Cross Strait

Patently obvious?

Microsoft sues Foxconn for Android royalties – Huawei might be next


Terry Gou: he’s absolutely livid

One of the worst kept secrets in the tech world is that Microsoft has amassed hundreds of Android patents (not what you might expect, given that Microsoft would have preferred to see that operating system supplanted by its own ill-fated mobile version of Windows; counter-intuitive too because its big rival Google is behind Android). A Nomura research report from 2013 estimated that the software giant was already generating as much as $2 billion a year in Android royalty income as a result.

Microsoft’s agreements with phonemakers are often made without public disclosure, but companies that fail to pay their royalties risk running into wrangles with the American giant.

Take HTC. When it was choosing between litigation and licencing in 2010, the Taiwanese smartphone maker reached a deal with Microsoft – it was said to cough up $5 for every Android phone that it sold.

More recently Microsoft has been pushing for payments from another Taiwanese firm. But in this case Foxconn, the world’s biggest consumer electronics OEM, has opted to take on Microsoft in court.

The news broke earlier this month when Microsoft filed a lawsuit in California accusing Foxconn of failing to comply with a patent licencing agreement from 2013. According to the filing, Microsoft is demanding that Foxconn pay an unspecified royalty fee and that it must also open up its books for fuller financial review.

The action drew little attention until a vigorous rebuttal from Foxconn’s boss Terry Gou a few days later.

He first lashed out last Tuesday with a post on his Facebook account, saying that Microsoft was trying to solicit illegitimate payment like a “protection racket”.

Then the 68 year-old went a step further a day later with a high-profile press conference, wearing a cap displaying the Taiwanese flag.

“I am standing here to speak up for Taiwan’s tech industry. Microsoft is a coward. We need to fight back,” he urged.

“Bill Gates is someone who has been the world’s richest man but Microsoft is resting on its laurels, hoping to extend its hegemony from the PC era,” he fumed. “Android is an open platform, this should be a battle between Microsoft and Google, a battle between two American firms, and a battle between monopoly and open source.”

The Foxconn boss believes Microsoft’s true goal is to collect patent royalties from Chinese phonemakers such as Huawei, which have found themselves in a more vulnerable position because of the trade and tech spat between China and the US.

Gou’s suspicion is that Microsoft doesn’t want to take on Huawei directly in the current political climate but that his firm is an easier target. However, Foxconn is only a contract manufacturer for other brands’ smartphones, he insists, and it won’t cough up “a single penny” to Microsoft.

Even if Foxconn loses the lawsuit, Taiwanese newspapers say the financial damage would be limited because the company gets its bread-and-butter contracts from making iOS devices for Apple. However, Foxconn has OEM deals with Android phone makers such as Xiaomi, and reportedly won a lucrative contract to make Huawei’s 5G handsets, so there is a China dimension.

That, perhaps, is why Gou is so furious about Microsoft’s demand to review Foxconn’s books, says Taiwan’s Economic Times. In doing so Microsoft could nail down more precise sales figures for Android devices, the newspaper reckons, paving the way for it to collect higher royalties from Chinese phonemakers in the future.

Hong Kong’s Singtao Daily sees logic in that analysis. “Microsoft’s lawsuit against Foxconn could be a curtain-raiser for its assault on Huawei, and provide American President Donald Trump with a bargaining chip in the next round of China-US trade spats,” the newspaper suggested.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.