Microsoft filed a business collaboration agreement lawsuit against Samsung back in August of this year in New York’s Southern District Court because the Korean manufacturer failed to pay its cross-licensing royalty payment on time last Fall. Whenever a payment isn’t made on time (as loan borrowers will know), interest fees are attached. Since Samsung didn’t pay its royalty fees on time, Microsoft attached a certain amount of additional interest to the cross-licensing fees that Samsung had already neglected.
At the time of the Microsoft filing in August, we didn’t have any official numbers to report – as they were blacked out on a number of official documents released across the Web. Now, however, it seems that we’ve gotten our hands on both the royalty payment amount as well as the interest payment. In 2013, Samsung owed Microsoft a total of $1.042 billion in cross-licensing royalty fees. To make matters worse, the interest due on the late payment comes out to around $6.9 million dollars.
The issue surrounding Microsoft and Samsung, as is the case with all business collaboration agreement lawsuits, involves technology and politics. Simply put, Microsoft’s research is responsible for a large portion of the technology used in Samsung devices that run Google’s Android operating system. Long before Android came along, Microsoft was responsible for what many believed to be cutting-edge technology in mobile devices.
Samsung and Microsoft struck a deal to which Samsung agreed to pay cross-licensing fees to Microsoft in exchange for the ability to use Microsoft’s technology in its devices. As of last August, Samsung decided to miss a payment – leading Microsoft, under the terms of the contract, to take Samsung to court.
Samsung has a reason of its own as to why it decided not to meet the terms of its contract with Microsoft and pay the fee: Microsoft’s Nokia mobile division acquisition supposedly breached the contract, according to Samsung. At the same time, however, there is no document that can be found to validate Samsung’s claim, nor is there any statement in any document that excuses Samsung from its financial obligation.
According to Microsoft, Samsung’s rise in the Android world since the agreement was signed between both itself and Samsung back in 2011 has nearly quadrupled: in 2011, Samsung shipped 82 million smartphones; today, the company now ships 314 million a year. With an unprecedented success, Samsung decided to “flex its muscles” and forgo the payment. Samsung did pay up the $1 billion last November, however, but it’s the $6.9 million in late-payment interest fees that Samsung has yet to pay – along with its new payment from June 2014 that’s not yet due to Microsoft.
“In September 2013, after Microsoft announced it was acquiring the Nokia Devices and Services business, Samsung began using the acquisition as an excuse to breach its contract. Curiously, Samsung didn’t ask the court to decide whether the Nokia acquisition invalidated its contract with Microsoft, likely because it knew its position was meritless,” Microsoft Corporate Vice President and Deputy General Counsel David Howard wrote in August.
Samsung is only one of approximately 20 Android manufacturers that owe royalty fees to Microsoft, but it happens to sit at the top of the list as the largest Android OEM in the world. Samsung sold 287 million smartphones running Android and 37 million tablets; Microsoft makes $3.21 on each Samsung device that runs Google’s Android OS. Aside from the dollar amounts Microsoft intends to make from this financial agreement, we’ve also learned that Samsung sees Microsoft’s Nokia division acquisition as a threat and decided that the acquisition freed Samsung from the original 2011 agreement.
This isn’t the first time we’ve seen Samsung throw its weight around in the mobile sector. Sources say that Samsung’s talks with Google at Mobile World Congress back in February of this year showed that the company also viewed Google’s ownership of Motorola as a threat and forced Google to give up the company in its partnership agreement with Samsung.
After seeing Samsung’s 2014 NotePRO and TabPRO tablets, Google mandated talks with Samsung because the search engine giant believed its Play Store and services were deemed of secondary importance to Samsung’s own apps and services – basically, Google felt as though part of Samsung’s deal to have full Google access on its devices consists of Samsung promoting Google at every turn. This may explain why Samsung toned down the number of new features it placed into the Galaxy S5 and Note 4 experiences this year.
Motorola’s Moto X offering hasn’t been a threat, either this year or last year, the numbers show, making Samsung’s rumored Motorola sale request to Google unnecessary, but Samsung’s latest arm-wrestle with Microsoft shows that there’s more to staying at the top of Android than just selling good products with top-of-the-line specs.
Samsung has also been having a rough year, with sales of its Galaxy S5 taking off in excellent fashion (11 million in the first month) before slowing down dramatically. Some company executives turned in large portions of their bonuses as a way to ease the minds of investors, and Q3 2014 doesn’t look to be any better than Q2 was for the company. Samsung’s not in the same boat as HTC and Sony, of course, but the company is having a hard year with competition from Chinese manufacturers such Xiaomi and Meizu, among others, who are selling top-specced smartphones at half the price (or less) than low-range Samsung handsets.
The failure to pay the its cross-licensing interest payment may have something to do with Samsung’s slowing financial sales, but we hope the company does make the payment to Microsoft as promised. Samsung, you’re the leader in innovation; now lead by example in your financial obligations.