Patents have become such a big business for Microsoft that the company has outsourced its U.S. patent filing work to India, John Weresh, general manager of Microsoft’s Patent Operations, told Business Insider.
For good reason. Microsoft could be on track to turn patents into a multi-billion business perhaps as soon as this year, much of it originating from royalties on patents used by Android devices.
Microsoft files 2,000 to 2,500 patents a year, Weresh says. It’s so much work that he has 30 full-time staffers and about 100 full-time outsourced employees from CPA Global in India, he says.
“It’s been an interesting transition around the last 10 years, when Marshall Phelps joined Microsoft (as the VP and top lawyer for Microsoft’s Intellectual property),” says Weresh. “He really changed the attitude here from a kind of defensive posture where we had this large monothic portfolio that we didn’t really use” … to one where Microsoft “got value” from its patent portfolio.
Turning Microsoft’s patents into a business all really started in 2004, when Microsoft CEO Steve Ballmer declared that Linux violated over 235 of Microsoft’s patents. He hinted Microsoft could sue both Linux vendors and Linux users. Microsoft didn’t file many lawsuits (one against TomTom in 2009 and another against Barnes & Noble in 2011, both were settled), but Microsoft’s customers, many of whom were Linux users, were not happy with the threats and demanded Microsoft find a way to get along nicely with Linux.
So Microsoft licensed its patents to Novell for Novell’s version of Linux and promised it would never sue Novell or Novell’s Linux customers.
Since then, and after the TomTom lawsuit, Microsoft licensed its patents to Android device makers like HTC and Samsung. The open source community regards Microsoft’s patent strategy as somewhere between blackmail and a tax.
No matter. Device makers are still signing agreements.
By 2011, when Microsoft announced it’s 10th licence for Linux/Android devices, it said it was collecting royalties on more than half of all Android devices sold.
Microsoft doesn’t directly report how much money it makes from patents. However, we can piece together that it’s becoming significant. For instance, last week, Geoff Duncan at Digital Trends charted Microsoft’s potential revenue based on Android sales projections.
About 860 million Android devices will be sold in 2013, Gartner predicts. If Microsoft gets an average royalty of $1 per Android device on half of the devices sold, Android would generate $430 million in 2013, Duncan predicts.
That figure could be low. HTC is believed to be paying Microsoft $5 per device, and thanks to a lawsuit settled last year, we know that Microsoft was reportedly trying to collect between $5 and $15 per Android device from Barnes & Noble.
So, if Microsoft averages $5 a device it will earn about $2.3 billion.
And Android sales are expected to boom. In 2017, some 1.5 billion Android devices will be sold, Gartner predicts. At $1 per device for half of them, that’s $750 million for Microsoft, and at $5 per, that’s $6.3 billion.
Is it any wonder Microsoft is patenting new tech as fast as it can?
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