The Beginning of the End for the Smart Phone Patent Wars?

On Saturday, November 10, 2012, HTC and Apple announced that the two companies had reached a global settlement that includes the dismissal of all current lawsuits and a ten-year license agreement. The license extends to current and future patents held by both parties. The terms of the settlement are confidential and, therefore, not disclosed by the companies.

“HTC is pleased to have resolved its dispute with Apple, so HTC can focus on innovation instead of litigation,” said Peter Chou, CEO of HTC.

“We are glad to have reached a settlement with HTC,” said Tim Cook, CEO of Apple. “We will continue to stay laser focused on product innovation.”

These statements are extremely brief and hardly show the depth of animosity that is believed to have marked this first battle in the so-called smartphone patent wars. Although the one thing that does jump to mind immediately is the gratuitous and rather disingenuous characterization by Mr. Chou, saying that now HTC can focus on innovation instead of litigation. Is HTC an innovator or are they a copier? It would seem that the fact that they are a copier and not an innovator is why Apple sued them, and is also why HTC already has in place a patent license with Microsoft which reportedly requires the company to pay Microsoft between $5 to $10 on every Android phone sold. Add on the Apple royalty, whatever it is, and it starts to paint a picture of a taker, not a maker of innovation.

In the multitude of articles already written on this subject some are wondering whether it will be possible for Android phone makers to be able to continue to sell phones at a profit given that they now have to pay Apple an undisclosed royalty, and are already paying Microsoft a royalty. See Apple Goes for Android’s Jugular. Others, however, think that the settlement signals a softening of Apple’s stance and perhaps a sign of weakness. See Apple Softening It’s Approach to Patent Litigation? And these two varying perspectives come both from Tech Crunch. That is not to say that there is anything wrong with publishing differing view points, I have been known to do that whenever possible myself. But if different view points are expressed in the same publication it probably gives you the appropriate sense that there is not a lot of unanimity within the industry about what, if anything, the Apple/HTC smartphone patent settlement actually means long term.

Despite the fact that Apple’s battle with Samsung continues, I firmly believe this is a sign that the end is near. Apple has already won a $1 billion jury verdict against Samsung, which will be appealed, of course. While many continue to focus on Apple, the focus really should be on Samsung. It is Samsung that stands to lose big. They should want to find a way to exit this lawsuit and put the Android wars behind them.

Once the smartphone patent wars are behind the industry, which will happen at some point one way or another, lookout for rapid expansion in smartphone technology.

That previous statement begs to be dissected. First, remember that Steve Jobs once referred to the smartphone patent wars as the patent equivalent of global thermonuclear war. But will this be more like the Cold War or the Apocalypse? The only patent war that I can recall that actually approximated a patent version of the Apocalypse was the battle between Polaroid and Kodak. That saw a $909 million verdict in 1990, and ultimately settled for $925 million about a year later, but required total aggregate attorneys fees in the neighborhood of $550 million. The war lasted 15 years and didn’t achieve the $2.5 to $5 billion that once upon a time was believed possible. This was also at a time when these numbers were real money.

The Polaroid/Kodak patent war was one that really caused everyone to stand up and take notice. Despite winning, Polaroid couldn’t succeed. All the patent litigation managed to do really was wound the more dominant company – Kodak. Kodak has had many missteps over the years and it is impossible to look back on their current bankruptcy plight and say that this patent litigation against Polaroid is what caused the company to stumble. For crying out loud Kodak invented the digital camera and then allowed others to dominate the market. Still, it is worth observing that patent battles can and do cause companies to take their eye off the ball, which could have contributed to some point given the 15 year history of the Polaroid/Kodak battle perfectly coincided with the first 15 years of digital camera technology.

I don’t think Apple or Samsung will want to replay the Polaroid/Kodak patent movie. In the end it hasn’t worked out well for either company.