How Much Did Microsoft Pay HTC To Sign The Patent Licensing Agreement?

Microsoft issued a press release claiming that HTC will be paying royalties on shipments of Android phones. Most news organizations took Microsoft’s statement at face value, but it left me puzzled, so I did a little bit of digging.

First, HTC has a fair number of patents. Unlike Microsoft’s patents, HTC’s are almost all for handheld devices, like mobile phones. Now I didn’t read all of the patents on both sides (I don’t have the time) however you can be sure that HTC knows what they hold, and they also know that Microsoft has a new phone that will be released this fall. Quite frankly based on what I could see, Microsoft is far more exposed than HTC is.

So why would HTC pay Microsoft? They wouldn’t. What I suspect happened (and we’ll never know the truth because there’s a non-disclosure agreement in place) is that Microsoft paid HTC a large sum of money, and then HTC agreed to pay a small sum of money per phone sold. Just for the argument, assume that Microsoft paid HTC $25,000,000.00 for access to HTC’s patents, and HTC is to pay Microsoft $0.001 per phone sold…

Now I don’t know that this is what happened, but from what I can see, it’s the only thing that makes sense with the patents that HTC holds. Microsoft pays HTC a lot of cash, so that HTC will pay Microsoft a small amount of cash per phone. Oh, there’s a bit of accounting work involved, but HTC comes out well ahead financially, and Microsoft can scream at everyone that HTC is paying it for using Android, and actually be telling the truth (the SEC gets upset if you don’t tell the truth).

That Microsoft isn’t telling the whole truth, well, that doesn’t matter, does it?

Regards

Wayne Borean

Wednesday May 19, 2010

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  1. I’ve been completely ignoring the posturing over this question.

    Trading patent licenses back and forth is common in industry. “You want us to pay you for this one? Let’s talk about how many of ours you’re using, then discuss what kinds of money should change hands to make the scales balance.” This also means that you want to check the other guy’s portfolio _before_ raising a public stink… and be darned sure how strong yours are, since if you ask too much the other party may be motivated to try to break them.

    1. Trading patent licenses back and forth is common in industry. “You want us to pay you for this one? Let’s talk about how many of ours you’re using, then discuss what kinds of money should change hands to make the scales balance.” This also means that you want to check the other guy’s portfolio _before_ raising a public stink… and be darned sure how strong yours are, since if you ask too much the other party may be motivated to try to break them.

      Exactly – you will check what the other party has – and in the case of HTC, it’s a lot. Which is why I believe that Microsoft paid HTC, and not the other way around.

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