Game of Phones: tech kings clash in smartphone patent wars

For those who haven’t followed the biggest patent fight since the invention of the light bulb, the Samsung/Apple slugfest is running into its seventh year. At stake are scores of smartphone patents – mostly operating systems rather than design-based – that Apple claims have been infringed by its South Korean rival.

Around 20 different companies are involved in a non-stop series of disputes over which smartphone manufacturer has infringed whose software. It’s known as a ‘patent thicket’ – and the numbers are off the scale.

Last November, Apple was awarded $929bn in damages against Samsung by a federal jury in California (Samsung immediately sought a retrial). The industry is still reeling from a ruling on fees-for-patents by another Californian court that, if applied as a general principle, would price smartphones at around $1m each.

Meanwhile, in Germany
But the litigation in the US is nothing to what’s happening in Europe: the courts in Munich are another battleground between Samsung and Apple. To date, Apple has bought lawsuits over six ‘utility patents’ – that is, technical rather than design patents. Not to be outdone, Samsung ‘asserted’ seven utility patents against Apple that it claimed were essential in terms of wireless industry standards.

If successful, the theoretical but unthinkable result could be a ban on the sale
of iPhones in their
home country

So far in Germany, the two giants of the smartphone industry have fought each other to a standstill with neither brand winning any cases outright. However, observers of the patent thicket say there is more to come between these two brands in this country.

In the meantime, Google is getting in on the action. Also in Germany, the search giant has sought fees from Apple for the swag of Motorola patents it bought in 2011 and has been busy asserting in various jurisdictions. Google is also taking the fight to the US, arguing the old Motorola patents. If successful, the theoretical but unthinkable result could be a ban on the sale of iPhones in their home country.

And then there’s IPCom, one of the biggest holders of smartphone patents in the world. In February, the five-year-old firm launched a $2bn suit against the iPhone-manufacturer claiming infringement of some of its intellectual property. And IPCom has a lot of intellectual property – more than 1,000 mobile-communications patents that it is asserting in Europe, the US and Asia.

IPCom has more than Apple in its sights: the firm has brought numerous suits against wireless carriers and retailers with considerable success. Deutche Telekom’s T-Mobile had to settle with the firm last year while Vodafone is due to do so after losing in court. With that track record, insiders predict Apple may have to pay up this time, although probably not the full amount claimed.

While the SamApple battles have hogged the headlines, there are plenty of others on the sidelines. Nokia and rival smartphone manufacturer HTC have been at loggerheads for years. In Germany alone, HTC and Nokia have faced off in court no less than 22 times. In these, Nokia was the aggressor but so far has a rather sorry record: it has won four and lost eighteen.

Elsewhere, law suits have been flying thick and fast between a host of minor players such as Sanyo, LG, Sony Ericsson, Kodak, Oracle and AT&T, among numerous others.

Licence to call
While Apple has gone for the jugular, Microsoft has adopted a totally different strategy in the patent battles. Instead of spending years in courts demanding competitors cease and desist, Microsoft has been busy licensing its Android-based smartphone portfolio.

The policy is so lucrative for Microsoft that it now makes more from its patents than from its own mobile phones. The software giant pocketed around $60m from its Android-based properties in the second quarter of 2013 alone: $40million more than it made from its own Windows Phone OS. Even Samsung folded, agreeing late last year to a cross-licensing agreement that means it pays royalties to Microsoft for every Android-powered device it sells.

The deal makes Samsung the latest in a long list of global brands, including Acer, Viewsonic and Taiwan’s Compal, that signed with Microsoft in the last year. Indeed, Compal has, since October, been providing Microsoft with a “reasonable and fair” share of its $28bn annual income. The Taiwanese company’s rollover means Microsoft now earns fees from over half of all the world’s manufacturers of Android handsets.

The mastermind of these deals is Horacio Gutierrez, Microsoft’s Deputy General Counsel of Intellectual Property and Licensing, who says he is “pleased” Acer and others have “taken advantage of our industry-wide licensing programme”. With those revenues, he certainly should be.

Treasure trove
Pocket-sized it may be, but the smartphone is a treasure trove of active patents. Some 250,000 of them are commonly used in mobile technology. In the total patent universe, mobile technology patents account for one in six of all active patents – a totally top-heavy percentage given the size of the energy, transport, construction and other
vast industries.

Too numerous to mention, the disputed patents cover the smartphone spectrum. As patent litigation lawyer Jeffrey Lewis, also President of the American Intellectual Property Law Association, points out, it’s practically impossible for anybody to use a mobile device without inadvertently violating a patent because so many are under dispute.

As he explains, the curved sides of a phone are described in US patent no. D618,677, the swipe-to-unlock in no. 8,046,721, the ‘push’ email is enabled by no. 6,272,333, and the predictive text facility comes from no. 8,074,172. These apply to iPhones, Androids and other smartphones. Hundreds of millions of people unwittingly transgress the law by using them every day.

Rallying around the flag
Lewis neatly summarises the situation: “There is not a single smartphone in the world that has not been accused of patent infringement. There is a war going on with patent infringement accusations being fired regularly at Apple, Samsung, Google, Research in Motion, Microsoft, Nokia, Motorola, HTC and others. Anyone who contributed a component, or at least has a patent on a component, is vying for a piece of the huge smartphone market by suing anyone who has a smartphone product.”

The main combatant – the company that did most to launch the patent wars – is Apple. Its late Chief Executive Steve Jobs was so proud and protective of the iPhone that he committed the company to go after any and all patent thieves – and Android was his main target. “I will spend every cent of Apple’s $40bn in the bank to right this wrong” he once said. “I’m going to destroy Android because it’s a stolen product. I’m willing to go thermonuclear war on this”.

Ever since, Apple’s legal battles have been conducted in this light. In the latest case in California, for instance, Apple’s counsel made a passionate appeal to the jury’s patriotism by evoking the disappearance of once-powerful US television manufacturers such as Magnavox, Motorola and RCA. “These were real companies. They were well known and they were famous. They were creators. They were inventors”, he enthused. “They were like Apple and Google today”. And why had they gone out of business? They had not protected their intellectual property.

Appeals to patriotism work well in patent disputes in US courts. A study by federal circuit judge Kimberly Moore found domestic patent holders have a win rate against foreign infringers of 82 percent, while that for foreign patent holders is barely one third. That is, however, in cases brought before juries. The odds are pretty much even before judges, who are much more objective and knowledgeable in intellectual property issues.

However, the result is the playing field in the US is not even. As Judge Moore points out, foreign inventors normally don’t bother to go to court to defend their patents despite having strong claims simply because they don’t think they’ve got a chance. “The disparity is important in part because it may reflect foreigner’s cynicism about the prospects of enforcing patents in US courts”, Moore argues.

Jumping on the bandwagon
Some of the patent disputes are concerned with relatively minor technologies as everybody jumps on the bandwagon, taking the SamApple battles as the inspiration. A precedent was set in mid-2012 in another northern Californian court when Mformation Technologies, a company hardly anybody had heard of, was awarded over $147m for just one unexceptional patent. This was on the basis, the jury decided, that the intellectual property concerned should be valued at an equivalent royalty of $8.00 per smartphone. If this verdict were taken as a basis for future settlements or royalties, the licensing cost per smartphone would be $1m.

Microsoft may have the best strategy in the long run. With tens of thousands of global patents in its locker, it’s sitting on a goldmine. An Android smartphone may have hundreds or more of its patents in just one device. Facing the unattractive prospect of SamApple-type battles, more and more manufacturers are going down the licensing route. Early in the year, three big deals, most of them Android-related, reflected this trend. They were signed between Rockstar and Huawei, Ericsson and Samsung, and Nokia and HTC.

However, peace may soon break out. A way out of this endless litigation – and perhaps a more profitable one all round – may be a smartphone patent pool. In this, anybody with a usable smartphone patent simply throws it into the pool and a manufacturer buys the licence. As US consultant Steve Wildstrom says: “Anyone who needs the patented technology can use it and everyone who owns patents gets paid.”

Give peace a chance
Patent pools aren’t new by any means. They played an important role in the development of CDs, DVDs and MPEGs among other technologies in the digital entertainment media. And, interestingly, this happened with little litigation.

As Gene Quinn of US ginger group, IP Watchdog, explains, the alternative is the smartphone industry will get increasingly messy.

“The parties could spend an inconceivable amount of time and money trying to litigate their way out of the patent thicket”, he says. An optimist, he believes a patent pool could happen quite soon.

As it happens, Jeffrey Lewis of the American Intellectual Law Association agrees. Citing what happened in the sewing machine industry in the 19th century, and in other celebrated patent disputes, he also believes a truce may be a possibility. The more revenues Microsoft earns from licensing, the better a ceasefire looks.

As one of Microsoft’s in-house lawyers, Matthew Penarczyk, argues, licensing is not only a more civilised but also a more beneficial solution for the industry. “Our licensing strategy is robust because it directly correlates to robust innovation”, he enthuses.

“Licensing shortens development cycles and increases focus on bringing innovation to customers faster. Licensing is a collaborative approach and it shows what can be achieved when companies sit down and address intellectual property in a responsible manner.”

Unlike Steve Jobs, Penarczyk believes licensing actually turbo-boosts technological development because innovators can push on to develop brilliant patents in the firm knowledge they can make money out of them rather than spending expensive weeks and months in court. “This is why Microsoft has really emphasised building a licensing programme that matches our R&D efforts”, he says.

More and more commentators agree. Since money hardly ever seems to change hands, even after damages have been awarded – mainly because the decisions are appealed ad infinitum – much of the litigation can be seen as blocking tactics. Eventually, in the interests of wider commerce, the disputed patents become common property. Put another way, billions of people continue to blithely use illegal devices with total impunity.