Foxconn was "blackmailed", Terry Gou was angry!

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The patent war between Apple and Qualcomm has not yet ended, and two other technology giants have started a war in the field of smartphone patents.

Recently, Microsoft filed a complaint with the U.S. District Court for the Northern District of California, accusing Foxconn of failing to provide patent licensing reports twice a year for certain unspecified products and failing to pay patent royalties on time. Microsoft requires Foxconn to pay patent fees and corresponding interest, as well as the costs of reviewing Foxconn's books and consulting lawyers.

On the morning of March 12, Foxconn founder Terry Gou responded on Facebook, saying that he had only received Microsoft's indictment in the early hours of the day, and that Microsoft released the news before Foxconn officially received the indictment in an attempt to scare Foxconn and extort improper patent protection fees, rather than focusing on the content of the legal proceedings.

He believes that Microsoft's goal is to demand patent protection fees from Huawei for using Android.

"Microsoft has always claimed that it has patent rights to some technologies in the Android and Chrome OS systems. Previously, in order to acquire Nokia's mobile phone business, Microsoft disclosed its Android patents in a document submitted to the Ministry of Commerce of China, including many of Microsoft's technical patents related to smartphones." Wang Ming (pseudonym), an analyst who used to work in a patent data agency, told the First Financial reporter that Microsoft's patents mainly cover three parts: Microsoft technology patents used at all levels of the Android operating system; technical patents such as ex-FAT, RDP, and EAS; and technical patents related to WiFi, 3G/4G.

Wang Yanhui, secretary general of the China Mobile Alliance, told reporters that Microsoft has many patents for smartphones and the lawsuit is just a means or a strategy, and the ultimate goal may not be Foxconn.

What is the purpose of eight years of negotiations?

Having not slept much the previous night, Terry Gou appeared at an "immediate" press conference in Taipei on March 12. He had just paid tribute to his ex-wife that morning.

At the press conference that day, Guo Taiming further elaborated on his views to the reporters present, saying that he wanted to reassure customers and shareholders. "Let me tell you, we will never suffer any loss - whether it is Foxconn or FIH Mobile. I guarantee that the company will not suffer any more losses in orders, but will have more orders. Because customers trust us, we can protect more of their rights. We now have enough evidence to deal with the lawsuit."

He was also accompanied by Chi Yuyang, head of FIH Mobile Communications Group. Since Android smartphone OEM accounts for a large proportion of FIH Mobile Communications' main business, while Hon Hai Foxconn mainly manufactures Apple products, it is seen by the outside world that FIH Mobile Communications is more affected by the lawsuit.

Chi Yuyang said at the press conference, "In recent years, 95% of our Android phones are from the world's top ten brands, and the top five brands account for 84%. Microsoft first made (patent) claims in the first half of 2011, and was in negotiations with mobile phone manufacturers until 2013. But in addition to having contracts, all our customers have formally asked us not to negotiate and pay on their behalf, nor to disclose product-related information to Microsoft." Chi Yuyang said.

He believes that regarding the property rights and design rights of products, if there are any claims of intellectual property rights, the brand manufacturers are generally responsible based on the contract.

As for why Foxconn was sued after eight years of negotiations, Guo Taiming believes that Microsoft wanted to "make a warning" and that the actual issue is a dispute between Microsoft and Google over the use of patents. "This is a dispute over intellectual property rights between two American companies because Google does not pay Microsoft. More details are not convenient to disclose," Guo Taiming said.

Wang Yanhui, secretary-general of the Cellphone Alliance, told reporters that filing a lawsuit against Foxconn may be a strategy of Microsoft, which hopes to use Foxconn as a typical case to gain greater say in smartphone patents.

It is unclear what products are covered by Microsoft's agreement with Foxconn, but Microsoft said in 2013 that it had a patent agreement with Foxconn for Android and Chrome OS devices. A copy of the agreement was filed in court but remains under seal.

Patent litigation questions the "weakness" of enterprises

Patent wars between international giants seem to have become the norm in recent years. Some analysts believe that Microsoft's confidence in filing a patent lawsuit against Foxconn comes from its large patent reserves.

Wang Ming told reporters that in order to acquire Nokia's mobile phone business, Microsoft disclosed its Android patents in the documents submitted to the Ministry of Commerce of China, mainly including a number of technical patents related to smartphones.

"The Ministry of Commerce's document lists a total of 310 patents: 73 of which are standard essential patents; 127 are patents implemented in Android, including data formats for storage, retrieval and transmission of multimedia objects, remote acquisition and display of text containing pictures, browser navigation device input system, search and browsing of URLs and URL history, address book update function, synchronization channel selection method, etc." Wang Ming told reporters.

At the same time, since Android is a free and open source operating system based on Linux, Microsoft had already obtained patent licensing fees on the Linux system before Android was born. This makes the patent licensing between Google, Microsoft and Android manufacturers extremely complicated.

According to public data, Microsoft's previous patent licensing revenue from Android and Chrome OS is very impressive. Samsung alone paid Microsoft up to $1 billion in patent licensing fees in 2013. In addition to Android manufacturers, dozens of other companies have paid Microsoft Android patent royalties.

But as Linux and open source software become more and more important to software development for companies large and small, Microsoft is also changing its image in the open source community. Last October, Microsoft joined the Open Invention Network, a Linux-related patent pool, to cross-license its patents with other members. These companies also include Microsoft's long-term competitors such as Google and IBM. But from another perspective, the role of patents is increasing and can become a bargaining chip in business negotiations.

Jia Jun, chief patent analyst at Zhihuiya, previously told reporters that patents are government rewards for technology innovators, which can help them monopolize technological achievements and exclude competitors. Therefore, patents are an important intellectual asset in the high-tech field. In market competition, companies that have a large number of core patents can provide products with unique functions and create a high-end brand image. They can also improve their bargaining power in the industrial chain with their technological advantages, and safeguard their strategic interests in the process of building industry alliances and formulating industry standards.

As for Chinese companies, since they were exposed to the concept of patents relatively late and their R&D capabilities are generally weak, this is reflected in their patents as "late patent layout and single technology layout", resulting in a large number of basic patents falling into the hands of foreign competitors.

"If domestic mobile phones want to go global, patents will always be a problem. Microsoft's licensing negotiations will take some time." Wang Yanhui told reporters that it is difficult to judge the impact on domestic mobile phones in the short term, but in the long run, the patent issue will be a tough battle for Chinese manufacturers.

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