The headlines sounded the first signs of alarm (or glee, depending on which camp you’re in): “Apple Granted the Mother of All Smartphone Software Patents.” For Apple (NASDAQ:AAPL) investors, the news about the patent it has been granted that covers nearly every key aspect of the smartphone user inteface is very good.
For those banking on Android and Windows phone manufacturers, not so much. And while Research In Motion’s (NASDAQ:RIMM) BlackBerry devices might also take yet another hit, RIM itself may just become slightly more valuable — for its patents.
The online reaction after Apple was awarded the patents on July 17 was swift as analysts and bloggers digested the news. On Phandroid, a website dedicated to Google’s (NASDAQ:GOOG) Android mobile operating system, Kevin Kraus wrote:
“The effects could be swift and lethal… The granting of such a broad patent could have the negative effect of stifling competition in the marketplace and limiting software developments.”
In a decade that has become defined by its legal battles almost as much as technological innovation, what exactly did Apple win, and what are the potential repercussions that are getting the tech press so excited?
In all, Apple was granted 25 patents as part of the application, many of which dated back to a 2007 filing. Two key points make this particular ruling so worrisome for other smartphone manufacturers:
- One of the patents in particular (8223134) covers “Portable electronic device, method and graphical user interface for displaying electronics lists and documents.”
- Elements of the patents granted were first filed by Apple back in 2007.
Point one means Apple now has a patent that covers a wide range of commonly used smartphone touchscreen user elements. Think of the tasks that people often use smartphones for — displaying a list of instant messages or e-mails, reviewing photos and documents, scrolling, displaying their calendar, viewing a Web browser and looking at maps. Apple’s patent could arguably cover it, especially when combined with a multi-touch user interface.
Point two means it’s going to be more difficult for competing companies to argue in court that Apple has succeeded in patenting something that’s been in common use for years. The company first filed for these patents back when the iPhone was initially released and before the interface elements began to show up in competing mobile operating systems.
As Patently Apple points out, at the time when Apple was filing for these patents, other smartphones relied on either physical buttons and scroll wheels to accomplish the tasks, or required the user to navigate through a series of menus and button combinations. One of the breakthroughs of Apple’s iOS was its use of an intuitive, multi-touch interface that incorporated gestures and a virtual keyboard — and Apple has always maintained that other smartphone competitors stole much of this from it.
Given the facts of the case, what do the patents mean for Apple and its competitors?
The answer for the immediate future is: nothing. However, the patents provide a significant weapon for Apple should it choose to use them in legal action against competitors. In the past, CEO Steve Jobs had threatened a scorched-Earth policy against rival Google, and while Apple’s current CEO Tim Cook has taken a more levelheaded approach to lawsuits, that hasn’t stopped Apple from continuing to press against rivals like Samsung in court.
Earlier this year, Wired quoted Tim Cook as saying:
“From our point of view it’s important that Apple not be the developer for the world. We can’t take all of our energy and all of our care and finish the painting, then have someone else put their name on it. We can’t have that.”
Assuming Apple “weaponizes” the patents and uses them against other mobile OS developers, two potential outcomes would greatly benefit Apple. Under the first, it manages to block the sale of competing devices until the offending elements are removed from the OS they use. In other words, forcing Android and possibly other mobile operating systems to dumb down.
The second is a licensing arrangement whereby Apple collects a fee from each vendor. Microsoft (NASDAQ:MSFT) has been successful with this strategy, collecting as much as $5 from each unit sold by a range of Android smartphone vendors. Either way, Apple gains and competitors from Amazon (NASDAQ:AMZN) to Samsung, Google and even Microsoft could see their smartphone and tablet business take a hit or become less profitable if they end up paying an Apple levy.
Of course, it’s always possible that an Apple move to escalate its legal actions could result in the patents being ruled “standards essential,” or features that are now essential for consumers and a competitive marketplace. In this case, Apple gains nothing, but this outcome seems unlikely.
Expect lawyers on all sides to be booking extra hours preparing for a potential intensification in what has already been a nasty and protracted legal battle over mobile patents. And with patents being the primary defensive weapons as well as offensive ones, legal teams will be looking to acquire patent portfolios more aggressively than ever.
Which may have the trickle down effect of boosting RIMM’s value, since the troubled smartphone pioneer holds 3,300 mobile patents, some of which might prove useful should the mother of all legal battles break out.
As of this writing, Brad Moon doesn’t own any securities mentioned here.