Principles and reputation

It should be noted that Apple is a very principled company when it comes to legal matters, and it is fairly easy to predict how it will react. Apple is very particular about its distinctive appearance and consistently protects its industrial designs. It is involved in a number of disputes, with Motorola and HTC currently being the most significant targets besides Samsung, but the reverse is also true.

Image: Motorola Xoom 2

Caption: Apple also finds the Motorola Xoom 2 strikingly similar to the iPad.

Apple filed a whole series of other lawsuits against Motorola concerning its Xoom 2 tablet and mobile phones. In February 2012, it obtained a preliminary injunction against Motorola phones that unlock in a manner patented by Apple: by swiping a finger across the screen.

Preliminary measures, i.e., court rulings in summary proceedings based on the plaintiff’s evidence, are a risky business in the EU. If Apple loses the main proceedings against Samsung or Motorola, it will have to pay damages incurred by Samsung, including lost profits. These will be determined in further litigation, but a number of elite lawyers are eager to take on the case for a commission, because it is a sure thing. The only question is how huge the amount will be (and how much the lawyers will earn).

Tablets can change a lot, as all players in the market realize, most painfully Intel (whose processors are not dominant in tablets) and Microsoft (where are the years of Windows hegemony?). A new battle is beginning for the once stable market shares that are now being reshuffled, and there is no room for consideration. It would be foolish of Samsung not to take advantage of the opportunity to copy the successful iPad and gain second place in a rapidly expanding market, just as it would be foolish of Apple not to sue Samsung. Both of these things have happened.

This dispute between Apple and Samsung is also unusual in that it concerns exclusively the appearance of the device. There is no dispute as to whether Samsung used touch recognition algorithms developed by Apple for resistive screens or any of the other tech patent disputes so common in the industry. The issue is specifically that Samsung “copied” the appearance of the iPad.

This distinguishes the dispute from many others. It is not about “stopping technological progress through patents,” but about Samsung’s unwillingness to invest in its own design. Galaxy Tab users would not be technically limited in any way if Samsung had not copied the design features of the iPad. However, the dispute was about “industrial design” and preventing it from becoming as commonplace as the gray, shapeless desktop PCs of the past.

Large companies often sue each other, but cases usually end in some form of settlement. For example, Nokia’s lawsuit against Apple, which began in 2010, ended in a settlement of half a billion dollars. Apple ran into Nokia’s GSM and 3G patents, which it failed to evaluate in time. According to some indications, Apple apparently did not even want to inform Nokia of its plans in time because it feared that Nokia would go in the same direction, so it preferred to pay extra later to settle the dispute.

This is quite common, as companies sue over technology patents to show their shareholders that they are determined to protect their intellectual property and to indicate that they expect extraordinary income from patent settlements. These disputes are often settled cross-wise, for other patents owned by the other party, or the fees are derived from the success of the product in which they were used.

The legal dispute between Apple and Samsung is far from over. In February 2012, a Düsseldorf court lifted the preliminary injunction against Samsung, and at the time of writing, no decision has been made. At the turn of the year, Apple sued Samsung in US and Australian courts for infringement of twenty patents, and subsequently filed a similar lawsuit in a German court, which is valid for the European Union. In the spring of 2012, there were a number of different requests for preliminary injunctions and battles over them in many jurisdictions.

However, similar disputes are also common in the opposite direction. Apple has been in a long-running dispute with Motorola over the amount of fees for essential patents for 3G technology held by Motorola. Motorola (but also Samsung) decided some time ago to demand fees from Apple for its patents in the form of more than two percent of the price of the device. Apple has taken the matter to court, complaining about the flawed FRAND licensing principles, arguing that the fees demanded from it for basic patents relating to 3G technology are not fair and reasonable, as required for the standardization of 3G technology. This cloud could still bring a lot of rain, because if Apple succeeds in proving the unfairness, it could bring about major changes in 3G technology licensing fees.

It is interesting to note that patent issues were the reason why the telecommunications and IT sectors remained separate to a certain extent for a long time. To give you an idea, intellectual property fees account for 20% of the price of GSM equipment. When the 3G standard was being developed, it was long threatened by the fee claims of individual holders, so there was a risk that intellectual property (IP) fees would exceed 50% of the price of the equipment and, in addition, it would be possible to deny someone the right to part of the 3G technology and thus exclude that company from production. Extensive agreements had to be reached on the creation of the 3G Patent Platform, which ensured the possibility of cross-licensing and the obligation to provide licenses for 3G technology under non-discriminatory conditions, known as FRAND (fair, reasonable, and non-discriminatory) provisions.

The 3G case already highlighted that patents and intellectual property protection in their current form will represent a huge administrative and financial burden for companies in the future. However, the complex situation largely suits existing companies rather than not. They cross-license patents among themselves and act as a barrier to entry for new players. New companies do not have tens of millions to spend on purchasing the necessary licenses in advance, nor millions for future protracted litigation.

However, experts are beginning to point out that companies from countries where access to intellectual property is less rigid, by which they openly mean China and India, are gaining the upper hand. Companies there do not have to worry about lengthy processes (they are more afraid of short ones) and intellectual property is shared informally but very effectively. This helps to escalate the rapid development of technologies and companies, and there is concern that local companies may quickly overtake European and American companies, creating a problem in how their goods are marketed in Euro-American markets, where they will be challenged over patents. This will lead to intervention by their governments and probably also pressure to reevaluate the current patent doctrine in the EU and the US, or a number of other problems that are difficult to predict today.

Patent issues are also likely the main reason why Google decided to buy Motorola Mobility, the mobile division of Motorola. Although the transaction had not yet been fully approved in February 2012, it is intended to defend Google against claims from other companies, particularly Apple and Microsoft. Microsoft also wants a piece of Android’s success and is offering mobile manufacturers an interesting deal: either they pay a substantial amount for its patents in Android, or they can use its Windows Phone 7 system for a fraction of that amount. A number of manufacturers have reportedly agreed to this settlement and launched WP7 phones, even though they did not originally intend to do so, and Microsoft is keeping a close eye on them to ensure that they are not the whipping boys at the bottom of the range.

Google decided to pay a 63% premium on Motorola Mobility’s share price to take over the entire company and, along with the failing mobile phone manufacturer, acquire a collection of more than 17,000 patents, many of which are “essential” basic patents for GSM and UMTS/CDMA technology. For Google, Motorola was one of the few options for extricating itself from the patent minefield surrounding Android. Google sought to purchase patent portfolios from Novell and Nortel, but Apple, Oracle, EMC, and Microsoft outbid it. Google publicly complained that “Microsoft’s goal is to keep Google and Android device manufacturers far enough away from patents that they could use to defend themselves[.”]{dir=”rtl”} And it was right. At enormous cost, it has managed to create positions from which it will hopefully have a better chance of withstanding attacks and also actively attacking, as it has already tried in the case of Apple and FRAND 3G patent claims.

And if you want something spicy to finish with: on the same day that Apple obtained a preliminary ban on sales of the Samsung Galaxy Tab in European Union markets, it agreed with Samsung to increase its purchase of LCD panels for the iPad. These are currently supplied by Samsung, Chimei Innolux, and LG, but Apple does not want to purchase the panels supplied by LG due to their low quality. Although Apple will try to replace them mostly with Chinese Chimei Innolux, it will also have to purchase them from Samsung, with which it is currently in litigation. These are the difficulties of globalization. Apple has finally agreed with Samsung that their legal disputes will have no impact on business – it would not be in either company’s interest to lose the other as a customer/supplier.

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Principles and reputation

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