Samsung paid Microsoft $1 billion last year to build Android phones

Microsoft says Samsung is trying to avoid its future payments

Samsung has been paying Microsoft US$1 billion a year in royalties to use its technology in Samsung's Android smartphones and tablets, according to a court document filed Friday.

The filing also shows that Microsoft offered to reduce Samsung's payments if it developed Windows tablets and phones alongside its Android products.

The information came to light in a lawsuit that Microsoft filed against Samsung in August. The original complaint was partly blacked out to hide confidential business information, but the revised filing made Friday is unredacted.

The two companies signed an agreement in late 2011 in which Samsung agreed to pay royalties to Microsoft for seven years for the use of its patented technologies.

Microsoft has maintained for years that Android infringes its patents, and many other companies besides Samsung have signed such agreements.

The contracts are typically highly confidential, so it's unusual to get a look at the numbers behind them.

According to the filing, for year two of the agreement, which spanned July 2012 to June 2013, Samsung had to pay Microsoft just over $1 billion in royalties. The amount is based on the number of Android devices Samsung sold and the prices it charged for them.

According to Microsoft, Samsung dragged its feet and made the payment late, so part of the reason it filed the lawsuit was to recover about $7 million in interest that it says Samsung still owes it.

Samsung has argued that Microsoft invalidated the agreement because it bought Nokia's handset business, so it's refusing to make further payments for this year and the coming years. That would mean billions in lost revenue for Microsoft.

Not surprisingly, Microsoft says its Nokia acquisition doesn't breach the agreement. It says there are "explicit provisions" that cover the acquisition of other companies.

The original deal was a cross-license agreement, which means Samsung was also agreeing to license technologies to Microsoft. With the deal broken, Samsung is threatening to sue Microsoft for using the Korean firm's technology.

Android was developed by Google and has become the world's most popular smartphone OS. But Microsoft says it infringes many of its patents, and in 2010 it started a licensing program to collect royalties from Android device makers.

Samsung is one of 25 companies that pay Microsoft to use its technology in Android products. Others include HTC, Acer and Barnes & Noble. Analysts have estimated that Microsoft makes more money indirectly from the sale of Android devices than it does from selling Windows Phones.

"By virtue of the Android licensing program, approximately 80 percent of the Android-based smartphones sold in the U.S. are licensed to use Microsoft's patents," Microsoft says in its complaint.

Neither Samsung nor Microsoft immediately responded to requests for comment.

James Niccolai covers data centers and general technology news for IDG News Service. Follow James on Twitter at @jniccolai. James's e-mail address is james_niccolai@idg.com

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Tags consumer electronicsintellectual propertyMicrosoftsmartphonespatentSamsung ElectronicsCivil lawsuitslegalAndroidAndroid OS

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