And then there was one less.
I. ZTE Caves to Licensing Demands
On Tuesday, Microsoft Corp. (MSFT) VP and general counsel Horacio Gutierrez posted that his company had successfully coerced… er… convinced top Chinese Android smartphone maker ZTE Corp. (SHE:000063) to pay royalties. The news comes hot on the heels of Microsoft’s announcement that top Taiwanese manufacturer Hon Hai Precision Industry Comp. Ltd. (TPE:2317) had agreed to licensing. Hon Hai owns the Chinese manufacturing subsidiary Foxconn.
In his commentary Mr. Gutierrez comments that Microsoft pays for licensing all the time, just like it’s forcing OEMs to. He writes:
Much of the current litigation in the so called “smartphone patent wars” could be avoided if companies were willing to recognize the value of others’ creations in a way that is fair. At Microsoft, experience has taught us that respect for intellectual property rights is a two-way street, and we have always been prepared to respect the rights of others just as we seek respect for our rights. This is why we have paid others more than $4 billion over the last decade to secure intellectual property rights for the products we provide our customers.
ZTE will pay Microsoft on every handset it makes. [Image Source: Reuters]
The licensing deal with ZTE is a big deal as the Chinese OEM is vying with Huawei Technologies Comp. (SHE:002502) for the title of the world’s second largest Android phonemaker.
II. Licensing Remains Microsoft’s Top Smartphone Cash-Driver
Nearly three-quarters of Android manufacturers now license Microsoft intellectual property. Microsoft has pressured top Android OEMs like HTC Corp. (TPE:2498) and Samsung Electronics Comp., Ltd. (KSC:005930) into licensing payments of $10 or more per Android device sold.
Reports from 2011 indicated that Microsoft is making far more money from these licensing agreements than from its own smartphone product, Windows Phone. Given that Android growth has outpaced Windows Phone growth and Microsoft has scored many more royalty deals since then, it’s relatively safe to say that situation remains even more true today.
Royalties are where the money’s at for Microsoft. [Image Source: Life’s Cheap Thrills]
Among the top companies to try to fight Microsoft’s licensing threats have been Google Inc. (GOOG) subsidiary Motorola Mobility and Barnes & Noble Inc. (BKS). Barnes & Noble — perhaps the most vocal critic of Microsoft’s threats — caved in April of last year, “partnering” with Microsoft and agreeing to pay royalties.
Google/Motorola — whose legal counsel compared Microsoft to a “deranged Easter bunny” — is still fighting the good fight when it comes to patents. However, the company faces a major judgment day this Friday in Germany. If it loses, it may see its handsets not only banned, but also seized and destroyed. Some experts believe that a loss in Germany could force Google to swallow its pride and agree to licensing after long encouraging OEMs to fight Microsoft’s demands.
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