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Teh One Who Knocks
08-08-2011, 02:23 PM
Smartphones, the hottest and highest-growth segment in consumer electronics, have become the latest playground in the patent arms race.
By Sara Yin - PC Magazine


While you're at a store innocently trying to decide between a Samsung Galaxy S and an iPhone 4, there's a war taking place among the makers of those fantastic little computers that fit into the palm of your hand, one that could ultimately affect the choices available to you and the cost.

Smartphones, the hottest and highest-growth segment in consumer electronics, have become the latest playground in the patent arms race that accompanies every flourishing technology industry. The patent system is certainly complex—the Financial Times estimates that as many as 250,000 patents are at stake in a smartphone. Some patents are arguably ridiculous, too; for example, Apple has a patent for being able to call numbers cited in emails. All of the chaos and preceived absurdity of patent law is on display in the recent litgation over Google Android. And it's just getting started.

In recent months, Apple's lawyers have been aggressively suing Android manufacturers HTC and Samsung for various technologies, from the "look and feel" to how it connects to broadband networks. It's clear that Apple has its patent strategy aimed squarely at the number one rival to its iOS mobile operating system, Android, which is now embedded in 40 percent of all U.S. smartphones compared to Apple's 26.6 percent, according to June figures from comScore.

Veterans like Microsoft, Nokia, and Apple, each have tens of thousands of patents each, while Google's portfolio is reportedly on the low end—"under 1,000."

"Google's always been late to the game with patents. I think it's because there's a tone at Google that software shouldn't be patentable," said a third-party developer who declined to be named. "Apple's been the opposite—they're relentless in protecting whatever intellectual property they generate."

Publicly, Google seems to take an ambivalent view towards patents as being mutually exclusive with innovation. Just last month Google chairman Eric Schmidt, vowing to defend HTC, slammed those who bring up patent lawsuits: "We have seen an explosion of Android devices entering the market and, because of our successes, competitors are responding with lawsuits as they cannot respond through innovations," he said. "I'm not too worried about this."

But now that Apple is making life difficult for any popular Android manufacturer, there's a rallying cry over the need for Google to step up and protect its manufacturers. In that same interview, when asked whether or not Google would provide financial support to HTC in case it loses, Schmidt simply said, "We will make sure they don't lose, then." Apple doesn't always win. In June, it lost an epic two-year case against Nokia, and now has to pay billions of dollars for past and ongoing licensing fees to the Finnish manufacturer.

The patent war has polarized those in the tech world, with some admiring Apple's aggressive patent-building strategy, and others defending Google's relative indifference engaging in the controversial patent system. But beyond that, what will happen to Android if its manufacturers lose their patent lawsuits?

If Apple wins both HTC and Samsung battles, one of three things could happen:

1. HTC and Samsung would be ordered to pay ongoing royalties to Apple for every smartphone it makes.

2. The courts could issue an injunction banning infringing Samsung and HTC devices.

3. Apple could choose not to license its intellectual property to Android manufacturers.

Scenario #1: HTC and Samsung pay royalties to Apple.

This is the most mainstream sentiment among industry speculators and analysts. If found guilty of infringement, the manufacturers would settle with Apple and pay a licensing fee to use Apple's technology. The impact to consumers would be almost negligible.

"It's clear that Apple has a patent portfolio that's relevant to Android, so someone is going to have to negotiate with Apple, be it Android or the manufacturers," says Doug Lichtman, a law professor at UCLA.

"It's likely Google will eventually step up and cut a deal with Apple on the manufacturers' behalf," he says. "If all the manufacturers believe that you get into a messy deal when you make an Android product, no one's going to be making Android products."

Andrew Van Luchene, the founder of Leviathan Entertainment, a social gaming technology company that's building its own patent portfolio, says Android is essentially too big to fail. "No matter who wins, it is unlikely that Google or their OEMs will be prevented from proceeding with the Android platform. Even if Apple is ultimately successful in the patent suit, and OEMs can't design around those patented features, then this will likely result in license payments to Apple. It's unlikely to affect the viability of the Android platform."

Furthermore the licensing fees may not be as high as you think. For instance it is widely reported that HTC pays around $40 in royalties for each smartphone it makes, including about $5 to Microsoft. When determining the cost of royalties, the court decides based on what's "reasonable." Numerous factors are involved in the calculation, but generally the amount is around the same price the infringer would have paid if it had negotiated a license from the get-go, says David Smith, chairman of Tynax, a patent exchange.


Scenario #2: HTC and Samsung products get banned.

After being ordered to pony up for past infringement, the court then decides how to compensate for future infringement. One option, that Apple is eagerly pursuing in a California district court and the U.S. International Trade Commission (ITC), is a flat-out injunction.

This week Apple got its wish in Australia when a judge issued a preliminary injunction over the Galaxy Tab 10.1. Apple is also pursuing injunctions over Samsung Galaxy devices in the U.S., U.K., Japan, Germany, France, Italy, and South Korea.

But Smith says such an injunction could take years, and courts look at the broad impact on consumers:

"In deciding whether or not to issue an injunction, courts consider the public interest, and weigh that against harm to the infringed party," Smith says.

Apple's request for a permanent injunction would go up against a four-factor injunction test, which requires it to demonstrate (1) that it has suffered an irreparable injury; (2) that remedies available at law are inadequate to compensate for that injury; (3) that considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.


Scenario #3: Apple keeps its mobile intellectual property all to itself.

This is the scariest, but most overlooked, scenario, brought to my attention by IP patent expert Florian Mueller. Patent holders don't have to grant the license if they don't want to.

"Apple appears particularly unwilling to grant licenses to its patents, particularly to those patents that in Apple's words 'make the iPhone unique,'" Mueller tells PCMag. "Apple makes hundreds of dollars per iPhone and iPad. It doesn't make economic sense for Apple to grant a license to competitors unless those rivals have patents to which Apple really needs a license. Apple is optimizing for product differentiation, not patent licensing revenues."

Mueller points to the part of the Patent Act (35 U.S.C. § 271(d)) that states patent holders aren't bound to license their technologies:

"No patent owner otherwise entitled to relief for infringement [...] of a patent shall be denied relief or deemed guilty of misuse or illegal extension of the patent right by reason of [...] (4) [having] refused to license or use any rights to the patents [...]"

Historically, however, most tech companies eventually settle their patent disputes with the patent holder charging royalties to the infringing party.

The cost of royalties must be "reasonable," and while numerous factors are involved in the calculation, they usually amount to the price the infringer would have paid if it had negotiated a license from the get-go.

Google's response:

Google went quiet when its manufacturers were being threatened with injunctions and royalties, leaving them to duke it out against Apple in court. But on Wednesday Google's chief legal officer David Drummond wrote an epic blog post criticizing at his patent-wielding rivals. He slammed Microsoft for "getting into bed" with Apple to secure the Novell smartphone patents (which Google wanted as well); he accused rivals of organizing a "hostile, organized campaign against Android by Microsoft, Oracle, Apple and other companies, waged through bogus patents."

"We're not naive; technology is a tough and ever-changing industry and we work very hard to stay focused on our own business and make better products. But in this instance we thought it was important to speak out and make it clear that we're determined to preserve Android as a competitive choice for consumers, by stopping those who are trying to strangle it," Drummond wrote.
Although Google lost out on the bidding war for the Novell patents, on Friday it picked up more than 1,000 from IBM.

Will it raise the cost of an Android smartphone?

Ramon Llamas, a senior research analyst for IDC Mobile Devices Technology and Trends, says that regardless of the outcome he doesn't foresee an impact on prices.

"Prices are driven by so many factors, not just patent disputes and litigation, but also how much carriers will subsidize, how much users are willing to pay," he says. Rather than choking manufacturer margins, he thinks middlemen like carriers and retailers will pick up the slack.

"Smartphones have been such a boon for carriers compared to feature phone," he said. "Those middlemen are going do their darn-est to keep prices at a reasonable level for consumers."

To wit: before Android became the country's leading platform you could expect to pay a couple hundred dollars for a smartphone. Now carriers are subsidizing phones to the extent that you can easily pay less than $100 for a brand new smartphone (albeit after locking yourself up in a two-year data plan)

Patents and natural selection:

In the long-run, the patent battles now are simply filtering the long-run players. Historically, aggressive patent litigation makes the barriers to entry very high for new or smaller companies that want to enter the market.

"Companies will have to acquire large patent portfolios before they release their products," Smith says. "Clearly, this is a game for the big boys."

Arkady Renko
08-08-2011, 02:55 PM
I just hope Aplle's cases will all be thrown out an that will be that. Alternatively, Samsung could refuse to sell hardware to Apple and they'd be pretty much fucked. Seems to me Apple are fishing for a juicy settlement quite like Oracle often does. A case of sophisticated highway robbery.

Jezter
08-09-2011, 07:02 AM
FFS Apple... First they steal from Nokia and have epicfail (antennagate) when they have to actually do something themselves? And now they are raging against other manufacturers so they can close them in Steve Job's magic treasure chest under the rainbow. Someone punch Apple in the seeds.