On Monday this blog reported on a lawsuit filed by Microsoft against Foxconn in the United States last week. The complaint alleges Foxconn (also known as Hon Hai Precision Industry) has repeatedly violated the terms of a 2013 patent licence agreement covering Android devices, having failed to submit required royalty reports since 2015.
After news of the dispute broke, Foxconn founder and CEO Terry Gou expressed outrage over the accusations in a strongly-worded Facebook post. Here is a full translation of his comments on Facebook:1- Microsoft announced its lawsuit against us before we received a formal indictment. They are using us to indirectly warn those manufacturers in order to get unreasonable patent fees.2- Chinese smartphone brands who used Microsoft’s software are its real targets. In the midst of US-China trade war negotiations, Microsoft turns to bully weak Taiwanese companies to secure unreasonable patent royalty payments without displeasing Chinese clients and internet users.
3- Microsoft’s real purpose is getting royalties from Huawei. But Huawei is hitting headlines around the globe at the moment. If Microsoft sues Huawei now, it will be confronted with fierce counter-assertion from Huawei and massive boycott from Chinese users. 4- As a global software giant, Microsoft should have asked Google or Android brands to pay, but it instead is going after mainland Chinese vendors. Its intention is clear – taking advantage of US-China trade war negotiations in which China is likely to soften terms for reaching trade peace. It’s ripping the Android mainland Chinese manufacturers off.
5- Hon Hai does not assemble Android products at issue so there is no infringement at all.
On Tuesday, Gou appeared alongside FIH Mobile acting chairman Chih Yu Yang at a press briefing in Taipei. Hong Kong-listed FIH Mobile, a subsidiary of Foxconn, is responsible for the group’s contract production of Android smartphones. The parent company, Foxconn, is the largest assembler of Apple’s iPhones. Foxconn itself, said Chih, does not produce Android phones at all, and therefore does not owe royalties.
Chih also stressed that smartphone vendor customers have instructed FIH Mobile not to negotiate patent issues or pay royalties on their behalf, nor to share any relevant information with Microsoft. He stated that in manufacturing contracts FIH enters, it is the clients that are responsible for IP rights and design.
This is not the first time that Foxconn has been caught in the middle of a patent licence dispute – Qualcomm sued four Apple suppliers (Foxconn, Wistron, Compal, and Pegatron) in 2017 in a US federal court for withholding royalties on Apple products. It is worth noting how different Foxconn’s reactions to the two cases have been, though they bear a resemblance. Terry Gou kept a low profile after the Qualcomm case, and certainly did not accuse the chipmaker of bullying Taiwanese companies.
Gou’s response suggests there might be key differences in this case.
- First, Apple was already involved in a very public dispute with Qualcomm when the latter sued Foxconn. It was and is clear to everyone that Qualcomm’s real target is Apple. But in the present case, Microsoft has never sued Huawei or Foxconn’s other Android smartphone clients. So Gou wants to make it absolutely clear to the market that his company is caught in the middle of a larger fight.
- Second, it has been reported that Apple assured its contract manufacturers that legal and financial responsibilities stemming from the Qualcomm dispute would ultimately be borne by Apple. It could be that those types of understandings do not currently exist between FIH Mobile and its Android smartphone clients.
Gou’s angry words were directed at both Microsoft and his own mainland Chinese client. By bluntly stating his company is being used by Microsoft to warn Huawei, Gou is letting the world know that Huawei needs to fix this problem.
Contract manufacturers usually pay patent licence royalties on behalf of their smartphone vendor clients, and expect to be paid pack by clients. It is reasonable to assume FIH’s smartphone clients agreed to pay for Android-related patents, which was why FIH signed the licence agreement with Microsoft back in 2013.
We will need to wait to see Foxconn’s formal legal response to Microsoft’s allegations. In the meantime, there will likely be negotiations between all three parties about defusing what is now a very charged dispute.