05 February 2012

Apple vs Android – IP Supremacy and the Mobile Market

IAM Cover - Issue 52, March/April 2012The following is a heavily-edited extract from an article I wrote for IAM Magazine.  The original, entitled ‘Apple vs Android – The Struggle for IP Supremacy in the Mobile Market’ is the cover story of the current issue (no. 52, March/April 2012).

The full version is around three times as long, covering many aspects of the story – such as the history between Apple and Microsoft, and between Apple and Samsung – in much greater detail.  It also includes images and further discussion of patent themescape maps similar to those presented in Patentology’s most popular ever article, How Apple Punches Above Its Weight in Smartphone Disputes.

IAM Magazine is a subscription product, however a free trial is available upon registration.  There is also much on the website that can be accessed permanently once you have registered.  It is a great resource, and highly recommended!
 
Steve Jobs had already become a multi-millionaire by the age of 25, when Apple Computer, Inc (as it then was) went public in December 1980 on the back of having effectively launched the personal computer revolution with the Apple II. In January 1983, Apple launched the Lisa – featuring a graphical user interface (GUI) based on a ‘desktop’ metaphor – and though this machine would have limited commercial success, due to its high price-tag, Jobs was already leading the team at Apple which was working on something called the ‘Macintosh project’. Of course, the resulting product would go on, once again, to revolutionise the way humans interacted with computers.

Jobs was a child of the cold war, who grew up in the sixties and seventies and was strongly influenced by Zen Buddhism (he went on a spiritual journey to India in 1974). But he had, by all accounts, a complex personality, and he would probably have seen no irony or contradiction in his angry pronouncement to his biographer, Walter Isaacson, in 2010 that he was willing to ‘go thermonuclear war’ on Google’s Android operating system, and ‘to spend every penny of Apple’s $40 billion in the bank’, if necessary.

Opening Moves

Apple’s first-strike against Android was a complaint, filed in March 2010 in the US District Court for the District of Delaware and the US International Trade Commission (ITC), alleging infringement of 20 Apple patents – relating to the iPhone’s user interface, underlying architecture and hardware – by Taiwanese smart phone manufacturer HTC Corporation.

Since then, the face-off between Apple and its best-performing Android-based competitors has escalated. By December 2010 a further dispute with Motorola Mobility, Inc had coalesced into litigation over infringement and validity of 24 Apple patents, and 18 Motorola patents, across the ITC and the US District Courts of Delaware, the Western District of Wisconsin and the Southern District of Florida.

Frenemies

Meanwhile, behind the scenes, Apple had been in negotiations with a company with which it has a far more complex relationship. When Apple wanted more control over the characteristics of the processors used in its mobile devices, including the iPad and subsequent iPhone models, it abandoned plans to base a tablet computer on Intel’s Atom chip, and instead acquired a 150-person microprocessor design firm to develop a custom system-on-a-chip integrating an ARM processor core, graphics, operating system and memory controller, which it called the A4. And it chose Korea’s Samsung Electronics Co Ltd – now the world’s largest semiconductor manufacturer – to produce the chip.

Samsung had also become a serious competitor in the mobile devices market. Along with some of HTC’s Android-based smart phones, Samsung’s Galaxy S handset was being favourably compared to the iPhone, while the Galaxy Tab 10.1 tablet computer was generating buzz, even before release, with its technical specifications.

On 15 April 2011, Apple filed suit against Samsung in the US District Court for the Northern District of California, alleging infringement of various utility and design patents, trade dress and trade marks by a range of products, including various Samsung smart phones and the Galaxy Tab tablet. By mid-August 2011 Apple and Samsung were additionally engaged in intellectual property litigation in Germany, the Netherlands, Australia, the UK, France, Italy, Japan and South Korea. Apple had some early successes, with injunctions being granted in Germany, the Netherlands and Australia, leaving Samsung looking very much like it had been caught off-guard, and forced onto the back foot, by the timing and intensity of Apple’s assault.

Historical Background – the Struggle for Control of the Desktop

Apple is no stranger to litigation over intellectual property rights, or to accusations of copying. In 1982, Apple filed a copyright complaint against Franklin Computer Corp, alleging that Franklin's ACE 100 personal computer included unauthorised copies of the Apple II operating system and ROM.

More famously, in 1988 Apple sued Microsoft and Hewlett-Packard, alleging that Microsoft Windows and HP's NewWave software violated Apple copyrights in the Macintosh user interface. As would later be the case with Samsung, Microsoft was a company with which Apple had a complex relationship. Microsoft had been the first third-party applications developer for the Macintosh, with its Word and Excel products, which had helped to make Apple a pioneer in desktop publishing. Apple had licensed aspects of the Macintosh GUI to Microsoft for use in its Windows 1.0 software in exchange for an additional two years’ exclusivity of Excel on the Apple platform. But when ‘unlicensed’ features appeared in Windows 2.0, Apple filed suit against Microsoft. Although by 1997 Apple had lost this ‘look and feel’ copyright case, there remained significant tension with Microsoft, with various disputes and potential new litigation lingering.

The complexity of Apple’s relationship with Microsoft was paralleled over the years by that of the companies’ key protagonists, Steve Jobs and Bill Gates. Despite intense rivalry, and almost diametrically opposed philosophies of life and business, the two men always shared a grudging respect for one another. So when Steve Jobs returned to Apple in 1997, one of his first phone calls was to Gates. While Jobs maintained that Microsoft was infringing upon various Apple patents and other IP rights, both men agreed that the dispute had become unproductive and potentially damaging to both companies. A final deal – reached in just a few weeks, after years of intractable antagonism – saw Microsoft agree to continue development of Office for the Mac, and to invest US$150 million in exchange for nonvoting shares in Apple, while Apple would ship its MacOS with Internet Explorer as the default browser.

Ideological Differences – ‘Closed’ vs ‘Open’

Among the differences distinguishing Jobs’ approach to product design from that of Gates was a fundamental opposition between ‘closed’ and ‘open’ systems. As a result of Microsoft’s open approach, Windows is even more ubiquitous than its dominance of the desktop market would indicate. It powers over a third of all servers, and Windows variants can also be found in a wide range of embedded systems applications, from test and measurement equipment through to automatic teller machines and point-of-sale systems, display signage through to in-vehicle automotive systems. Certainly Windows is not ‘free’ – either as in ‘free beer’, or as in ‘free speech’ – but by any measure it is a platform open to all comers on largely non-discriminatory terms.

This is in stark contrast to the Apple philosophy. Jobs always favoured closed systems in which everything was vertically integrated and completely within Apple’s control. The one time Apple deviated from its closed approach, allowing the Macintosh operating system to be licensed to ‘clone’ manufacturers, it proved to be a disastrous strategy. Apple made only US$80.00 in license fees from each Macintosh clone that was sold, but the clones were cannibalising Apple’s own computer sales, on which it made up to US$500.00 on each purchase.

There can be no question that the open model won the battle for supremacy on the desktop – the most generous estimates give Macintosh products little more than 5% of the global market. However, this was certainly not because it provided a better user experience. Windows has suffered from the requirements to maintain compatibility with countless thousands of legacy applications and systems. And, lacking control over third-party hardware and software, or the infinite variety of system configurations that users can create, there is no way for Microsoft to guarantee that any particular system will be stable, reliable or useable. In contrast, Apple’s closed platform has allowed it to keep its products simple, stable and elegant, and many of its customers love it for this.

In this context, Apple’s current intellectual property litigation strategy is not just about the alleged infringement of Apple’s IP rights by a few competing products. It is a fundamental battle which could determine whether the closed or open models will dominate the market for mobile devices. In one corner is Apple, with its vertically-integrated model – the iPhone, the iPad, the iTunes store, the Apple Apps Store and iCloud. In the opposing corner is Google with its open Android platform, available to any device manufacturer that wishes to use it.

Apple’s IP Deployment

Apple’s lawsuits against the alleged ‘slavish copying’ of its products are based upon various patents, registered designs (design patents in the US), and claims of trade dress infringement, or unfair competition, in combinations that vary in different jurisdictions. Of course there is no question that various competitors have intentionally imitated certain design and functional features of Apple’s products on the basis that they are particularly useful, effective and/or attractive to consumers. However, in the absence of some protectable, and enforceable, IP right – such as a patent, registered design or copyright – imitation is part and parcel of free competition. As Jobs is reported to have said, ‘Picasso had a saying – “good artists copy, great artists steal” – and [Apple has] always been shameless about stealing great ideas.’ For Jobs, perhaps stealing was justifiable in the service of great art, but not in the production of what – to him, at least – were inferior imitations.

Apple’s strongest assets in its IP litigation will most likely prove to be its patents. There is no question that Apple holds some potentially significant patents, particularly in the areas of touch screen technology and user interfaces. Two of these patents effectively delayed the launch of Samsung’s Galaxy Tab 10.1 in Australia for four months in 2011. However, Apple’s patents will need to be of great strategic significance if they are to overcome the superior numbers of its competitors’ portfolios. A search for patents in relating to mobile device technologies and software, based upon relevant international classification codes and keywords, identified 1941 distinct patent families owned by Apple. This falls far short of the 8887 patent families held by Microsoft, the 9582 held by Motorola Mobility (to be acquired by Google), or the massive 31524 held by Samsung.

Open Standards and IP Strategy

Samsung’s patent portfolio is by far the largest in the mobile communications space. It is common wisdom now that one justification for building a portfolio is to provide a strategic defence against infringement suits brought by competitors. However, the ongoing litigation with Apple is revealing a strategic weakness of Samsung’s portfolio, in the form of the company’s involvement in the setting of industry standards for mobile communications protocols and technology. Samsung has been extensively involved with the 3rd Generation Partnership Project (3GPP), and over time it has developed and contributed many technical solutions to the various challenges and problems encountered in the implementation of workable, robust, and widely-supported mobile communications standards.

Contributors to 3GPP standards are not prohibited from obtaining patents protecting adopted technologies, however they are required to undertake that they will make licenses available to all comers on ‘fair, reasonable and non-discriminatory’ (FRAND) terms. The patents cannot be used to exclude competitors from the market, or to price them out of it. Anybody willing to pay the going rate must be granted a license. This is a double-edged sword. While having technology adopted into a standard provides a guaranteed royalty stream, it also effectively prevents the patents from being selectively enforced to obtain injunctions against competitors. The alternative – of keeping the technology as part of a closed, propriety, solution – is not viable in a market dependent upon open standards for interoperability.

While some commentators have expressed the view that Samsung is acting in bad faith by even attempting to assert its standards-related patents, it is not apparent that it has any alternative. The complexity and uncertainty of the scope and reach of FRAND terms works strategically in Samsung’s favour since – accounting for appeals – these issues are unlikely to be finally decided in the near future, increasing the likelihood of an alternative resolution of the global dispute with Apple.

End Game

Apple cannot win a patent war predicated on market exclusion. With the Android source code being open, Apple might just as well be fighting a Hydra – cut off one device from the market, and two more will appear to replace it. Ultimately, Apple’s best course of action will most likely be to enter into licensing agreements with its competitors, which will not only result in significant revenues, but also push up the prices (or reduce the margins) on competitive products.

Jobs may have wanted to ‘go thermonuclear war’ on Android, but a better metaphor for global litigation is a long, drawn out game of chess. And currently, while a few pawns have been sacrificed, there is no sign of check or mate.

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