Hasta La Gadget!

Taiwanese smartphone maker HTC has friends in powerful places: The company has inked a patent licensing deal with Microsoft. The move will allow HTC to continue using the Google-designed Android operating system in its phones while mitigating its risk should Microsoft aim any patent lawsuits at the OS.

Microsoft and HTC did not disclose specific details of the agreement but they have said HTC will pay Microsoft an undisclosed sum for the patent rights.

“The license agreement itself isn’t as interesting as the fact that Microsoft chose to publicize it,” says Matt Rosoff, an analyst with Directions on Microsoft, a research and consulting firm that focuses entirely on Microsoft. Microsoft has more than 600 licensing agreements relating to its patents.

Rosoff says the patent agreement is a signal that Microsoft is a company to reckon with in the smartphone business. It also suggests that Microsoft and HTC are likely to continue working together, he says.

“They want to let everyone know that Microsoft and HTC are partners and HTC is going to continue to create Windows Mobile-based devices,” says Rosoff.

HTC’s meteoric rise as a cellphone handset maker has largely been attributed to the company’s big bet on Android. HTC created the first Android phone for T-Mobile and Google, and the Nexus One phone that is directly sold by Google. HTC is one of Android’s biggest cheerleaders with more than six Android devices in its portfolio.

The rise of Android has also come at the expense of Microsoft’s Windows Mobile platform. And while HTC still produces Windows Mobile phones, they are fewer in comparison to its Android devices.

Meanwhile, HTC’s close relationship with Google’s Android OS caught the attention of Apple. Last month, Apple sued HTC alleging infringement of the former’s 20-odd patents relating to user interface and touch. That lawsuit was widely seen as an indirect hit against Google.

The patent agreement with Microsoft is unlikely to help HTC in its battle with Apple, says Allen Nogee, principal analyst for research firm In-Stat.

“There are two separate issues here,” says Nogee. “Apple’s lawsuit against HTC is largely about the user interface and use of touch, while Microsoft is concerned with the software stack used in the smartphone OS.”

In the past, Microsoft has said that companies that use Linux-based operating systems infringe on some of Microsoft’s patents. But it has never really disclosed details of its patents, says Rosoff.

Android, which is a Linux-based operating system, could pose similar patent-related issues, which is why HTC and Microsoft may have entered into an agreement, he says.

As smartphones get more powerful and turn into handheld computers, the software holds the key to the device, says Horacio Gutierrez, Microsoft’s deputy general counsel of intellectual property and licensing.

“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,” he says in a blog post.

“In the next few years, as the IP situation settles in this space and licensing takes off, we will see the patent royalties applicable to the smartphone software stack settle at a level that reflects the increasing importance software has as a portion of the overall value of the device,” says Gutierrez.

Microsoft is also talking to other handset makers about its “concerns relative to the Android mobile platform,” he says. Motorola and Sony Ericsson better be prepared to hear Microsoft knock on their doors.

Photo: avlxyz/Flickr

See Also:

• T-Mobile, Garmin Announce New Android Phone
• AT&T Plans 5 Android Smartphones in 2010
• Android Fragmentation Declines, But Older Versions Still Rule
• New Phones Still Sold With Old Versions of Android
• Strapped to Android, HTC Takes a Dizzying Ride to the Top