August 1, 2014 10:51 pm

Microsoft files legal complaint against Samsung

A man is silhouetted against a video screen with as he poses with a Nokia Lumia 820 smartphone in this photo illustration taken in the central Bosnian town of Zenica, September 3, 2013. Two years after hitching its fate to Microsoft's Windows Phone software, a withered Nokia collapsed into the arms of the U.S. software giant, agreeing to sell its main handset business for 5.44 billion euros ($7.2 billion). Nokia, which will continue as a maker of networking equipment and holder of patents, was once the world's dominant handset manufacturer but was long since overtaken by Apple and Samsung in the highly competitive market for more powerful smartphones. REUTERS/Dado Ruvic (BOSNIA AND HERZEGOVINA - Tags: BUSINESS TELECOMS TPX IMAGES OF THE DAY) - RTX135K5©Reuters

Microsoft took steps on Friday to protect the multibillion-dollar stream of royalties it earns on the back of Google’s Android operating system, filing a legal complaint in the US to force Samsung to continue making payments.

The US software company said that Samsung, the largest maker of Android handsets, had claimed that a licensing agreement between the two was no longer effective because of Microsoft’s acquisition earlier this year of the Nokia handset business.

In a complaint filed in Federal court in Manhattan late on Friday, Microsoft asked a judge to confirm that the licence was still in force.

Samsung issued a statement saying it would “review the complaint in detail and determine appropriate measures in response.”

Samsung and Microsoft reached a landmark cross-licensing deal in 2011 giving the companies access to each other’s patents, with Samsung also paying a royalty for each smartphone it sells with the Android operating system. Microsoft, which has forced other Android handset makers to sign similar deals, claims that Google’s open-source operating system includes much of its own intellectual property.

The South Korean company has never disclosed how much it pays, though reports at the time of the agreement put the royalties at between $10-15 a handset. Since then, Samsung’s handset sales have exploded, reaching 312m last year, according to industry research quoted by Microsoft, and potentially leaving it with a bill of more than $3bn a year.

David Howard, Microsoft’s deputy general counsel, suggested that it was the scale of the payments that had led Samsung to try to renegotiate. “Samsung predicted it would be successful, but no one imagined their Android smartphone sales would increase this much,” he wrote in a blog post on Friday.

The Microsoft licence fees have become an increasingly significant cost to Android manufacturers like Samsung as the price of handsets have fallen, with new low-cost competitors driving prices down below $100. Samsung’s overall share of the smartphone market has slumped in the face of the new competition, falling to 25 per cent in the second quarter of this year compared to 32 per cent the year before, according to IDC.

Google itself does not charge royalties for the use of Android but requires handset makers to incorporate its search and other services if they want to use the “official” version of the software.

According to the Microsoft complaint, Samsung has claimed that the purchase of Nokia has fundamentally changed the relationship between the two companies, requiring Microsoft to agree new terms to cover its sales of Nokia devices and freeing Samsung from its previous royalty commitments.

The legal tussle marks the first time that Microsoft has resorted to court in a smartphone patent dispute since it sued Motorola in 2010. Since then it has largely avoided the smartphone industry’s patent battles, negotiating licensing deals instead to settle disputes, like the one with Samsung.

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