Patent Wars: The Pawns in Apple and Google's Chess Match
Steve Jobs hated HTC and Samsung, but more importantly, he hated Google.
"We can sit by and watch competitors steal our patented inventions, or we can do something about it," he famously said shortly before his death. "We've decided to do something about it. We think competition is healthy, but competitors should create their own original technology, not steal ours."
Apple then launched an all-out war against Google, attacking its Android partners in courtrooms around the world. Google, facing over 40 lawsuits, bought Motorola Mobility for $12.5 billion -- not for its hardware capabilities, but rather for its trove of intellectual property.
In August, Apple won a first major battle, as a federal jury found Samsung infringed on several of Apple's patents. The verdict will cost Samsung over $1 billion and royalty payments on sales of future devices.
Now, just three months later, Apple and HTC have agreed to dismiss a series of lawsuits filed against one another and sign a 10-year licensing agreement that grants both parties rights to each others' current and future patents, easing high tensions.
The history between the two companies' feuding extends back to 2010, when Apple delayed the release of HTC's devices in the U.S. due to an International Trade Comission, or ITC, order. Later, HTC threatened to have LTE-capable iPhones and iPads banned, claiming it held patents related to the 4G technology. Meanwhile, Apple spent over $100 million to put pressure on HTC and ban devices in the U.S., but HTC side-stepped penalties through a crafty software change.
Apple, armed with record-breaking sales and a war-chest of cash, can fight a long courtroom battle. But HTC is reeling from one of its worst quarters to date -- and in no position to fight a drawn out legal war.
HTC's tailspin can be traced to a faulty strategy where it bungled efforts on two fronts. In China and India, the company produced handsets that weren't cheap enough for the target markets, and in North America, it failed to push a brand and build mass awareness and reputation. As a result, it does not have the necessary resources for a prolonged war.
By contrast, Samsung is experiencing its most profitable quarters to date -- led by strong sales of its Galaxy smartphones and tablets. Unlike HTC, Samsung is flush with cash, patents and stamina, ready to fight Apple in courtrooms around the globe for the billions at stake.
When Jobs introduced the iPhone in 2007, he unveiled the revolutionary device, saying, "boy, have we patented it." The iPhone blazed a trail in the mobile device market, largely taking market share away from previously-dominant players like HTC, LG, Nokia, Samsung and Sony Ericsson. Samsung regrouped, and in documents released in a recent trial, South Korean executives laid out, in detail, what made the iPhone superior to its smartphones. Then Samsung started to mimic the iPhone's interface and design, and gradually, the Galaxy began to resemble Apple's iconic device.
Legal experts believe Apple will eventually win or the courts may narrow down the courtroom battles and throw them out due to the "good for the public," as was the case with Apple's legal fight with Microsoft's Windows. Competition drives innovation and overly strict patent interpretation can stifle it. In some industries, like pharmaceuticals, strong patent protection is necessary to fund and reward companies for resource-intensive research. But in tech, the need to become a first-mover, whether the technology is patented or not, often outweighs the cost of coming in second. Locking in patents can ensure future profits, but it doesn't affect the ways these companies research.
In Apple's case, after releasing the iPhone and iPad, the company amassed huge earnings and revived its brand equity, all before rivals could react and launch a counterattack. As a result, today, Apple is the most valuable company in the world, while Samsung is just a quarter of the size.
So why all the lawsuits?
Part of the problem can be traced back to an antiquated patent system. Unlike hardware, patent officials often find it difficult to evaluate software code. In many cases, similar patents are granted to multiple companies. And since mobile devices combine technologies from different industries -- such as digital imaging, wireless, hardware and software, among others -- intellectual property from one sector often overlaps patents in another, adding to the confusion. There's a serious problems with the current patent system, and it's in desperate need for an overhaul. So for now, litigation is the way.
And since Apple is on the road to victory, already making inroads with HTC and still in hot pursuit of Samsung, you'll likely see higher prices as rivals pay an "Apple tax" for royalties. In addition, to avoid future legal battles, handset makers will make bigger changes in Android phones, moving various form factors and interfaces away from the Apple blueprint and releasing a broader array of devices. For product designers, the climate creates a "minefield" as they second-guess which features may or may not infringe on other company's patents.
Adding to the mix, CEO Tim Cook is taking a different approach than Jobs in solving Apple's problems, humanizing the company. In addition to exploring dividends for stockholders, Cook has increased wages for retail employees, offered larger discounts for workers and crafted a program that may bring millions to charities. How the legal battles fit into Cook's new angle is uncertain. But unlike HTC's settlement, Samsung is another matter, one Apple is unlikely to forgive and forget no matter how much Cook softens its image. A detente is unlikely.
HTC and Samsung are proxy fights in the larger war between Apple and Google. And for Apple, the agreement with HTC signals it no longer sees the Taiwan handset maker as a threat, but rather a pawn in its fight with Google. Samsung is the strongest pawn in the larger competition for mobile operating system dominance. In the end, any legal battle is a loss for consumers, and the only permanent solution is a reform for the patent system. ♦
Categories: News Desk