Preston Gralla

Microsoft's $2 billion Android patent windfall is endangered. Should Microsoft care?

December 09, 2013 11:54 AM EST

Microsoft's estimated $2 billion a year in patent payments from Android device makers is in danger -- a German court has nullified one of Microsoft's Android-related patents in the European Union. What does this mean for Microsoft and mobile?

FOSS Patents reports that the Federal Patent Court of Germany ruled that the Microsoft patent related to a "common name space for long and short filenames" isn't valid. In plainer English, that a patent for Microsoft's File Allocation Table (FAT) is invalid.

This isn't the final word on the patent ruling. Microsoft will certainly appeal. And keep in mind that the ruling affects only the European Union, and nowhere else in the world.

Still, a lot of money is at stake. Microsoft gets an estimated $2 billion a year in licensing fees from Android device makers. The licensing deals are in place with Samsung, HTC, and many others. Microsoft gets an estimated $5 to $15 per device sold from the Android manufacturers. Horacio Gutierrez, Microsoft Corporate Vice President & Deputy General Counsel, Legal & Corporate Affairs noted on his blog in April:

"We have successfully entered into license agreements with nearly all companies on the list of the world’s largest Android smartphone vendors and their manufacturers. In fact, 80 percent of Android smartphones sold in the U.S. and a majority of those sold worldwide are covered under agreements with Microsoft."

At this point, there's no way to estimate how much money Microsoft might have to forgo if the patent ruling is upheld, because it only affects phones sold in the European Union, and only one patent.

Even if the patent ruling is upheld, though, it won't dramatically hurt Microsoft. Microsoft's Android patent revenue is a sideshow compared to Microsoft's real battle in mobile, which is gaining traction for Windows Phone and for Windows-based tablets. And given that it's only one patent in the EU, most of Microsoft's Android revenue will still be safe. Microsoft has bigger mobile battles to fight.