually-mandated Android patent royalty payments for Microsoft’s patents.” Microsoft claims that “almost all” the patents in question were “granted by countries other than Korea,” making Samsung’s appeal to Korean authorities off-kilter to Microsoft.

Since we can’t read the contract in question, and Microsoft’s filed suit is heavily redacted, it’s hard to parse who is right in the case, but it does seem to be a case in which there will be a clear winner: If Microsoft broke the terms of the agreement with its large purchase of Nokia assets, Samsung will likely win. If it didn’t, Samsung likely won’t.

(There is obviously more to this than Microsoft’s own accounting. I reached out to Samsung with a few questions relating to the lawsuit, but the company didn’t provide comment further than saying that it “will review the complaint in detail and determine appropriate measures in response.”)

This was all brought around for me today when Re/Code’s Ina Fried pointed out that if Samsung manages to win the suit, it could unlock other Android OEMs — perhaps — from their deals. There’s a lot of nuance to that point, but it remains an interesting potentiality. It isn’t clear, for example, if other Android OEM contracts that Microsoft has signed contain what the terms that Samsung feels grant it freedom from its agreement — if they do, and Samsung wins, the response could be swift and uniform.

Free Windows And Paid Android

Component to the above muddle is the fact that for smaller devices — including Windows Phone units — the relevant Microsoft operating system is now free. As it’s been pointed out again and again, for OEMs, Windows is now the cheaper platform than Android: Mobile OEMs pay Microsoft to use Android, but they don’t pay Microsoft to use Windows.

Silly stuff, really.

Losing Android fees would be difficult for Microsoft. Not only would Microsoft take a revenue impairment, it would remove the cost of Android, nixing an advantage for Windows Phone. In an era in which Android is quickly becoming the de facto mobile operating system, Microsoft doesn’t want to give up any edge.

The other side of that coin is the simple argument that Microsoft’s cost advantage over Android has hardly led to a stampede of OEMs coming to its corner, or lots of new market share. Both remain theoretical future events.

All of that is merely part of Microsoft’s larger fears. The loss of Android revenue would sting, and the loss of a booster seat for Windows Phone would be difficult, but Microsoft frames its argument in broader terms, looping in its full IP stack as under assault:

6. Microsoft’s continued success depends in substantial part on its ability to maintain and protect the proprietary technology it creates through its investments in research and development. It has developed innovative licensing programs whereby competitors and others may license Microsoft’s patent-protected technology in return for royalty payments, other consideration, or both.

7. One such program is the Android patent licensing program. Android, which is operating system software designed for mobile devices, infringes many Microsoft patents that were obtained by Microsoft in the United States and elsewhere well before Android was launched. Rather than exercise its legal right to exclude Android-based devices from practicing that technology, Microsoft licenses its patent portfolio to companies that utilize Android, including Samsung — the world’s largest producer of Android-based smartphones and tablets.

The crux is simple: Microsoft’s contention that its larger intellectual property business is at risk only makes sense if it is not at fault in the case, which is to say that it didn’t break the terms of the Samsung deal by buying Nokia’s hardware assets, and that Samsung’s actions will be upheld by the court. Only under those circumstances is Microsoft’s ability to derive revenue from its expensively accumulated intellectual property under threat.

Either way, the case matters and there are more eyes on it than just those of Samsung and Microsoft.