Samsung didn’t pay Microsoft $1 billion for Android, or did they?


I always doubted the claims that Microsoft is making billions of dollars from Android patents, the reason was we never saw any concrete numbers. Now we have documents which show some numbers. Thanks to the ongoing legal battle between Samsung and Microsoft we now know that the Korean technology giant paid $1 billion under the patent agreement.

Microsoft sued Samsung because the Korean giant claimed that the agreement was breached due to Nokia acquisition and thus refused to pay $6.9 million it owned under the agreement.

“Samsung has suggested that Microsoft has breached the business collaboration agreement,” David Howard, Microsoft’s deputy general counsel, said today in a blog post. “We disagree, and that’s why we asked the court to rule that Microsoft is not in breach.”

Everything looked OK so far. Cross licencing is a normal practice in the industry. There is not a single established company who hasn’t signed any patent licencing deal with other player.

Dragging Android in the muddy waters?

However, some news outfits are projecting it as if Samsung paid Microsoft $1 billion solely for Android patents. Some headlines go like these – “Lawsuit reveals Samsung paid Microsoft $1 billion a year for Android patents” or “Samsung paid Microsoft $1 billion in Android patent-licensing royalties in 2013″. These claims start and end with the headlines, you won’t find a single mention of ‘Samsung paying Microsoft $1 billion for Android patents’ in any of those stories.

Organizations like BloomBerg and ReCode are refraining from such misleading headlines. The court filing is available publicly which you can read on Scribd. Microsoft says in the document that Samsung paid Microsoft $1 billion in second financial year of their patent deal. From what I understand that is *the* total amount Samsung paid Microsoft under the deal. What we don’t know is what all is covered in these patents. The court document doesn’t specifically says that ‘Samsung paid Microsoft $1 billion for Android patents.’

I didn’t find a single sentence making such a claim. Please correct me if I am wrong, I would appreciate that.

PR stunt?

It seems to be nothing more than a PR stunt. Every-time someone creates such a headline, Microsoft scores a PR point. Microsoft drops the keywords Android, Chrome and Linux every-time it signs a deal with a company even if the deal is about using ancient technologies such as FAT 32 in devices running Linux.

We never heard of any other deal between the two companies (Samsung and Microsoft) so it can be logically concluded that the deal also covers the use of Microsoft technologies in non-Android or non-Chrome devices such as point-and-shoot cameras, DSLRs, music players, photo-frames, BD/DVD players, TV sets and dozen of other things that Samsung sells.

Those crisp $1 billion bills are not just for the Android powered devices, right? Samsung does a lot of thing, in 2013 the company raked in over $54.95 billion in revenues. Only half of that revenue came from the IT and mobile division.

Microsoft also pays Samsung for using their patents

It’s not a one way traffic. Microsoft also pays Samsung annual royalty for using Samsung’s patented technologies and this amount it credited against the amount Samsung pays to Microsoft.

Unlike Samsung, Microsoft is struggling in both PC and mobile segments so the revenues Samsung generates from Microsoft is far less than what Microsoft gets from Samsung as the Korean company has become an electronics giant.

If Microsoft devices were flying off the shelf the way Samsung devices do, the tables would have turned and Samsung would be minting billions of dollars from Microsoft and you would read headlines like ‘Android makers making billions of dollars from Windows phones!’

Unfortunately, looking at the steady decline of Microsoft market, it’s unlikely that Samsung would ever make any money from Microsoft though patents.