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You won't hear Steve Ballmer say "I love this DEAL!" but Samsung's agreement to pay licensing fees is a big win

"Under my thumb
The girl who once had me down
Under my thumb
The girl who once pushed me around."

-- Mick Jagger and Keith Richards of The Rolling Stones, 1966

The iconic track by The Rolling Stones comes to mind as news of Microsoft Corp.'s (MSFT) new licensing deal with Samsung Electronics Comp., Ltd. (SEO 005930) broke today.  After all, Samsung is top seller of smart phones powered by Google Inc.'s (GOOG) Android OS, which quite literally has Microsoft's Windows Phone 7 smart phone OS down in sales.

But as much as Android has pushed Microsoft around in the market, Microsoft now has Android exact where it wants it -- under its thumb.  It announced [press release] today that after negotiations, Samsung had agreed to enter an intellectual-property cross-licensing agreement.

The old saying goes "you'll attract more flies with honey than vinegar".  While Microsoft's licensing pressure might not seem so sweet to some, it's at least a gentler approach than Apple, Inc. (AAPL), which has sued [1][2][3][4][5][6][7][8] the top three Android manufacturers (Samsung, HTC Corp. (SEO:066570), and recent Google acquisition Motorola) seeking to ban their handsets sales with nary a mention of a licensing settlement.

Indeed Microsoft's approach won over HTC, who was facing a lawsuit from Apple at the time, and now has won over Samsung, the fastest growing handset maker on the market, and the top maker of Android smart phones.

Reportedly the HTC deal was worth $10 USD per handset sold.  For the Samsung deal Microsoft reportedly offered a $15 USD per handset fee, while Samsung countered with a $10 USD per handset fee.  It seems likely that the pair met in the middle with a $12-13 fee.

Samsung and HTC both make Windows Phone 7 handsets, though, those devices haven't sold anywhere near the number of units as their flagship Android devices.

Of Android's "big three", only Google subsidiary Motorola remains without a licensing deal for Microsoft's intellectual property.  The Wall Street Journal is reporting that Microsoft used the announcement as a chance to issue a request/threat to Google/Motorola pressuring it to license.

For Google the situation could be worse.  It still will likely be able to turn a profit on its handsets and it will be free to focus on Android's other legal foes like Oracle Corp. (ORCL) (who is suing Google for Android's use of Java) and Apple.  But it's also not a very pleasant situation as Microsoft's licensing fees tack between $10 and $15 in additional costs onto each handset sold.  Those costs make Google's platform less attractive and competitive offerings more attractive.

Microsoft's Windows Phone Division President, Andy Lees, gushed about the deal, commenting, "Microsoft and Samsung see the opportunity for dramatic growth in Windows Phone and we’re investing to make that a reality. Microsoft believes in a model where all our partners can grow and profit based on our platform."

And Samsung tried to spin the news enthusiastically, with Samsung mobile devices global marketing VP Dr. Won-Pyo Hong remarking, "Through the cross-licensing of our respective patent portfolios, Samsung and Microsoft can continue to bring the latest innovations to the mobile industry. We are pleased to build upon our long history of working together to open a new chapter of collaboration beginning with our Windows Phone "Mango" launch this fall."

However, make no mistake, Microsoft is the winner here, and at the end of the day Google, and to a lesser extent, Samsung, are the losers.  Sure Microsoft would love Windows Phone 7 to be the kind of ringing success it thus far hasn't been.  That would give it all sorts of auxiliary revenue streams -- say from data mining and app sales.  But at the end of the day Android succeeding is almost as valuable to Microsoft, as it will get a sweet licensing cut of virtually every Android device sold -- without having to go to the hassle and expense of actually designing, advertising, and selling the product.

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What IP are they using of MS's?
By gwem557 on 9/28/2011 3:54:59 PM , Rating: 3
I don't understand the hold Microsoft has here -- what are the phone makers using that MS owns the patent to?

RE: What IP are they using of MS's?
By cjohnson2136 on 9/28/2011 3:58:12 PM , Rating: 3
I am kind of curious too because Microsoft being a software company, I wouldn't imagine having a lot of hardware patents. If it is a software patent then wouldn't Microsoft take this to Google?

RE: What IP are they using of MS's?
By Da W on 9/28/2011 4:03:30 PM , Rating: 4
Icons, OS, memory management, power management, GPU usage, they DO have patents on hardware too, who knows, they got a gazillion patents on everything tech. Most of them might have no value, but you will never know that unless you challenge them in court. Hence the merit of Microsoft strategy. Plus they enter into cross-liscencing deal, meaning HTC/Samsung/other won't sue back Microsoft eventually.

RE: What IP are they using of MS's?
By cjohnson2136 on 9/28/2011 4:05:58 PM , Rating: 2
Hmmm the stuff you mentions makes sense I just figured some of that stuff would deal more with Android and not the phone makers. To bad they won't tell which patents were used to push this cross-license

RE: What IP are they using of MS's?
By Reclaimer77 on 9/28/2011 4:16:46 PM , Rating: 4
To bad they won't tell which patents were used to push this cross-license

Actually if you think about it, that's another brilliant move. While Apple is running around blasting to the world exactly how to avoid patent disputes with them, Microsoft was way more subtle and opportunistic. Whatever these 7 patents are that Google infringed on, they must be very specific and key to the operation of the Android platform. Not broad and generic like Apple's claims. And Microsoft is being very tight lipped about the whole thing because, well, that's just smarter. They wait for you to screw up, and come to you with a deal that everyone can live with and makes them a lot of money.

I just LOVE that his was handled out of court, like men. I'm so sick of the soap opera that is Apple vs The World.

RE: What IP are they using of MS's?
By quiksilvr on 9/28/11, Rating: 0
RE: What IP are they using of MS's?
By ipay on 9/28/2011 7:53:07 PM , Rating: 2
WP7 is licensed for $15 per handset, so Android is still slightly cheaper. At least, if that's all the licensing costs they have - if they end up sending another 5-10 to Apple after all the lawsuits settle it could end up being more expensive.

By PrezWeezy on 9/28/2011 6:17:12 PM , Rating: 5
Because Android is open source the phone makers do not have an agreement with Google which includes an indemnification clause. In infringement you can be held accountable even if you are using someone else's software which infringes upon the holders IP. An indemnification clause in the license agreement means that the maker of the software will take full accountability. So without that, anyone who uses Android and implements the questioned features can be sued for it. That is the reason why when you get an Enterprise License agreement from Microsoft that clause is included. Otherwise large corporate users who install Windows could be sued for any patent Microsoft is accused of infringing upon.

By Darksurf on 10/3/2011 12:01:43 PM , Rating: 2
You'd think this stuff was all common knowledge or tech by now. These patents should be removed as all they do is hinder tech growth. I hate patents! They were intended to provide security to the little man from the big corporations.

Now all it really is, is a way for big corporations to rape each other. It has become an exploited tool that is now doing the opposite of what it was intended for.

RE: What IP are they using of MS's?
By JasonMick on 9/28/2011 3:58:56 PM , Rating: 2
I don't understand the hold Microsoft has here -- what are the phone makers using that MS owns the patent to?

That's the really funny thing -- Microsoft and the Android phonemakers have never revealed what patent(s) exactly Microsoft is using to leverage these forced licensing arrangement. They must be pretty good, otherwise Samsung would likely have fought it as it did Apple's patents.

It could get interesting if Google/Motorola continue to refuse licensing. That could force Microsoft's hand to sue, which in turn would reveal what the patents in question are.

RE: What IP are they using of MS's?
By gregpxc on 9/28/2011 4:35:33 PM , Rating: 3
Like someone else said above me, Microsoft isn't blowing infringements drastically out of proportion (which I'm sure they own enough to do so if they so choose). And to be quite honest, I don't think many companies would push back against Windows. Whether they like it or not, Windows and Microsoft make them money all the time, not just in the mobile world, so making Microsoft angry with them would surely be a step in the wrong direction. It's almost like they're forced to give in to Microsoft because of how much power they have in these companies. They rarely ask much of companies and when they do it's a respectable amount, unlike Apple who is simply trying to shut people down for the most ridiculous of things.

RE: What IP are they using of MS's?
By ipay on 9/28/2011 7:46:06 PM , Rating: 4
FAT filesystem is probably one. I'm pretty sure phones still use that for removable storage and MS has sued over it before.

RE: What IP are they using of MS's?
By nafhan on 9/29/2011 8:35:58 AM , Rating: 2
Yep. Most phones do use it. The funny part? Compatibility with Windows is really the only reason to use FAT...

RE: What IP are they using of MS's?
By Jaybus on 9/29/2011 4:40:30 PM , Rating: 2
I suspect FAT is a huge part of their case. It also explains why this is happening now, as opposed to a few years ago. Most of the patents having to do with FAT were issued in the mid 1990's, so will be expiring over the next few years. So the Android phone makers will pay licensing for a couple or three years and then renegotiate when FAT patents expire.

By fteoath64 on 9/29/2011 4:45:53 AM , Rating: 1
"It could get interesting if Google/Motorola continue to refuse licensing. That could force Microsoft's hand to sue, which in turn would reveal what the patents in question are."

MS would not dare because it would EXPOSE their scam in this bluff. If they did, they would likely lose and exposed court records will still expose the scam. Why would people do business with a company behaving like this ?. There are plenty of Open Source sw to be used out there, MS never did try to sue Linux Foundation before. And would Apple try have bounded by BSD license in OSX ?.

RE: What IP are they using of MS's?
By Reclaimer77 on 9/28/2011 4:04:38 PM , Rating: 5
Microsoft is essentially leasing to HTC and Samsung the use of their patent portfolio. Specifically the 7 Microsoft owned patents that pertains to the Android operating system.

In other words instead of lashing out like a spoiled redheaded brat (Apple), Microsoft decided to spare the court system of this silliness and make a bunch of money to boot.

This is an example of how business SHOULD be done. Probably why the whole world runs on Microsoft and Apple subsists on consumer toys.

RE: What IP are they using of MS's?
By gwem557 on 9/28/2011 4:07:02 PM , Rating: 4
This is an example of how business SHOULD be done. Probably why the whole world runs on Microsoft and Apple subsists on consumer toys.

Oh geez. This'll have Swashtika up in arms.

By cjohnson2136 on 9/28/2011 4:07:54 PM , Rating: 4
Who cares about the Swashbuckler

RE: What IP are they using of MS's?
By Reclaimer77 on 9/28/2011 4:10:20 PM , Rating: 4
Oh geez. This'll have Swashtika up in arms.

How much you wanna bet him or MacDevDipsh#t will try to counter with Apples "market cap"? lol.

RE: What IP are they using of MS's?
By cjohnson2136 on 9/28/2011 4:11:41 PM , Rating: 3
I won't take that bet because I know you are right. Swashie will probably also try to explain how MSFT is using a dying business model and will go out of business.

RE: What IP are they using of MS's?
By Reclaimer77 on 9/28/2011 4:23:59 PM , Rating: 2
Ahaha yeah. Because you know, smartphones and tablets represent a "paradigm shift" in the way the world works, and Apple is taking the lead!!! Microsoft "failed" and now they are spiraling down the drain.

That sound close enough?

By cjohnson2136 on 9/29/2011 11:38:00 AM , Rating: 2
That sounds dead on

RE: What IP are they using of MS's?
By Pirks on 9/29/2011 11:52:26 AM , Rating: 1
Apple grew past MS even profit and revenue wise, so yeah, there's something behind Swash words, something called Big Money. I wouldn't care about Swash just like you guys do but his words are supported by Big Money that Apple makes these days. You do not want to argue with Big Money, do ya guys? That'd look stupid to me. Arguing with Swash does not look stupid, but arguing with Apple's profits and revenues that surpassed even MS's... that's err... not very smart, to say politely. Money talks, you know.

And I'm not talking about market cap here. Just revenues, profits and cash reserves. By all three metrics Apple has beaten MS and the gap between them continues to grow. Not a good sign for MS, IMHO.

Apple's outlandish market cap is just an insult added to the injury. It's like spitting on the body of your fallen enemy. Enemy doesn't care, it won't hurt but ewww it looks nasty :(

RE: What IP are they using of MS's?
By bennyg on 9/30/2011 2:46:50 AM , Rating: 2
While you can't pirate an iPod/Phone/Pad and therefore can charge whatever you want, most people will eventually get sick of toys and gimmicks. However every computer still needs an OS. Plus Microsoft kicked a massive own goal with Vista which meant the world was pirating XP for 5 extra years.

Post-Iphone 4S/5 sillyness and hysteria, I'd be selling off Apple shares if I had any, their market cap is wildly overvalued and they are the kind of stocks that get pummelled as soon as real panic starts (see Tech Wreck). I'm not sure their market penetration is as solid as everyone thinks (especially since their R&D budget seems to be spent on nothing but lawyers of late)

But then again I was saying in 2001 there was gonna be a widespread revaluation and it took a fair while to happen. So, meh.

RE: What IP are they using of MS's?
By Pirks on 9/30/2011 10:18:18 AM , Rating: 2
I'd be selling off Apple shares if I had any, their market cap is wildly overvalued and they are the kind of stocks that get pummeled as soon as real panic starts
The Techie Apple Conundrum (TAC)

The TAC arises often on sites such as Daily Tech because the attraction of Apple products, and hence Apple's huge success as a company, is dependent on features and aspects of product design invisible to almost all Techies. Thus Apples success is mysterious, vexing and ultimately challenging.

Techies for example often focus on feature lists and technical specifications and compare one such list to another and look at comparative prices and cannot understand that someone would pay more for an "inferior" spec.

This of course misses a critical aspect of Apple product design, one of the keys to the success of Apple in the consumer market, which is that for many (perhaps most) consumers having fewer technical features is a positive thing. This seems paradoxical to Techies but this is because they fail to comprehend what the actual experience for the vast majority of consumers of hi-tech products actually is - which is bad.

Consumers constantly encounter products that don't work as advertised, products that squeeze so many functions into an item that using it for its main purposes is dreadfully complex, products that even when their function should be simple (i.e. to play music, to play a DVD, to surf the web, to write emails) require a thick user manual (many of which which are often written by engineers and are thus unhelpful).

Most hi-tec products are user-unfriendly for most consumers. But not to Techies because they have technical knowledge and so can cope with poor/arcane design. In fact Techies like such products because they find technical challenges fun and because it makes them useful (they are always helping people solve their technical problems) and thus boosts their self esteem.

Some kit, almost all non-Apple desktop computers for example, are not just difficult and poorly designed but are positively scary for almost all consumers. Many non-Apple desktop computers seem very complex to operate, go wrong for no clearly understood reasons and worst of all seem to be under constant attack. Watching someone move from a non-Apple desktop computer to a Mac you can often see them slowly losing their awful, and most of the times paralysing, fear of infection and attack. As the fear fades the pleasure of using their computer increases dramatically and people start to love their computers rather than secretly hating them. Thus another mac-head is born.

The emblematic product for TAC is the iPad. Here is a product that comes on instantly, looks and feels gorgeous, feels fast, is easy to operate and does (in a fantastically convenient form factor) most of what most people do most of the time on their computer (ie browse the web, send emails, watch movies, read stuff and look at and share photos). Plus it has two huge benefits for most consumers. First it doesn't feel like a computer - this is a good thing for most people because most people's experience of using computers has been bad. Secondly it feels very safe because of Apple's curated computing model, and most users of computers have previously felt unsafe most of the time.

The very reasons that make the iPad such a huge success are the very reasons that Techies don't get it. If one product above all induces TAC its the iPad. Techies say "but Apple has an iron grip and is killing our freedoms" (people want safety much more than some obscure technical freedom), "the iPad doesn't have [insert any number of features that consumers don't care about]", "its not a real computer" (exactly).

So the continuing, relentless and accelerating success of Apple seems almost inexplicable to most Techies, "how could such products be so successful?"

The answer Techies come up are fairly predictable:

- Apple's voodoo marketing: Apple is pulling the wool over the consumer eyes (sometimes this is blamed on media hype).

- Apple's evil lock in: Apple has a locked down and closed platform, once sucked in people can't leave.

- Apple consumers and users are idiots: Fooled by marketing and glitzy packaging the sheep can be sold everything.

Because Techies believe that these are the real reason people buy Apple products (other than the more obvious reason which is that consumers actually like them a lot) Techies also believe that this state of affairs cannot possibly last and therefore the final piece of the Techie response to Apple falls into place. Deranged by TAC Techies often come up with the most delusional statement of all - Apple is doomed .

(C) Tony Swash, June 2010

Reprinted here from the Daily Tech post at without the author's permission.

By chuckecheeze on 10/16/2011 4:17:04 AM , Rating: 2
This is why their devices should ditch any microsoft windows compatibility crap. This is microsoft engaging in rackeetering.

RE: What IP are they using of MS's?
By Murst on 9/28/2011 4:06:44 PM , Rating: 3
Whatever Microsoft has, it is good enough to prevent Google from indemnifying their OEMs. If Google was sure there was nothing that was infringing, or it wanted to fully protect their OEMs, it would indemnify them when they use Android. The OEMs see that Google isn't willing to go that far, so they have to watch out for themselves and pay these fees.

If Google really wants to be in mobile what Microsoft is in desktop, they will have to protect their OEMs, just like MS does.

By Aloonatic on 9/28/2011 4:12:36 PM , Rating: 2
Well, if you think about it, MS must hold a lot of patents and IP in this area.

Even though MS are still dragging their heels with WP7, and may have appeared to be late to the party.. In reality, they've been making smartphones, and touch screen (all be it where you had to touch it with a pointy stick) smart-phones for a long time, before Apple came along with Windows mobile. They they've got theit Windows CE devices that have been around for ages too.

Maybe they are just being smart and asking for less in these settlements, as long as the companies who are having to pay them to keep quiet, to avoid the negative press that Apple are getting, who are rapidly developing a reputation for being the bullying, abusive, dominant (not the cool little upstart guy any more) company, which is the opposite f what they've worked so hard to achieve too.

Bit rambling, sorry :)

By borismkv on 9/28/2011 4:32:25 PM , Rating: 3
Exchange operability is probably a big part of it. Even Apple has to pay MS for the ability to work properly with Active Sync.

RE: What IP are they using of MS's?
By Zuul on 9/28/2011 4:45:59 PM , Rating: 2
As I explained in another discussion on this - the reason why MS and others can go after the handset manufacturers is Google's licensing agreement for Android does not indemnify and hold the partner (in this case, Samsung) free from, among other things, intellectual property and patent infringements (for the sake of this post, i'll just call it "IP").

Basically, if someone (in this case Microsoft) goes after a user/partner of Android and accuses them of USING something that infringes on their IP, Google has not said they will protect and defend their partner/user from such claims. It's a similar in concept to being caught in possession of stolen property.

Most licensing agreements people don't read and simply click 'accept'. If you read the ones from Microsoft, Symantec, Citrix, et al., you will find that those companies say they will defend the user and hold them free from any IP claims. For example if someone sues YOU for something that MS infringes on, MS has already agreed to take the responsibility off of you and fight it on your behalf.

By sprockkets on 9/28/2011 5:26:42 PM , Rating: 2
"When an individual makes a copy of a song for himself, I suppose we can say he stole a song." -- Sony BMG attorney Jennifer Pariser

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