Apple: Fighting Fire with Fire at the Center of the Patent War

by Brad Moon | March 29, 2012 6:45 am

This is the second in a series of three articles highlighting Apple’s approach to intellectual property. The first article, “Apple’s Long History of Courtroom Combat,” discusses the company’s early tactics. Next: “Recent Apple Patents Point the Way to the Future.”

Given its history of litigation, the current climate might remind us of Apple (NASDAQ:AAPL[1]) as it was during the 1990s — but this time the battles are playing out in courtrooms worldwide, one country at a time. And while broad issues such as “look and feel” are once again under dispute, the lawsuits also are focusing on specific elements: a key piece of technology or an input motion such as the “slide to unlock” gesture used on iPhones and iPads.

Here are some relatively recent conflicts reflecting Apple’s current litigation strategy — and its potential merits and costs — as a plaintiff and a defendant:

Key Litigations Initiated by Apple:

• 2010 — Apple sues HTC — the manufacturer of the first Google (NASDAQ:GOOG[2]) Android phone — over 20 patents connected to the iPhone user interface, architecture, and hardware. Outcome: In 2011, Apple won a ban against the import of some HTC Android mobile phones into the U.S., to take effect on April 19, 2012, unless HTC removes infringing features from the devices (subject to appeal).
• 2011 — Apple sues Samsung (PINK:SSNLF[3]), one of its key suppliers for mobile components, alleging the South Korean electronics manufacturer had ripped off the design of the iPhone and iPad in its Galaxy line of mobile devices. Outcome: This move by Apple is widely considered to have touched off the current “patent war” between the two companies that has escalated into dozens of ongoing suits and countersuits covering as many as 278 different patents; temporary sales bans against some Samsung Galaxy products in Australia, the Netherlands, France, and Germany; and ongoing courtroom battles (with both sides seeking sales bans) in the U.S., Japan, Korea, and Europe. This legal struggle shows little sign of letting up; The Verge maintains a blow-by-blow update page that’s currently at 43 entries.
• 2011 — Apple sues Motorola (NYSE:MMI[4]), claiming the company’s Xoom tablet violates Apple design patents: Outcome: Still ongoing.

Key Litigations Against Apple:

• 2009 — Nokia (NYSE:NOK[5]) sues Apple for infringing on patents related to touch interface, 3G and Wi-Fi connectivity, caller ID, encryption, speech coding, and the illumination of a display — 46 patents in all. Outcome: Apple countersued but in 2011 agreed to a one-time payment to Nokia, along with ongoing royalties and a cross-licensing agreement (none covering key iOS innovations).
• 2010 — Kodak sues Apple over digital camera patents covering image previews. Outcome: Apple countersues, claiming Kodak violates Apple patents on a number of its digital cameras. Judges eventually ruled against both parties but left Kodak’s original case open for appeal.
• 2010 — Motorola sues Apple for violating 18 patents, including ones covering 3G connectivity, location-based services, and antenna design. Outcome: Apple countersued, claiming Motorola violated Apple patents in its Droid smartphones. Apple’s countersuit was overturned in 2012, while rulings have been handed down saying that Apple is covered on the original case because it uses Qualcomm (NASDAQ:QCOM[6]) chips, which in turn license the disputed technology from Motorola.
• 2012 — Kodak sues Apple again, this time over five patents related to digital image technology used by iOS devices. Kodak seeks to stop Apple from selling iPhones, iPads, and iPod Touches in the U.S., along with compensation and damages. Outcome: Apple attempted to countersue, but was blocked with rulings pending Kodak’s bankruptcy proceedings.
• 2012 — Motorola sues Apple over six patents it says the iPhone 4S and iCloud violate. Outcome: Motorola won an injunction against Apple’s iCloud in Germany. Outcome: Still ongoing.

What’s at Stake?

It’s important for companies to be able to protect their investment in research and new technology, but overly aggressive patent litigation can hurt the entire industry, not just Apple. Companies that are more worried about defending themselves against lawsuits may turn to buying up patent portfolios in order to secure protection, and sticking with minor variations on what they already have, instead of developing truly new products, for fear that bold new releases will bring a wave of new patent-infringement suits.

In the short term, sinking companies such as Kodak (NYSE:EK[7]) may see patent lawsuits, or the ability to sell off a patent portfolio, as a way to gain the cash needed to survive for a few more years.

But the future could see more companies like Rambus (NASDAQ:RMBS[8]), a chip company that reportedly spends as much on lawyers as engineers. That wouldn’t be good.

A Hydra-headed litigation monster

Estimates put the legal costs paid by Apple on its HTC lawsuit alone at over $100 million. While that’s small potatoes compared to Apple’s earnings, that’s still $100 million (on one suit alone) that either gets tacked onto the cost of its products — which costs us all as consumers — or is denied to its shareholders. Unlike in the 1990s, Apple isn’t just battling Microsoft (NASDAQ:MSFT[9]), it’s fighting simultaneous legal battles against multiple competitors. So when you multiply that $100 million by the number of cases and number of companies involved, it rapidly snowballs into something much bigger.

In short, innovation is good, protection of key patents is good, but misuse of patents to stifle the competition appears to benefit no one in the long term except, perhaps, the lawyers.

As pointed out in a recent Forbes article, the fact that Google may have nicked some elements of iOS when creating Android isn’t necessarily a bad thing. Apple losing a broad “look and feel” lawsuit is good for consumers and the mobile industry in general, because it prevents the specter of Apple owning a monopoly on the multi-touch interface.

And as Businessweek points out, Apple’s current “scorched earth” policy of fighting tooth and nail in court rather than sharing technology with competitors is a Steve Jobs throwback — one that CEO Tim Cook could move away from while adding to Apple revenues with licensing fees.  Long term, that likely would be more productive than spending money on legal proceedings only to have other companies eventually devise workarounds that avoid specific patents.

Source URL: https://investorplace.com/2012/03/apple-fighting-fire-with-fire-at-the-center-of-the-patent-war-aapl-goog-nok-ssnlf-mmi/

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