M$’s Tax On Android/Linux

There has been some speculation on how onerous M$’s tax on Android/Linux has been.“Thanks to a filing unsealed on October 3 in the Microsoft vs. Samsung U.S. District Court patent-royalty case filed in early August 2014, we now know that Samsung paid Microsoft $1 billion in 2013 for a single year’s worth of patent-licensing royalties.” Now we have some concrete data from court-documents. In 2013, Samsung shipped 313 million smartphones and was charged $1billion in royalties. We don’t know whether or not those royalties apply on TVs and refrigerators, but even if it’s just on smartphones, the tax is $1billion/313million = $3.19 per smartphone. Clearly, Samsung paid M$ to go away rather than fight it out in court. They are doing that now anyway arguing that M$’s purchase of Nokia eliminated the contractual obligation to pay M$.

We don’t have the full story here but I think Samsung is now regretting dealing with the devil and is trying to back out of the deal. I think Samsung has some leverage. It would be great to have a court do the maths based on silly software patents…

See Samsung paid Microsoft $1 billion in Android patent-licensing royalties in 2013.

SJVN has written a very thorough article on this topic. Apparently, M$ raked in $3.4billion from the Android/Linux tax in 2013. That’s about 1/6 the client division revenue…

About Robert Pogson

I am a retired teacher in Canada. I taught in the subject areas where I have worked for almost forty years: maths, physics, chemistry and computers. I love hunting, fishing, picking berries and mushrooms, too.
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20 Responses to M$’s Tax On Android/Linux

  1. oiaohm says:

    kurkosdr
    But of course you can’t import such software to the US.
    Its not just the US with issue over Patents. There is advantage of moving software development to a patent free country like india(yes where Microsoft moving most of their software development). If you develop in a software patent protecting country you have to pay for every copy shipped everywhere. If you develop in a non patent protecting country you only have to pay for the volume entering countries with patent protection.

    Cost of protecting Software patents and other Patents in many countries is pushing R&D overseas.

    Deaf Spy of course does not want to consider less than 1 in 10 of patent cases is successful. Microsoft bats a lot lower average than Samsung. History of Samsung is 1/3 of all patent cases they have ever brought they have won. In this case if anyone is going to crush anyone its going to be Samsung crush Microsoft. Microsoft complaint misses the issue. Go right head Microsoft the patent agreement you had with Samsung does not cover the patents you need for 3g and 4g mobile from Samsung.

    Mixing a Software company with a Hardware company puts you straight in Samsung target zone. Of course Samsung vs its competition if it can make it that they don’t have to pay and everyone else has to. Hello advantage.

  2. dougman says:

    Whats even erroneous is the gall of M$ instead of innovating, lets just sue and threaten everyone!

    “If people had understood how patents would be granted when most of today’s ideas were invented, and had taken out patents, the industry would be at a complete standstill today………..some large company will patent some obvious thing and use the patent to take as much profits as they want.”

  3. Deaf Spy wrote, “Remember how Google (via Motorola) tried to sue MS, but failed in court?”

    See FossPatents

    Samsung and all the others can certainly beat M$ in court. Not all courts are as friendly to M$ as that one.

  4. Deaf Spy says:

    Only MS? You forget Apple, Oracle, Google, IBM… Remember how Google (via Motorola) tried to sue MS, but failed in court?

    MS are definitely not alone here, Mr. Pogson.

  5. Deaf Spy wrote, “The fact that OEMs pay speaks volumes.”

    Yes, it speaks volumes of the cost of litigation, $hundreds of millions thrown to the wind. Well, now that we know the cost of paying is $billions, fighting looks better. M$ uses divide-and-conquer. Now that the patents and the costs are public, expect to see unite-and-fight. M$ cannot take on the world in a fair fight.

  6. Deaf Spy says:

    All the rest of the OEMs should stop paying for faulty patents.
    And break the law and get kicked out of the markets? Unlikely, Mr. Pogson. The fact that OEMs pay speaks volumes. They have some very specific set of professional employees – lawyers. These lawyers have advised them clearly to pay. I can’t believe you say you (and that biomass which cannot tell a five-cent value thing about anything) know law better than these lawyers.

  7. oiaohm wrote, ” Nokia phones before Microsoft took over had an zero charge patent agreement with Samsung. Sorry Microsoft the Zero charge patent agreement is conditional on no patent charges against Samsung for anything.”

    Neat. All the rest of the OEMs should stop paying for faulty patents. That would cost M$’s client division ~$1.5billion per annum and possibly future “sales”. What would be really cool would be some patent used against that other OS to prevent sales globally. What’s good for the goose is good for the gander.

  8. kurkosdr says:

    ” Legal precedent exist for imported and exported goods. As the importer/user of software from the likes of France in a country with patent protections can be held accountable for the patent charges.”

    Well… duh. Otherwise Samsung would claim all their software comes from France. What I am saying is that you can setup a server in France and distribute software to the world implementing patented formats/standards, which is a workaround that allows -say- Americans to have free (as in cost) players that implement any format in existence. A silver-lining.

    But of course you can’t import such software to the US.

  9. oiaohm says:

    kurkosdr something to be aware of Patents don’t have to be charged against the implementer. Legal precedent exist for imported and exported goods. As the importer/user of software from the likes of France in a country with patent protections can be held accountable for the patent charges.

    Samsung is not exactly regretting the deal. Microsoft failed to re-contract. Nokia phones before Microsoft took over had an zero charge patent agreement with Samsung. Sorry Microsoft the Zero charge patent agreement is conditional on no patent charges against Samsung for anything. So Microsoft has shipped phones without the require patent coverage from Samsung. The past agreement with Microsoft only included software patents not Samsung hardware patents to make devices. Result Samsung stopped paying because Microsoft has not been paying for patents.

    It is going to get messy. This is one of the things I stated that Microsoft acquiring Nokia could be a big problem down the road due to how many phone makers have made agreements with each other to zero change over hardware patents. I would not be surprised if we see Foxconn pull the same rug out from under Microsoft if Samsung wins.

  10. dougman says:

    No secret patents you say? You surely are dumb..

    For one, you have the Invention Secrecy Act of 1951, that requires the U.S. government to impose “secrecy orders” on certain patent applications, but that is not relevant to the M$ / Android issue.

    Second, M$ had “secret” patents in name only, as they were unknown in the sense of which ones Android was supposedly infringing upon.

    See, M$ pulled the same crap with Oracle in regarding OpenOffice and then stated the same line with open-source software and Linux.

    The study claimed by M$, that Linux has been found to potentially violate 283 software patents, however author of that report, doesn’t see things the way Ballmer does at all.

    “Microsoft is up to its usual FUD [fear, uncertainty and doubt],” said Dan Ravicher, author of the study Microsoft cites, who is an attorney and executive director of PUBPAT – the Public Patent Foundation.

    “Open source faces no more, if not less, legal risk than proprietary software. The market needs to understand that the study Microsoft is citing actually proves the opposite of what they claim it does.

    But Ravicher said Ballmer misinterpreted his studys findings. “He misconstrues the point of the OSRM study, which found that Linux potentially, not definitely, infringes 283 untested patents, while not infringing a single court-validated patent.”

    “The point of the study was actually to eliminate the FUD about Linuxs alleged legal problems by attaching a quantifiable measure versus the speculation,” he said. “And the number we found, to anyone familiar with this issue, is so average as to be boring; almost any piece of software potentially infringes at least that many patents.”

    http://www.osriskmanagement.com/pdf_articles/linuxpatentpaper.pdf
    http://lwn.net/Articles/96156/
    http://www.prnewswire.com/news-releases/results-of-first-ever-linux-patent-review-announced-patent-insurance-offered-by-open-source-risk-management-71488122.html

  11. ram says:

    With respect to DrLoser’s comments:

    “this sort of shenanigans would show up glaringly on company accounts”

    They do, just few people actually work through the balance sheets, let alone read the auditors footnotes to the financial statements.

    “I’m sure you have a real-world example with which to back up this absurd claim.”

    Not so absurd, it is required by law. As to companies doing it you certainly have mentioned them in your submissions to this site. Again, I suggest some research would prove worthwhile.

  12. kurkosdr says:

    Which means, that you can host software implemented patented non-FRAND standards in France or similar country, and nobody can get you.

    This is how free (as in cost) players can implement any format they want and ship their software in binary form.

  13. kurkosdr says:

    The problem is much bigger than Microsoft’s royalty fees on Android.

    The real problem is that if you invent a standard, covered by patents that are not FRAND, and it becomes popular, the entire world owes you, and you get to define how much. Aka, innovation tax. FAT32 (more specifically, LFNs, is a great example).

    Good news is that some countries don’t have software patents, and even have exlcusion terms for allowing interoperability (like France has).

  14. DrLoser wrote, “that implies that the PRC actually welcome “bloat, endless re-reboots, total insecurity”.

    Not at all. China demanded M$ provide the code and when they did not… M$ had provided the code for XP so they had reason to believe XP was not out to get them. Then there’s the issue of malware. At least with XP, one can reboot with Deep Freeze or something to set things back. “8” was a whole new kettle of fish. It is a risk to take M$’s latest release on face value. Kudos to the Chinese for showing some spine. If I were they, I would ban M$ outright for all services and products. No government should put up with the machinations of a foreign monopolist. China is a big enough country they can easily do everything with GNU/Linux or even start over with a completely in-house OS. They have the brains and the manpower. They certainly don’t need M$ to tinker with their IT.

  15. DrLoser says:

    So M$ hid the fact of the secret patents, but now that it has been revealed, M$ is set to lose a billion dollars in annual revenue.

    What an interestingly brain-dead conclusion, Dougie. Care to define what a “secret patent” might be? There’s no such thing, is there?

    The PRC leak appears to detail “secret patent licensing agreements,” which I imagine even you will concede are totally different things. And “secrecy” does not even imply “malign intent;” it simply implies commercial confidentiality. In that a patent licensing agreement necessarily implies (at least) two partners, it might even mean that the non-Microsoft partner benefits from this “secrecy,” in the sense that they get a better technical/marketing edge over Joe Blow down the street.

    Interesting little snippet further down, though:

    While Microsoft recently ended technical support and updates for its popular Windows XP operating system, despite the pleas of the Chinese, the government in Beijing seemingly struck back by banning the use of Windows 8 from all of its computers over security concerns.

    Adopting the standard belief about XP on this site: that implies that the PRC actually welcome “bloat, endless re-reboots, total insecurity, what see here I never mentioned the Bash shell once.”

    Just so long as it’s all supported by Microsoft, of course. Don’t you find that a little odd?

  16. DrLoser says:

    In theory, you could have two companies, both with no real profits and few assets that could cross license, and the book value of both would increase each year in a circular “Ponsi” scheme. As long as fools are willing to buy their stocks and banks lend to them the scheme can continue.

    And in practice this never happens, and not merely because “Ponsi” is spelled “Ponzi.”

    Know why? Because, outside of penny stocks, this sort of shenanigans would show up glaringly on company accounts. It would certainly not show up as cashflow. And, frankly, it would still be subject to tax regulations, so it wouldn’t even be a zero-sum game.

    And, compared to the various off-shore manoeuvres of, say, Google and Microsoft (just to keep this discussion neutral), it would pale into significance as a generator of high stock prices.

    But I’m sure you have a real-world example with which to back up this absurd claim.

  17. ram says:

    One thing everybody should remember is as far as US operations are concerned, and likewise in many (all?) English speaking countries, the tax codes have been changed to encourage (now legal) accounting “fraud”. For example say two “tech” companies, call them A and B, cross-licence patents. The payments from company A that B receives is called “income” and the payments B receives from A is called “income”. So far so good, nobody has any problem with that.

    The whopping thing that was relatively recently changed, are the payments company A makes to B now get listed on A’s balance sheet as ASSETS! not expenses (which they used to be and in fact still are). Likewise vice-versa.

    In theory, you could have two companies, both with no real profits and few assets that could cross license, and the book value of both would increase each year in a circular “Ponsi” scheme. As long as fools are willing to buy their stocks and banks lend to them the scheme can continue. Everybody gets to report record earnings — you don’t even need ANY sales! Ahh, the miracles of modern finance.

  18. dougman says:

    “If Microsoft devices were flying off the shelf the way Samsung devices do, the tables would have turned and Samsung would be minting billions of dollars from Microsoft and you would read headlines like ‘Android makers making billions of dollars from Windows phones!’

    Unfortunately, looking at the steady decline of Microsoft market, it’s unlikely that Samsung would ever make any money from Microsoft though patents.”

    http://www.themukt.com/2014/10/04/samsung-microsoft-1-billion-android-patents/

  19. dougman says:

    Yes, agreed. It was cheaper to pay and have go-away, but since the Chinese published the list of 300 patents, Samsung now has the means to argue over the invalidity of these patents that M$ says Android uses.

    “Microsoft has been licensing access to part of its patent portfolio for several years now, offering device makers protection from litigation related to Android and Chrome OS. While Microsoft boasts that more than 70 percent of Android phones sold in the US are covered by licensing agreements, the company has never listed what patents are infringed by Android. Instead, China’s Ministry of Commerce (MOFCOM) has now revealed a list of more than 300 patents and applications held by Microsoft that formed the Chinese approval of the Nokia deal recently.”

    So M$ hid the fact of the secret patents, but now that it has been revealed, M$ is set to lose a billion dollars in annual revenue.

    http://betanews.com/2014/06/17/china-leaks-2bn-of-secret-microsoft-android-patents/

  20. DrLoser says:

    We don’t know whether or not those royalties apply on TVs and refrigerators, but even if it’s just on smartphones, the tax is $1billion/313million = $3.19 per smartphone.

    I imagine that you let your enthusiasm get ahead of your ability to judge mathematical limits on this one, Robert. What you actually meant to say is, if I may take the liberty:

    Absent any evidence that Samsung pays royalties on TVs and refrigerators, they are paying $3.19 in royalties per mobile phone.

    I think we can safely leave other royalties aside, since Samsung is well-known for their laser-like focus on TVs, refrigerators and mobile phones. I’ll take your word on that part.

    Now, here’s my question for you:

    Do you have any reason to suppose that $3.19 per phone is onerous? Here’s another area of mobile phone production that is, perhaps, equally as onerous: the supply and pricing of rare earth minerals.

    My limited understanding is that many of these are a virtual monopoly of the PRC in China, via their territories in Inner Mongolia. I welcome your corrections here.

    So, are you going to start moaning about Chinese monopolies of rare earths any time soon?

    I’m not holding my breath. (Oh, and since your geography is provenly out of whack: Samsung is Korean, not Mainland China.)

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