By Kim Yoo-chul
Samsung Electronics and Microsoft said Tuesday that they have settled a contract dispute over payments of royalties on handset component patents.
“Samsung and Microsoft are pleased to announce they have ended their contract dispute. Terms of the agreement are confidential,” said Chi Jae-wan, executive vice president and head of the global legal affairs and compliance team at Samsung, in a joint statement. David Howard, deputy general counsel at Microsfot, also signed the press release.
Microsoft filed a suit with a U.S. federal court in New York last August against Samsung. It claimed Samsung refused to pay royalties after Microsoft’s decision to take over Nokia’s handset operations.
Samsung has paid per-device royalties to MS for every Android product it sells. MS earned $1 billion in royalties from Samsung in the form of patent-licensing during 2013.
In the suit, MS asked the court to declare its contract was valid and Samsung owes Microsoft interest for overdue royalties.
Samsung asked the court to invalidate the contract as Microsoft’s decision to purchase Nokia’s handset business made its long-time U.S. ally a direct competitor, which raised anti-trust issues.
The settlement came several days after the Fair Trade Commission (FTC) in Korea issued a conditional approval for Microsoft’s acquisition of Nokia’s handset business.
MS agreed to ask local handset manufacturers to pay royalties based on the fair, reasonable and non-discriminatory (FRAND) principle over the next seven years.
Meanwhile, it guaranteed not to impose additional charges above the ceiling during the period, meaning Microsoft's handset division will be entitled to maintain its current royalties rates after the acquisition.
Sources who are familiar with the matter told The Korea Times that the two companies updated their two contracts ― a cross-licensing agreement and a business collaboration agreement ― to help Samsung pay less in Android royalties payments on patents that Microsoft’s Nokia division own.
“MS decided to cut its royalties rates that it annually collects from Samsung Electronics. Samsung will further promote devices that run on the Windows mobile platform, closely cooperate in next business projects such as healthcare and supply its semiconductor chips to MS' datacenters at an affordable price,” said one source by telephone.
Market analysts and officials say a new Samsung mobile phone using the Windows platform may be released sometime this year thanks to the agreement.
The world's biggest handset manufacturer has been running pilot programs to test the stability of Windows 8.1 on current devices, said Samsung officials.
Samsung plans to release an updated Surface Pro tablet using the Windows system soon.
“For Microsoft, Samsung Electronics is a crucial partner as it needs to boost its new platform. Samsung intends to sell more budget smartphones in emerging countries. Tizen isn't enough. Windows should be a good option as the system gets steady enhancements,” said another source.