Apple this week missed earnings expectations as it faces stiffening smartphone competition from the likes of Samsung without its own blockbuster new hardware to satisfy eager consumers. Apple missed lofty analyst expectations for the fiscal quarter ending June 30. The rare miss comes at a time when Apple’s competitors are finally making inroads in the high-end smartphone market, giving consumers more products to choose from and forcing Apple to defend its once-insurmountable lead.
Even though Apple still makes far more money than any of its competitors every time it sells a phone, rival Samsung has recently managed to catch up to the company, if only in sales numbers. According to research firm IDC, Samsung overtook Apple in the first quarter of this year to become the biggest smartphone vendor in the world.
It’s a well known phenomenon: as soon as a dominant player in the market loses market share (Apple) against a forceful newcomer (Samsung), the fight shifts from the marketplace to the court. So did Apple. It took on Samsung in patent litigation at many different fronts to see if the Korean company could be stopped eating its market share. Its as old as patent litigation itself. It happened to ASML, now the world’s largest lithography equipment maker in the world. After ASML (Netherlands, former subsidiary of Philips Electronics) started to eat market share from Canon and Nikon, who traditionally dominated the market for these machines (that makes chips form silicon wafers, that those machines produce), Nikon started a multi-jurisdictional patent fight, trying to curb its market failure.
Much has been written about the Apple-Samsung global patent dispute. This week the Australian trial – scheduled to run for three months – between the two companies started before Federal Court Justice Annabelle Bennett, which some see as a prelude to proceedings in the U.S. and U.K. Parties already crossed swords in Netherlands and Germany, with sketchy, mostly provisional, outcomes. The Australian Judge called the patent dispute over wireless transmission technology “ridiculous” and suggested this might be best settled in mediation between the two giants. Is it indeed “ridiculous”?
There is some truth in it. This is why. Both Apple and Samsung perfectly realize that there has never been any company in the world that managed to throw competition out of the market all together by means of patent litigation only, so what is the ultimate goal of this costly litigation strategy?
In almost all consumer electronics patent litigation as is the case with other high level patent disputes, these end in settlement where one party pays the other for the use of patents. The center piece of this is of course who is going to pay what to whom? And more importantly, when is this going to happen?
It’s the fine combination of playing the litigation card, starting preliminary settlement talks here and there, force competition to alter details of its product in some markets, drive production costs to go up by forcing the other to adept workarounds that make the core of any patent litigation strategy.
This enforcement strategy was preluded by a stage in which both parties amassed as many relevant patents as they could possibly get (either by own creation or by acquisition depending on R&D outcomes and timelines) to make sure that life of the competition can be made as difficult as possible. All this to maintain market dominance (for Apple) or to achieve effective market entrance (for Samsung). So, patent litigation is therefor not a goal by itself but rather a supporting market tactic, but always part of a larger corporate strategy to maintain (or increase for that matter) market share.
The ultimate goal however is, both parties know that, not to push competition over the market edge but to let them “pay”. Not just for paying lofty monetary compensation by means of license fees that one party wants to force upon the other, but also to refrain competition from using nice add-ons for their products, making the competing product less attractive. The market of consumer electronics is fast, small steps in product improvement are short lived and consumer behavior is capricious, so any advantage in time for “must-have” gadgets means better market penetration and consumer loyalty. Being able to force competition to alter those “goodies” or make expensive workarounds will immediately pay off in terms of market share.
A good example is Apple’s multi-touch user interface, covering 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. It made all the difference when Apple first launched this multi touch technology in its iPods and later iPads and iPhones (“techno-ready marketing”). There is no way any competitor of Apple could have entered the market not having these multi touch features. So using the patents to make competition’s life as difficult as possible o force them to work around these “must-have” features, causing launch delays or even potential market failures is in the patent strategist portfolio of tools. The positive side-effects of using user interface patents in court is that it is much easier to explain to any court than using overcomplicated patents that can only add to the Russian Roulette outcome of patent litigation in many jurisdictions (especially jury type of litigations) and hence complicate strategy aims.
In summary, much is being said about patent litigation and why it is or is not “ridiculous”, why software patents or patents that only cover incremental steps could be allowed to play a role in patent litigation, whether Apple or rather Samsung would prevail in this patent fight, what the likely outcome is in terms of payments by whom to whom. It’s a little bit of everything, a complex mix of strategic goals where the patent department, marketing, R&D and other corporate departments play as much a role in the patent disputes with competition. So its not “just” the lawyers. At least not in complex multifaceted patent disputes like the ones between these consumer electronic giants.