Microsoft sues Samsung over contract breach

Samsung wants to stop paying royalties to Microsoft, cites Nokia purchase as breach of agreement

Financial trends and news by Steven Loeb
August 2, 2014
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Can't we all just get along? Or, at least stop suing each other? These giant tech companies seem to be suing each other all the time. The latest to get into it: Microsoft and Samsung

The two companies have been partners for years now, with both Microsoft and Samsung cross-licensing their patent portfolios in a move that was meant to be beneficial to each side. Recently, though, the agreement between the two companies has soured, and now it looks like they might be headed to court.

Microsoft has filed a lawsuit against Samsung for breach of contract, it was announced on Friday.

The agreement that the two companies signed said that Samsung would pay royalties to Microsoft for each mobile and tablet they sell that features the Android operating system. The companies also agreed to cooperate in the development and marketing of Windows Phone. 

Since signing the agreement in 2011, Microsoft had "enjoyed a long and productive partnership" with Samsung, and that the two companies 'have a long history of collaboration," David Howard, Corporate Vice President & Deputy General Counsel at Microsoft, explained in a blog post.

Yet, recently, "in a series of letters and discussions" Samsung had decided that it would no longer comply. Why is that? Well, it depends on which side you're talking to.

From Samsung's point of view, they say that Microsoft's acquisition of Nokia's devices and services business for $7.17 billion was a breach of the license agreement. As such, Samsung refused to pay its royalty dues on time, and when it did pay them it would not grant Microsoft's request for interest. 

From Microsoft's point of view, though, this is just Samsung's excuse for no longer finding it in their own interest to remain in the agreement.

"Curiously, Samsung did not ask the court to decide whether the Nokia acquisition invalidated its contract with Microsoft, likely because it knew its position was meritless," said Howard.

The real reason that Samsung wants out, according to Howard, is that it had become more successful than it previously anticipated. And it no longer wants to pay.

"Since Samsung entered into the agreement, its smartphone sales have quadrupled and it is now the leading worldwide player in the smartphone market," said Howard, pointing out that, in 2011, Samsung was shipping 82 million smartphones; last year it shipped 314.

"Samsung predicted it would be successful, but no one imagined their Android smartphone sales would increase this much," he said.

What Microsoft is asking the court to do is make Samsung live up to its end of the agreement.

VatorNews has reached out to Samsung for comment. We have not yet heard back, but the company told ReCode in a statement, “We will review the complaint in detail and determine appropriate measures in response.”

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