Microsoft, Samsung Settle Contract Dispute Over Patents, Essay Example

Analysis

After an entire year of legal negotiations, computer giant Microsoft has settled a contract dispute with Samsung Electronics Company, Ltd., one of Microsoft’s biggest competitors in the mobile device market. The dispute was based on a contract between the two companies over patent royalties and was settled in federal court in New York. The basic argument for Microsoft was that Samsung had breached a 2011 agreement by “initially refusing to make royalty payments” after Microsoft “announced its intentions to acquire Nokia’s handset business” in September of 2013 (Levine, “Microsoft, Samsung Settle Contract Dispute”). From a financial standpoint, Microsoft claimed that Samsung owed them almost $7 million in interest “on more than $1 billion in patent royalties” which Samsung failed to deliver. But according to Samsung, Microsoft’s acquisition of Nokia “violated its 2011 collaboration deal” which in effect negated the patent royalties (Levine, “Microsoft, Samsung Settle Contract Dispute”).

Patents & Royalties

In legal terms, a patent provides inventors with the exclusive right to “make use of, and exploit, their inventions for a limited period of time. In effect, this exclusive right is a monopoly on the invention which allows the patent holder (i.e., Microsoft)  to make a profit from the invention. A patent also allows the patent holder to earn royalties or payments from the invention. When the inventor is given this right to a patent, he/she is also given the legal right to “exclude others from making, using, or selling the claimed invention” without their consent for a specific length of time. Thus, holding a patent on an invention or a particular device, such as a mobile cell phone, “prevents others from benefiting from their ingenuity and. . . sharing in profits from the invention without their permission” (“What is a Patent?”).

As to royalties, these are basically payments that are provided to the patent holder by outside parties who wish to make use of an invention “for the purpose of generating revenue or other such desirable activities.” Legally, royalties “are designed to compensate the owner” of the patent for use by an outside entity and are legally binding in the country which provided the patent to the inventor (“Royalty”).

Impact On Microsoft & Samsung

Obviously, if Microsoft had allowed Samsung to continue to earn a huge profit from selling the Nokia handset, it would have eventually affected Microsoft’s bottom line related to earning profits from a device sold to the public. Also, since Samsung had agreed to a contract with Microsoft to pay them royalties from the handset (which presumably was sold under the Samsung brand name), they were legally bound to adhere to the contract despite the suggestion that Microsoft’s acquisition of Nokia violated Samsung’s deal to pay royalties.

Discussion

My reason for choosing this article is due to its relevance in today’s highly-charged world of global business. The agreement between Microsoft and Samsung is not unusual, for it occurs more often than the public realizes. It also demonstrates how some of the world’s biggest companies are interdependent of one another, meaning that they depend upon each other to make a profit and perhaps to help avoid being charged with creating a monopoly, such as what happened with Microsoft some ten years ago. Overall, this article helps to illustrate the power of Microsoft and how it continues to influence the electronics global marketplace.

References

Levine, Dan. “Microsoft, Samsung Settle Contract Dispute Over Patents.” Feb. 9 2015. Web. Accessed 24 February 2015. <http://www.reuters.com/article/2015/02/09/us-microsoft-  samsung-elec-settlement-idUSKBN0LD2LA20150209>.

“Royalty.” 2015. Web. Accessed 24 February 2015. <http://www.investopedia.com/terms/r/royalty.asp>.

“What is a Patent?” 2015. Web. Accessed 24 February 2015. <http://ip-science.thomsonreuters.com/support/patents/patinf/patentfaqs/patent>.