Microsoft IP shakedown Android HTC royaltyAs reported on numerous sites this past week, Microsoft is collecting royalties on every Android-based smartphone that HTC sells. Back in April of 2010 Redmond signed a patent agreement with HTC entitling them to $5 in royalties per device, from Microsoft IP that is inherent in the package. Asymco’s Horace Dediu has calculated that Microsoft has made five times as much in royalties from HTC’s Android sales than it has in its own nascent Windows Phone sales. Microsoft collects $15 in royalties per Windows Phone device sold.

Microsoft is also pursuing other device vendors who support Android. In the past Microsoft has signed more than 600 licensing agreements with brands including Apple, Hewlett-Packard, and LG Electronics, and has even sued some, such as Motorola and Barnes and Noble in order to collect fees if it felt its IP was being used in their products. It’s not uncommon for the IP of several technology companies to end up in many devices, but to have one of those companies as a major platform competitor is the interesting part. Nokia too is looking at the IP portfolio it has built as well as acquired through multiple software firm acquisitions over the past few years, to see if any of that technology has made it into competing platforms.

HTC historically was a Taiwanese contract manufacturer making notebook PCs (for Compaq), mobile devices, smartphones, and other consumer electronics goods for many global brands. It was the original ODM for the Rocket eBook way back when Kindle wasn’t even on the drawing board at Amazon.com. But HTC gradually built up its own brand name in Asia and then spread successfully into North America and Europe, something other Taiwanese ODMs have not been able to do. Does anyone remember BenQ?

HTC was once billed as “everyone’s contract manufacturer” and had relationships with many mobile brands. It supported multiple operating systems through these relationships and when it debuted its own brand outside of Asia it pushed both Windows Mobile and Android.

Because HTC signed the agreement early on with Microsoft, it received pretty fair terms. Now Redmond is look to extract much more from other brands, in the neighborhood of $7.50 to $12.50 per unit. HTC was smart to settle last year. In the meantime, Microsoft has managed to create a decent revenue flow from a competitive platform as it ramps up its own Windows Phone platform with supporters in volume in 2012.

In a few weeks, the Nortel portfolio is up for bids, which includes a number of patents around mobile telephony with Google appearing to be the most interested party. But Microsoft already has royalty-free access to Nortel IP and the patents through previous agreements. So while a Google acquisition of the Nortel property may fend off other mobile competitors, it won’t do so with Redmond.

Microsoft has vigorously sought claims on IP it’s created as well as licensed over the years. Many other mobile technology brands have done the same, so it’s not unique to Redmond. Nokia and Qualcomm fought each other for years over IP claims, in rather nasty public displays. Ironically, now that Nokia and Microsoft have paired up over Windows Phone, Helsinki is looking to use Qualcomm chips in its new devices running the OS. Funny how things play out.

Like it or not, IP, or intellectual capital is really the DNA of the tech world. You are nothing if you don’t have IP or at least access to it through licensing agreements. Many have chided Microsoft and Steve Balmer for letting its mobile operating system wither on the vine while Google and Apple soared across the marketplace. But its business tenacity and legal savvy led Redmond to work the IP system to ensure that its property and previous licensing agreements were protected, even though it couldn’t execute its own mobile platform effectively over the past two years.

Execution is everything. But IP execution is the Holy Grail in mobile.

– Randy Giusto

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