HTC pays Microsoft (NASDAQ:MSFT) $5 for every phone it sells running Google's (NASDAQ:GOOG) Android platform, according to a research note from a Citi analyst.
The report, authored by Citi analyst Walter Pritchard, said the fee is a result of the patent licensing deal HTC signed with Microsoft in April 2010. The research note also said Microsoft is looking to receive between $7.50 and $12.50 per device from other Android handset makers in similar arrangements.
"Last year, HTC and Microsoft did announce a licensing agreement for Android handsets," HTC said in a statement. "Such agreements are not unusual in the wireless industry, and as is the case with all such agreements, HTC does not disclose financial terms." A Microsoft spokeswoman also declined to comment on the terms of the deal.
Microsoft believes Google's Android user interface and underlying operating system infringes on its intellectual property. HTC's deal with Microsoft calls for the company to pay royalties to Microsoft for its Android phones, though the terms of the deal have not been disclosed.
"We have also consistently taken a proactive approach to licensing to resolve IP infringement by other companies and have been talking with several device manufacturers to address our concerns relative to the Android mobile platform," Horacio Gutierrez, Microsoft's deputy general counsel, told CNet when the deal with HTC was announced. Microsoft sued Android handset maker Motorola Mobility (NYSE:MMI) in October, alleging that Motorola's smartphones running Google's Android platform violate Microsoft patents.
Software maker Oracle has also sued Google over Android, alleging that Google's use of Java code in Android violates intellectual property related to the Java programming language, acquired by Oracle in April 2009 when it purchased rival Sun Microsystems for about $7.4 billion.
One reason for the litigation strategy, Citi analysts argue, is that the legal settlements resulting from such battles crimp the margins of Android handset makers, making Microsoft's Windows Phone 7 software more attractive by comparison. However, the research note does not discuss how much Microsoft gets per Windows Phone device sold. However, research firm asymco points out that, depending upon that variable, Microsoft could potentially be making more money from Android patent royalties than it has received from sales of Windows Phone devices. HTC sold 9.7 million smartphones in the first quarter, the large majority of which were likely Android phones.
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Article updated May 27 with comment from HTC and Microsoft.