Microsoft's Mobile Patent Strategy: Threaten, Don't Sue

It's official: patent litigation is a fool's game. As reported in The Wall Street Journal, the past few years of patent litigation in the mobile industry have yielded participants very little, as courts have swatted down suits on the basis of prior art, obviousness of the technology or other reasons. However, Microsoft, by quietly, consistently threatening without overtly suing, has managed to pull in billions of dollars in license fees from Android licensees.

In other words, speak softly and carry a big stick?

Suing Competitors: It Seemed Like Such A Good Idea

For years the mobile industry has been a morass of patent suits and countersuits. Everyone seems to be suing everyone. Yet, as the Journal reports, the industry has little to show for this except tens of millions of dollars in legal fees.

Not only have courts been prone to strike down the lawsuits, even when they've accepted a patent litigant's claims they've tended to take years to actually settle on anything and even then have rendered judgments that give the prosecution far less than they'd hoped. In technology, which moves at a blistering pace, court cases that take years are largely irrelevant, whatever a court may ultimately decide. By the time courts get around to rendering judgment, the industry has moved on.

Hence, for all Apple's attempts to kill Android in the womb, Google's open-source mobile operating system now dominates the industry, and its primary licensee, Samsung, bests Apple in market share.

This leads Stanford law professor Mark Lemley to quip, "buying up a few patents and trying to get rich off them by suing is a questionable pathway to profitability." It has also pushed Microsoft to take a different tactic: threaten, don't sue.

Profiting From The Threat Of Litigation

Microsoft has never been one to sue. In its long history, the company has only taken someone to court a small handful of times, and itself has had to pay out more than $9 billion in damages. Perhaps because of how hard Microsoft has been spanked by the courts, it has taken a different tactic with Google Android.

As reported by Reuters, Microsoft now makes far more on Android patent royalties than it does on its own Windows Phone OS. (For some this might make Microsoft a patent troll, but we'll leave that for a separate blog post.) In fact, by some estimates Microsoft will clear $3.4 billion in Android royalty fees in 2013, and is on pace to top $8.8 billion within the next few years.

Not a bad haul for simply sending lawyers to sell fear about its patent portfolio. 

Commenting on Microsoft's claim that it now collects royalties on 80% of all Android devices shipped, Google spokesman Matt Kallman declared: "This is the same tactic we've seen time and again from Microsoft. Instead of building great new products, Microsoft attacks the competition and tries to drive up the prices of Android devices for consumers."

Patent Infringement? You Bet

Of course it's possible that Microsoft's patents are rock-solid; that their quality is super-high and could never fail in court. It's also possible that Steve Ballmer is Santa Claus.

Here's the reality of patents: everyone violates everyone's patents, all the time. The US Patent and Trade Office has been issuing patents of such dubious quality for so long that this isn't merely speculation: it's an absolute given.

Perhaps for this reason Microsoft prefers to do its patent "litigation" in the quiet conference rooms of LG, ZTE, Asus and other Android licensees. Behind closed doors, Microsoft can persuade listeners that its patents are being violated (they likely are) and that a court would find for Microsoft (it likely wouldn't). The risk to these licensees is enough that they sign on the dotted line, and Microsoft mints money without actually having to sell anything.

Microsoft: We Come In Peace

Microsoft, not surprisingly, articulates its strategy much differently. It is the injured party, Microsoft Corporate Vice President and Deputy General Counsel Horacio Gutierrez intones:

"Much of the current litigation in the so called “smartphone patent wars” could be avoided if companies were willing to recognize the value of others’ creations in a way that is fair. At Microsoft, experience has taught us that respect for intellectual property rights is a two-way street, and we have always been prepared to respect the rights of others just as we seek respect for our rights. This is why we have paid others more than $4 billion over the last decade to secure intellectual property rights for the products we provide our customers."

I don't doubt Gutierrez's $4 billion figure. I do doubt that it's in any way commensurate with the amount of money Microsoft is extracting from the Android market for patents that likely wouldn't win in court.

Standing Up To Microsoft

This was Microsoft's same strategy on the server. Microsoft tried to shake down enterprise IT and enterprise software vendors. Despite proclaiming to the industry that Linux violated 235 Microsoft patents, the strategy largely went nowhere, except with Microsoft's partner, Novell. For years, Microsoft trotted out Novell to show how "responsible" companies worked with Microsoft.

Fortunately, few took the bait. The industry stood firm, Linux founder Linus Torvalds demanded that Microsoft actually name the allegedly infringed patents publicly and stop its whisper campaign, and Microsoft ultimately had to compete on the merits of Windows Server, not patent litigation. Guess what? Microsoft has done very well. It didn't need patent litigation to compete.

It would be nice to see Microsoft do the same in mobile or, at least, to have the mobile industry stand up to Microsoft.

Yes, there's a risk of going to court but, as recent court cases have shown, that risk is becoming smaller all the time. Courts don't like competition-via-lawsuit, particularly when the lawsuits are fueled by specious claims and dubious patents. Microsoft has shown it can compete when its whisper campaigns fail.

It's time to give Microsoft the chance to prove itself in mobile, too, rather than collect fees on others' hard work.