In an interview this weekend, Microsoft chief Steve Ballmer, when asked how Microsoft could compete with Windows Phone 7 running on Android phones when it is free, said that it is not for free at all.  Android has to pay Microsoft royalty payouts for each copy, supporting the claim is the HTC deal.

This could hinder Android’s growth, if they have to price devices accordingly in order to pay Microsoft. Also, the the company has filed a lawsuit against Motorola for similar patent issues, but unlike HTC, Motorola will strongly fight the lawsuit, pointing out its own patent portfolio as evidence.

Microsoft is only known to target companies with limited devices. Suing Google and launching a campaign to force Android for collect fees might affect Microsoft’s image and reduce the sales of their Windows 7 worldwide.  Microsoft has spent the better part of the year prepping the mobile industry and buyers for its Windows Phone 7 release, which is finally due October 11.

The true battle here is over OS shares, as the platforms themselves can be monetized through apps, devices, service provider partnerships, advertising, search, market research and so much more.  With consumers demanding more cross-platform access and cooperation of information, the OS wars aren’t likely to die down.  Determining the legalities around patents and licensing is just part of the industry’s overall growing pains.  Apple and Nokia are in the midst of a similar legal battle, which has taken flight to Europe in recent weeks.