Windows Phone Data, Nook Lawsuit, Earnings Filled Microsoft's Week

By Nicholas Kolakowski  |  Posted 2011-05-01

Windows Phone Data, Nook Lawsuit, Earnings Filled Microsoft's Week

Microsoft's week was big on the corporate side of things: an earnings report, a few statements about a particular policy and the prospect of a drawn-out legal battle with ... a book retailer?

As improbable as it may have seemed even five years ago, Microsoft is locking legal horns with Barnes & Noble, which fired off a counterclaim April 25 to Redmond's lawsuit over intellectual property. At issue is Barnes & Noble's e-reader, the Nook Color, which runs Google Android.

According to the bookseller, Microsoft is using its patent portfolio to squeeze royalties from manufacturers who install Android on their mobile devices, with its lawyers allegedly demanding large royalties for patent licenses related to the Nook.

"Microsoft is misusing these patents as part of a scheme to try to eliminate or marginalize the competition to its own Windows Phone 7 mobile device operating system posed by the open source Android operating system and other open source operating systems," reads the counterclaim, filed with the U.S. District Court for the Western District of Washington at Seattle. "Microsoft's conduct directly harms both competition for and consumers of eReaders, smartphones, tablet computers and other mobile electronic devices, and renders Microsoft's patents unenforceable."

In its original action, filed March 21, Microsoft had insisted the Nook violates its intellectual property.

"The Android platform infringes a number of Microsoft's patents, and companies manufacturing and shipping Android devices must respect our intellectual property rights," Horacio Gutierrez, Microsoft's corporate vice president and deputy general counsel for intellectual property and licensing, wrote in a March 21 statement. "To facilitate that, we have established an industry-wide patent licensing program for device manufacturers."

Microsoft and Motorola are currently locked in tit-for-tat intellectual-property lawsuits, with the former claiming the manufacturer violated nine patents with its Android smartphones. In April 2010, HTC announced it had agreed to pay Microsoft royalties in exchange for the use of "patented technology" in its Android-powered smartphones.

Barnes & Noble also raised the prospect of anti-competitive behavior on Microsoft's part, a potentially sore point for a company that spent years locked in a monopoly dispute with the U.S. Department of Justice.

"Microsoft's activities have a significant, wide felt, and highly detrimental anticompetitive effect and restrain competition in the market for mobile operating systems," the counterclaim reads at one point, "by suppressing the use and development of open source mobile operating systems, including the Android operating system, and the development of applications and devices employing the same."

Windows Phone 7s Adoption Issues


That legal battle is heating up just as new data emerges suggesting that Microsoft's smartphone franchise, Windows Phone 7, is having some issues with consumer adoption.

According to a new survey from The Nielsen Company, taken between January and March, some 31 percent of consumers indicated they wanted an Android smartphone as their next device, up from 26 percent in the group's July-September 2010 survey. Meanwhile, Apple's iOS scored 30 percent, down from 33 percent, and RIM's BlackBerry came in third at 11 percent-a two-point dip from 13 percent.

The combined Windows Mobile/Windows Phone 7, however, scored 6 percent-a slight downtick from the 7 percent in Nielsen's previous survey. That roughly mirrors recent data from analytics firm comScore, which placed Microsoft's share of the smartphone market at 7.7 percent for the three months ending in January. 

Microsoft also spent the week making very clear its policies regarding how and when those Windows Phone devices collect information on a user's physical location. Those statements were likely in response to the growing controversy that gripped Apple over its iOS devices storing location data.

"When you allow an application or game to access your device's location, the application or game will connect to Microsoft's location services and request the approximate location of the device," reads an FAQ posted on Microsoft's corporate Website. "The location service will respond by providing the application or game with location coordinates of the user's device (when available), which the application or game can then use to enrich the user experience."

Microsoft's location services apparently rely on a database of local cell towers and known WiFi access points to "provide an approximate location of the user's device." In addition to those WiFi access points, Microsoft can leverage a device's GPS to provide observed longitude, latitude, direction and speed. Users can also deny applications access to their location information. And Windows Phones don't seem to store the user's location on the device itself.

Microsoft itself didn't let much information slip on how its Windows Phone 7 devices are performing in the marketplace during its April 28 quarterly earnings call, although solid sales of Office 2010 and the Xbox Kinect hands-free controller both helped the company's revenue hit $16.43 billion-a year-over-year increase of 13 percent. Net income rose 31 percent, to $5.23 billion.

Despite the strength in some of those product lines, Microsoft's Windows segment reported a 4 percent dip, something the company explained in a statement ahead of the earnings call as "in line with the PC trends."

According to a recent IDC report, a "cautious business mentality and waning consumer enthusiasm," combined with recent events such as the earthquake in Japan, caused a 3.2 percent decline in global PC shipments during the first quarter of 2011. Microsoft itself places that quarterly decline at 1 and 3 percent.

It's data like that-and pressing competition from companies like Apple-driving Microsoft to diversify its product lines into mobility and the cloud.


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