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Microsoft Scores With Samsung Royalty Deal

Stocks in this article: MSFT GOOG MMI

Microsoft (MSFT) has scored a notable victory in the smartphone patent wars, persuading Samsung to pay it royalties for every handset the South Korean company sells that runs on Google's (GOOG) Android operating system.

The agreement, announced on Wednesday, will make the U.S. software company a significant financial beneficiary of Google's success with Android, while also helping to give a boost to its own, belated efforts to catch up in smartphone software.

Samsung's willingness to pay royalties to Microsoft -- which claims that Android infringes on some of its own intellectual property rights -- also raised a question about the effectiveness of Google's efforts to provide legal protection to Android hardware makers. The Internet company has said that its planned $12.5 billion acquisition of Motorola Mobility (MMI) was launched mainly to bring it patents that could shield the Android ecosystem from legal challenge.

Coming just weeks after the Motorola deal was announced, the Samsung licensing deal appeared to indicate that Google will still not be able to offer full cover to hardware makers who use its free, open-source operating system.

"If companies of this stature are not persuaded that Google's patent issues are going away, no one is likely to be," said Brad Smith, Microsoft's general counsel.

In a statement attacking Microsoft's broader legal campaign against Android, Google said: "Failing to succeed in the smartphone market, they are resorting to legal measures to extort profit from others' achievements and hinder the pace of innovation."

The scale of the royalty payments was not disclosed, although Microsoft secured a $5 per handset payment from HTC in a separate licensing agreement with the Taiwanese handset maker last year, according to a person familiar with the earlier deal. The Samsung agreement matched Microsoft's aim of securing "clear, reasonable and consistent per-unit royalties" from Android manufacturers, Smith said.

Both deals resulted from negotiations and did not involve Microsoft filing lawsuits to assert its rights, although it has filed patent claims against other Android hardware makers, including Motorola.

During the past year, Samsung and HTC have accounted for more than half of the Android handsets sold in the U.S., the biggest market for the technology, according to Microsoft. The software company has also reached agreements with six smaller Android hardware makers in recent weeks.

Android has become the leading smartphone software and tech research firm IDC predicts that some 430 million Android handsets will be sold annually by 2015, potentially bringing a big financial windfall to Microsoft. In addition, the software company has sought royalties for the use of Google's software in tablets and e-readers.

Wednesday's move was part of a broader agreement with Samsung that will see Microsoft also agree to license Samsung's technology and build a closer relationship between the two companies to support Windows software on mobile handsets, the U.S. company said.


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