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Samsung sued over smartphone patent royalties

Contracts and agreements over profits do not necessarily prevent lawsuits or misunderstandings between companies. Microsoft, for example, has filed suit against Samsung for failing to pay royalties for Android smartphone sales after Microsoft announced its intent to purchase Nokia's smartphone business in late 2013.

As part of a patent sharing agreement that the two companies entered in 2011, Samsung must pay Microsoft a royalty for each Android that it sells. Microsoft claims that Samsung failed to make timely payments since autumn and that the foreign company refused to pay interest on the late payment.

Microsoft said that the two companies dispute the terms of their agreement. However, it also inferred that Samsung is seeking a way out of the agreement because its Android sales have quadrupled and its associated licensing fees have compounded since the licensing agreement was entered.

The agreement's terms were never disclosed. An analyst, however, estimated that Microsoft earns $2 billion each year from patents royalties on devices that run on Google's Android operating system, which was made by Samsung and other companies. This constitutes more than nine percent of Microsoft's profits generated over its last fiscal year.

Microsoft's lawsuit may have repercussions on that company because Samsung is one of a small number of smartphone manufacturers which designs Window Phone devices. Likewise, Apple is involved in several serious patent lawsuits with Samsung although those companies are partners on some iPhone and iPad components.

This business litigation serves as a warning for Minnesota companies. Contracts and licensing agreements may not reflect changing economic conditions and technology. Lack of planning and expert advice can lead to these type of costly commercial and intellectual property disputes.

Source: CNN, "Microsoft to Samsung: Pay up!" David Goldman, Aug. 4, 2014

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