Microsoft Could Lose $1B In Android Payments If Samsung Prevails In Court

Microsoft, in its ongoing litigation against Samsung Electronics Co. Ltd., has a lot more to lose than just interest fees if the South Korean smartphone maker halts payments of patent royalties for its Google Android-based Galaxy tablets and smartphones. To be more specific, the Redmond, Washington-based tech giant could forfeit an amount to the tune of $1 billion, which Samsung delayed paying to Microsoft in 2013, following the announcement of Microsoft's acquisition of Nokia’s handset division, completed in April.

That’s half of an estimated $2 billion that Microsoft made in Android royalties last year, according to Nomura research analyst Rick Sherlund. The $2 billion estimate is based off an estimate in which Microsoft received $5 per Android device sold. But, that number may be higher since royalty prices per device are estimated to be anywhere between $5 and $15.

Microsoft believes Android, which is based on the Linux open source operating system, violates some of its patents relating to the Windows OS. The company has threatened a number of gadget makers that use Android or Linux in their products with lawsuits if they don't agree to royalty payments.

Samsung eventually paid Microsoft the royalty fees, but the case filed in a New York federal court against Samsung in August is centered on an alleged breach of contract and $6.9 million in interest that it allegedly failed to pay Microsoft following its late royalty payment.

Samsung reasoned that the business agreement that it entered into with Microsoft in 2011 “raised serious antitrust concerns,” following the Nokia merger announcement, according to court documents filed on Thursday.

“The Nokia DSB Merger frustrated the purpose and performance of the [business collaboration agreement] because compliance would create an unreasonable risk of antitrust exposure,” Samsung wrote. “Among other things, the BCA’s marketing and development collaboration provisions now create a serious risk that the parties will be accused of colluding in two areas in which they should be strenuously competing.”

The agreement called for Samsung to make royalty payments to Microsoft and also contained provisions to reduce the royalty payment amounts, contingent on Windows Phone sales goals.

Samsung's latest filing argued that Microsoft’s Nokia acquisition “breached a covenant of good faith and fair dealing,” in which the companies agreed to develop a Samsung Windows Phone.

As a result, Samsung is seeking a court order to terminate the contract between it and Microsoft along with a yet to be determined amount of damages for “Microsoft’s alleged breach of the covenant of good faith and fair dealing.”

In addition to Samsung, Microsoft also received royalty payments from more than 25 manufacturers that use the Android operating system for their smartphones and devices, some of which include Acer Inc., Barnes & Noble Inc., ViewSonic Corp., Nikon Corp., Pegatron Corp. and more.

“We are confident that our case is strong and that we will be successful,” Microsoft said in a previous statement.

View the court filing below:

Microsoft Corp. v. Samsung 14-6039