Daily Management Review

Aiming to Build ‘Long Term Relationships’, Microsoft Sells Patents to Xiaomi


Aiming to Build ‘Long Term Relationships’, Microsoft Sells Patents to Xiaomi
As a part of what the two companies – Microsoft and Chinese device maker Xiaomi say is the start of a long-term partnership and in a rare departure from its strategy and values for the U.S. company, software maker Microsoft Corp is selling about 1,500 of its patents to Xiaomi.
A commitment by Xiaomi to install copies of Microsoft software, including Office and Skype, on its phones and tablets and a patent cross-licensing arrangement are also included in the agreement that was announced very recently. 
The financial aspects, impact and terms of the deal were declined to be discussed by both the company.
"This is a very big collaboration agreement between the two companies," Wang Xiang, senior vice president at Xiaomi, said by telephone ahead of the deal to news agency Reuters, claims the agency .
Weak patent protection and a fear of a prolonged legal battle in other countries are the reasons that have hampered the ambition of Xiaomi to become one of the major international players outside of China as manufacturers of mobile handsets, say analysts.
"This deal might just give them enough of a patent trove to move to Western markets. Their position in China has been under constant attack from even lower-end Android vendors, so moving overseas is now a necessity," said Sameer Singh, a UK-based analyst.
While the market share of Xiaomi dipping down to 12 percent from 13 percent as the company has been squeezed not only by Huawei and Samsung Electronics but also by smaller companies in the market such as Oppo and Vivo, the shipments of Xiaomi phones fell 9 percent year-on-year in China in the first quarter, according to Strategy Analytics.
The patents that the Chinese company is set to acquire from Microsoft include ones that are related to voice communications, multimedia and cloud computing. In addition to this the Chinese company have also applied for some 3,700 patents last year. Wang said the acquisition of Microsoft patents and the filed patents were "an important step forwards to support our expansion internationally."
A TV set-top box developed in cooperation with Alphabet Inc's Google is Xiaomi’s first U.S. device that was launched earlier this month. Google owns the Android operating system it and most Xiaomi devices run on. A tablet which runs a version of Microsoft's Windows operating system was also launched by Xiaomi.
By having its products pre-installed on their devices, the company was keen to tap into Xiaomi's young, affluent and educated users, said Jonathan Tinter, corporate vice president at Microsoft. The overall deal was something "we do only with a few strategic partners", he said even though he declined to go into detail about the patent deals.
Over the years, licensing deals with many Android device makers have been cut by Microsoft but not much has been possible for the company with regards to Chinese manufacturers.
"It's possible Microsoft found it easier to impose its Android patent tax on Xiaomi as part of a broader deal that also involved a transfer of patents," said Florian Mueller, a patents expert who consulted for Microsoft in the past. Mueller added that it was rare for Microsoft to actually sell its patents.