Patents: an intellectual war

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Knowledge is both power and money, as the growing markets for smartphones and tablets has meant a race between manufacturers to own intellectual property. Jasper Jackson reports on the battle for patents

Smartphones and tablets have pushed intellectual property and patents into the spotlight. A constant flow of legal battles, injunctions and damage awards have hit the headlines as the major smartphone manufacturers try to settle multi-million-pound arguments over who owns the rights to implement specific innovations.

From the way in which a smartphone locks, to methods of maintaining a stable 3G signal, every firm is trying to ensure it owns the rights to build things a certain way, and that no-one else can copy it without permission and a hefty charge.

Opinions vary on why conflict over patents in the smartphone industry have now hit fever pitch.

Apple’s entry into the market is seen as a key spur, and the firm is often accused of taking a more forceful approach to enforcing its intellectual property (IP) rights, with suits against Android and the manufacturers that use it, in particular.

“Apple has been creating a few waves, and throwing stones around at people, and that’s caused everyone to wake up a bit,” says Mathys & Squire patent attorney Ilya Kazi.

Yet many feel that it is Apple’s more benevolent role in kick-starting the smartphone market, that has led to the wide scale patent wars seen today.

“When one is the first mover, or very big pioneer like Apple, you are going to find yourself in a position where you have to protect your intellectual property,” says Colin Fowler, an associate at intellectual property specialists Rouse.

“Yes, Apple is doing a lot to protect its rights, but in terms of Apple being more aggressive than others, I’m not sure that is entirely fair.”

More technology
By building a market for mobile handsets that are effectively pocket computers as well as phones, Apple has massively expanded the range of technology that is involved, and thus increased the range of patents that can be and are infringed.

“From new user interfaces, to internet, to computing, you venture into areas which were not necessarily your core coverage to start off with, if you were a traditional mobile phone maker,” says Gartner analyst Carolina Milanesi.

“At the same time you have vendors who come in with some of those licences from other areas such as the PC world, that don’t own core wireless patents, because they have not been in the mobility business for long enough.”

Patent analyst Florian Mueller agrees: “What happens now is that due to convergence, many existing software patents become relevant to smartphones, and since there are so many software patents, there’s so much potential for litigation.”

Yet while the sheer number of different processes and innovations involved in producing a smartphone make it almost inevitable that a new device will infringe patents held by another firm, the increasing complexity of smartphones could merely have led to more cross-licensing and trading of intellectual property between firms.

“Essentially, in the past, the established players had a quiet standoff. They generally got on with other things and came to agreements and standardised and had cross-licensing. No-one really wanted to start an all-out battle, they just wanted to coexist,” says Kazi.

“Companies have discussions all the time, and those discussions can be more or less amicable. But generally speaking people don’t publicly say, ‘We are going to get an injunction to stop you selling the product,’ because that puts the wind up consumers.”

But in recent years, strategic considerations have incentivised litigation, with Apple and Microsoft’s attempts to fend off the rapid rise of Android being a primary catalyst.

Not only is Google a threat to Apple’s dominance and Microsoft’s chances of re-establishing itself in the market, but until recently the firm also lacked a respectable patent portfolio with which to defend itself.

For Apple, obtaining injunctions that stop the distribution of competing products, as it has in Germany with the Galaxy Tab, may not be a long-term solution. However, it does make it far harder for other firms to challenge its market position.

“You might not think for one second that Samsung is not going to be able to sell the Galaxy Tab, but what you are doing is making its clients think twice and maybe pull back,” says Milanesi. “The impact you have might not be long-term, but it is disruptive.”

For Microsoft, with a licensing model that targets mobile manufacturers, many of whom are already using Android, adding costs to the Google platform helps remove its key advantage – price.

“Look at Google’s business strategy for Android; the idea is to offer Android free, and then you have a platform that other revenues can be derived from – from the Android market, from advertising potentially in the future, from other things,” says Frost & Sullivan analyst Craig Cartier.

However, Microsoft is known to be charging HTC a fee of about £3 per Android handset it produces.

As Cartier points out: “If it can make Android not free, you are simply eliminating the gap between the two business models.”

Assembling an arsenal
Google is especially vulnerable to patent litigation, because it does not have the sort of background in operating system and user interface research and development that both Apple and Microsoft can boast, nor the hardware intellectual property held by the likes of Nokia and Samsung.

The firm showed just how concerned it was about its lack of an IP arsenal when it bought Motorola Mobility for $12.5 billion (£8 billion) in August.

Many at the time said the acquisition was all about patents, and Cartier has come up with evidence that suggests Google really was only interested in Motorola’s IP.

In December 2010, software company Novell sold its portfolio of 882 patents for $450 million (£286 million) to a consortium set up by, among others, Microsoft and Apple. Cartier worked out that this was equal to $510,204.08 per patent.

Motorola’s much larger portfolio contains a total of 24,500 patents and patent applications. Cartier worked out that the $12.5 billion Google paid for the firm worked out at exactly $510,204.08 per patent, indicating that Google had used a pretty simple formula to work out how much it was prepared to pay for the firm.

The figures merely confirmed Cartier’s belief that the Motorola deal was all about patents.

“Apple had just sued Samsung, and there was a court order in Germany, where Samsung was prevented from selling the Galaxy Tab,” he says. “In that context, the timing of the deal just screamed that Google was really interested in the patents.”

“Secondly, if you look historically at companies that develop both hardware and software, Apple seems to be the only one that has done that well.

“That’s probably a risk that Google is not prepared to take, and I think we will see it look to sell off or discontinue the mobility line of Motorola pretty soon.”

Full article in Mobile News issue 498 (September 26, 2011).

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