The deal was announced by Microsoft on Tuesday with few details, except that HTC will pay royalties to Microsoft and that the two companies were expanding their business relationship. However, Microsoft sent strong signals today that that the HTC deal is part of a larger intellectual property (IP) battle, and one of the targets is the Android mobile OS.
Microsoft, of course, has its own competing vision for the smartphone market, chiefly centering on its budding Windows Phone 7 Series operating system, as announced at the MIX 10 event in March. HTC, in addition to settling with Microsoft over IP, is a partner with Microsoft on the upcoming technology. The Taiwan-based mobile phone maker announced in February that it plans include the Windows Phone 7 Series OS on HTC mobile devices to be released later this year.
The Android mobile OS was developed by Google after it acquired Android Inc. in 2005. Google released the OS into open source and it is now maintained as a free platform by the Open Handset Alliance, a consortium of chipmakers, handset makers, mobile operators and software companies. However, neither Microsoft nor Apple -- builders of competing mobile OSes -- are members of the alliance.
Apple announced a lawsuit against HTC in early March, contending that HTC infringed on 20 of Apple's patents with regard to the "user interface, underlying architecture and hardware" of Apple's iPhone.
Microsoft has reacted with sympathy to Apple's claims. Commenting on Apple's HTC lawsuit later that month was Horacio Gutierrez, Microsoft's corporate vice president and deputy general counsel of intellectual property and licensing. He argued in a blog post that the smartphone business is "still in a nascent state." Patent battles in the mobile space are shifting from earlier intellectual property battles over radio technologies, Gutierrez, contended. Smartphone innovation today is happening in the general software stack that enables new capabilities in mobile devices.
"Now the industry is in the process of sorting out what royalties will be for the software stack, which now represents the principal value proposition for smartphones," Gutierrez wrote in the blog post. He added that "Apple v. HTC was not the beginning of this process, and it isn't the end of the story either."
Michael Gartenberg, a partner with the Altimeter Group, noted in his blog that Microsoft's settlement with HTC implied "more pressure on the notion that Android is 'free'."
"By creating uncertainty in the market regarding patent issues, both Apple and Microsoft have now created some degree of uncertainty for potential Android licensees," he wrote, adding that Google's reaction to the lawsuits remained an open question.
A spokesperson for Google on Wednesday offered no comment on Microsoft's IP deal with HTC.
The preferred licensing agreement, according to the Android Open Source Project, is for companies to use the Apache 2.0 open source license for the Android OS. However, Rob Enderle, president and principal analyst at Enderle Group, noted that the open source licensing doesn't mean that Google will step in where other software patent issues are involved.
"Phone makers have always had to assure the IP that is in their phones," Enderle explained via e-mail. "Typically they do this by licensing or building a product where they get rights to the IP. With Android, much of the IP isn't actually owned by Google and so Google can't assure the related rights."
Enderle noted that the issue may have reverberated with the recently announced acquisition of Palm by Hewlett-Packard because HP too had been looking at using Android. HP announced on Wednesday that one of the reasons for its acquisition of Palm was to obtain Palm's webOS and associated patents.
No further details on the Microsoft-HTC IP agreement were returned by press time by HTC in response to a query. However, Microsoft responded on Wednesday with a statement attributed to Gutierrez indicating that other mobile device manufacturers using the Android OS are being targeted for IP infringement complaints.
"Microsoft has a decades-long record of investment in software platforms," Gutierrez stated. "As a result, we have built a significant patent portfolio in this field, and we have a responsibility to our customers, partners, and shareholders to ensure that competitors do not free ride on our innovations. We have also consistently taken a proactive approach to licensing to resolve IP infringement by other companies, and have been talking with several device manufacturers to address our concerns relative to the Android mobile platform."
Nearly two years ago, a Microsoft official claimed that the open source Linux operating system violates 235 of Microsoft's patents. The settlement with HTC tends to validate Microsoft's claims, according to Roger Kay, president and founder of Endpoint Technologies Associates, a technology market analyst firm. He added that Microsoft just wants to get paid for its "prior art."
"Rather than take an Apple approach, which involves suing people who violate your IP, [Microsoft] takes a licensing approach where they try to convince them that we really do have the rights to that stuff, and you should be paying us for it," Kay explained in a phone interview.
"The thing that makes it interesting is that not only is the payment likely to be significant (even though they haven't said what it is), but it also sets a precedent for other phone makers following Android. They may find it difficult to argue against it," Kay said.
He added that there is no open source IP manager overseeing free OSes. However, if you license Windows Mobile, Microsoft has cleared all of the rights having to do with it, and that's included in the price. You get a license that indemnifies the company building on the software.
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