Samsung Electronics said Microsoft's (NASDAQ: MSFT) April purchase of Nokia's (NYSE:NOK) devices and services business breached a 2011 business collaboration agreement between Samsung and Microsoft. Under that deal Samsung paid $1 billion in patent royalties to Microsoft in 2013, and Samsung is now arguing in court that the Microsoft/Nokia deal invalidates the agreement because Microsoft became a direct competitor with Samsung in the smartphone market.
Microsoft had sued Samsung earlier this year in federal court in New York, saying that the South Korean smartphone giant owed it $6.9 million in interest on more than $1 billion in patent royalties it delayed paying. Samsung is seeking to have the agreement invalidated. Microsoft has argued its Nokia purchase doesn't violate the terms of the agreement.
The two companies' patent licensing agreement runs for seven years and Samsung pays Microsoft an undisclosed fee for each Android smartphone or tablet it sells that uses Microsoft patents. Under the business collaboration agreement, Samsung agreed to develop Windows Phones and share confidential business information with Microsoft. In turn, Microsoft agreed to cut the amount of the royalty payments Samsung had to make to Microsoft if Samsung met certain sales goals for Windows devices.
In its court filing made last Thursday, Samsung said because Microsoft has become a competitor in the phone market Samsung should be allowed to end both the patent agreement and the business collaboration deal. "The agreements were intended to embody a collaboration between a manufacturer and a supplier," but Microsoft's Nokia deal "incentivized Microsoft to promote its own smartphones over those manufactured and sold by Samsung," Samsung said in the filing.
Further, Samsung said it refused to continue sharing some sensitive information because doing so could have sparked concerns by U.S. antitrust regulators. "[T]he agreements, now between competitors, invite charges of collusion," Samsung said in the filing.
"Microsoft is confident that our case is strong and that we will be successful," a spokeswoman told the Wall Street Journal.
Since the deal was announced Samsung continues to put much of its efforts into its Android-based pones, especially its flagship Galaxy S and Galaxy Note devices. Microsoft, meanwhile, has turned to a wider array of device makers, especially in China and India, to develop, market and sell lower-cost Windows Phones.
- see this WSJ article (sub. req.)
- see this Reuters article
- see this ZDNet article
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