Microsoft's Patent Shakedown On Android Comes From A Long Tradition

Brad Smith and Steve BallmerMicrosoft General Counsel Brad Smith, left, with Steve Ballmer

Photo: AP

Microsoft’s tactic of approaching Android resellers and asking for patent licenses, and suing them if they disagree, looks bad.Writing in Forbes today, Timothy Lee called it a shakedown.

But Microsoft is following industry practice here.

It started with wireless technology.

For instance, Nokia refused to pay Qualcomm royalties for many years for using technology related to the wireless CDMA standard, and even went so far as not to sell CDMA phones (meaning that you couldn’t get a Nokia phone on Verizon). The companies resolved their differences in 2008 with a cross-licensing deal.

As a result, Nokia probably pays Qualcomm a royalty somewhere between 2% and 5% on every phone it sells with Qualcomm technology.

These royalty payments are common throughout the industry, and make up a big — and rising — part of phone costs.

But smartphones are still relatively new, and the royalty lines for smartphone software are still being drawn. That’s what the legal battles betwween Microsoft and Android vendors, Apple and Android vendors, Oracle and Google, Nokia and Apple, and so on, are all about. That’s why Microsoft, Apple, and four other companies just paid $4.5 billion for a bunch of patents from Nortel — to keep them out of Google’s hands.

What really galls people is that Microsoft is a laggard in smartphones — Windows Mobile was crushed by the iPhone and Android, and Microsoft’s latest effort, Windows Phone 7, hasn’t been able to gain any market share — and it looks like Microsoft is just acting like a sore loser.

Plus, some of the patents that Microsoft is using in these royalty battles don’t seem to have much to do with the mobile space — like a patent related to file names granted way back in 1998, which Microsoft is using in its lawsuit against Barnes & Noble (which refused to pay Microsoft a licence for using Android in the Nook).

But it doesn’t matter. Blame the patent system, but Microsoft is just playing along with the assets it’s got. Doing anything less would be a breach of duty to shareholders.

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