02 June 2012

Apple Not ‘The Developer for the World’ Says Hypocritical Cook

Tim CookAs presented in Walter Isaacson’s biography, it seems that Steve Jobs did not require a rational justification to ‘go thermonuclear war’ against Google and Android.  As we wrote back in October last year, Jobs was willing to ‘spend my last dying breath if I need to, and I will spend every penny of Apple's $40 billion in the bank, to right this wrong.’  To him, the battle over smartphone technology was not about business or money.  Isaacson reports Jobs telling former Google CEO Eric Schmidt, ‘I don't want your money. If you offer me $5 billion, I won't want it. I've got plenty of money. I want you to stop using our ideas in Android, that's all I want.’

Jobs had built Apple into the world’s biggest tech company, and so he could really do no wrong in the eye’s of Apple shareholders and aficionados.  But the fact is that starting a global thermonuclear war, or spending every cent of the company’s money in pursuit of a principle, is not good business.  That path leads ultimately to shareholder revolt!

Jobs’ successor, Tim Cook, has therefore inherited a potential ticking time-bomb.  Apple had some early wins in the patent disputes which it started, but as the various court proceedings drag out over months – and those months will become years, unless there is a settlement – the company is finding itself increasingly mired in suits, countersuits, side issues and appeals.

It should therefore some as no surprise that Cook is trying to recast the battle as one which has a rational business foundation, and in which Apple is on the side of goodness and light.  The cost and distraction of all these law suits must now be justified to observers and shareholders as something more than the result of one person’s outrage.

So, when questioned about the ongoing IP disputes, Cook has taken to responding that, while he would prefer to settle, Apple will not be the world’s developer.  At Apple’s quarterly conference call on 24 April 2012 (as reported by CNET) Cook said ‘I would highly prefer to settle than to battle.  But it’s important that Apple not become the developer for the world. We need people to invent their own stuff.’

DEVELOPING FOR THE WORLD?

Again this week, at the D10 conference, Cook (in only his second ever public interview, as reported by Intellectual Property Magazine) said:

From our point of view it's important that Apple not be the developer for the world.  We take all of our energy and all of our care, and to have someone else put their name on it? The worst thing in the world that can happen to you if you're an engineer and you've given your life to something, is for someone to rip it off and put their name on it. We just don't want people ripping us off.

But this rationale is in need of closer examination in light of one of the other claims Cook made during the interview.  According to Intellectual Property Magazine:

The patent feuds have grown increasingly bitter over time, and Apple has accused some companies of suing it over standards-essential patents which they are obligated to licence on fair, reasonable and non-discriminatory terms (FRAND). Both Samsung and Google-owned Motorola are being investigated by the EU watchdog for violating their FRAND commitments.

"Apple has not sued anyone over standards-essential patents that we own, because we feel it's fundamentally wrong to do that," Cook continued. "The problem in this industry is that if you add up what everyone says their standards-essential patents are worth, no one would be in the phone business. It's maddening. It's a waste. It's a time suck. Does it stop innovation? Well, it's not going to stop us, but it's overhead. I wish we could settle this stuff."

Well, Cook had the opportunity to settle much of this ‘stuff’ on 20 & 21 May 2012, when he and Samsung CEO Choi Gee-Sung sat down together in court-ordered mediation sessions in California.  But, as The Verge put it, any chance of settlement seemingly ‘lost out to Apple's longstanding desire to see competitors '”invent their own stuff.’’’

In our view, this all makes Cook a first-class hypocrite.  It is all very well for him to take the high-ground over the use of standards-essential patents, but exactly which Apple patents is he referring to?  Apple may not wish to be the ‘developer for the world’ – and this is absolutely its right – but surely that is exactly what companies such as Samsung, Nortel, Ericsson, Motorola, Nokia and numerous others were doing when they elected to participate in the standards-setting process for mobile communications technology.

STANDARDISATION AND PARTICIPATION

Of course there are benefits from participation in the standards process.  Participating companies get a ‘head start’ on developing the standardised technology.  They also gain the potential to collect royalties on any patented contributions which are accepted into the standards.  But, by the same token, they are spending money in their own R&D divisions on developing ideas and technologies to address the needs of the standards.  Some of those ideas may come to fruition and be accepted into the standards, but no doubt many are not.

When you sign up to be an active participant in standards-setting, you are signing up to be a developer for the world.  The resulting standards make Apple’s entire mobile business possible.  So while Apple is entirely within its rights to direct its R&D spend on developing its own proprietary solutions, and to focus its IP protection and enforcement strategies on non-standards-essential technologies, it could at least do us all the courtesy of acknowledging that this is what it has done.  And while it has turned out to be a very effective business strategy, it does not entitle Cook to occupy the moral high-ground over standards-essential patents.

The fact is that, compared to many of its rivals, Apple does not have many standards-essential patents to enforce, even if it had the desire to do so.  There is a good reason for this – the company has allowed others to be its developers for standardised technology, while steadfastly refusing to make contributions itself.

Obviously, we need standards for things such as communications technologies, otherwise devices would not be able to talk to each other, or to the networks which connect them.  But, as users, we would all also benefit from greater standardisation in user interface, or ‘user experience’ (UX), technologies.  Ideally, every touch-screen device would work in much the same way, so that once you had mastered one you would be able to pick up another and know already exactly how to interact with it.

So when the World Wide Web Consortium (W3C) – of which Apple is a member, along with Microsoft, Google, Mozilla, Opera and others – set about developing a specification for handling of touch events by browsers executing on touch screen devices, it would be nice to think that maybe Apple would make some contribution.

However, its selfish refusal to be a ‘developer for the world’ is precisely why it did not participate in that particular exercise.  Had it done so, it could have influenced the standard to operate according to its own preferences, e.g. to work the same way as an iOS device.  But then it would have been required to pledge its corresponding patents on a royalty-free basis.

So Apple did not participate. Instead, it simply disclosed its relevant patents – as required – at the last possible opportunity, and now the W3C is left to determine whether the proposed specification will infringe Apple’s patents and, if so, then go back and find a workaround. And, as explained in this article from Ars Technica, it is not the first time that Apple has done this.

NO MORAL HIGH-GROUND FOR APPLE

Again we must emphasise, Apple is entirely within its rights here.  It is under no obligation to share its technology.  It is OK to be a bit selfish, if it is legal and makes good business sense.  Our criticism of Apple is not that it has some sort of ‘evil’ business strategy.  Our criticism is that Cook is a hypocrite for claiming the moral high-ground in the debate over standards-essential patents, and he should not be permitted to get away with it!

Samsung and others have perhaps only recently come to realise that they made an error in diverting so much of their R&D efforts to the development of standards-essential technologies.  In the current disputes with Apple, this has placed them at a strategic disadvantage.  Not only are legal questions being raised as to their ability to use standards-essential patents in their defence, but they are also losing the public relations war, as their rivals, self-appointed experts, commentators and the media portray them as unprincipled ‘FRAND abusers’.

WHERE TO FROM HERE?

If we are to believe much of the commentary out on the internet, there are only two types of FRAND.  There is ‘good FRAND’ – where everyone agrees not to charge too much, not to sue anyone, and never, ever seek an injunction – and then there is ‘FRAND abuse’ – which is pretty much any other conduct by standards-essential patent holders, no matter what the circumstances.  But like most mutually-exclusive polar opposites, this is a hopeless basis for any real-world compromise.  For meaningful progress to occur, we need to have a more nuanced discussion about the role of FRAND licensing, and standards-essential patent rights.

This is not to say that injunctions should always be available on standards-essential patents.  Nor will it eliminate the need for the courts – or some other independent arbiter – to step in sometimes to determine exactly how much is ‘fair and reasonable’ as a royalty rate.  But there are no ‘good guys’ or ‘bad guys’ in this debate.  There are just companies trying to run profitable businesses in a competitive environment, and we need to stop letting people tell us otherwise.

So next time you use your smartphone, your notebook PC, your tablet, your e-book reader, or whatever other wireless communications device happens to be your poison, spare a thought for all the companies that were involved in developing the standards and technologies which make that device possible, and maybe ask yourself: are they really receiving fair treatment now, after the contribution they have made to the industry?  And, quite frankly, to Apple’s bottom line.

5 comments:

KEB said...

So Samsung and Motorola are developers for world because they participated in developer standardization and Apple dosen't deserve to be licensed standards-essential patents on FRAND terms because it didn't participated in 3G or other standardization?


Samsung and Motorola terminated the licence contracts for Apple's Suppliers right after launch of iphone and demand royalty higher than whole chip price.
 Main concern for  standardization is to prevent for standars essential patents holder to use their patents as barriers for entry and that's what exactly Samsung and Motorola are doing. 

Patentology (Mark Summerfield) said...

Did you actually read what I wrote?  All of it?  Or just the parts that suit your pre-existing opinions?

What I am trying to do with this article is get a few people to stop thinking in the kind of black-and-white terms your comment exemplifies.

I said, more than once, that Apple is entirely within its rights.

I did not express a view on whether any of the terms currently on offer are 'fair and reasonable', but I did say, quite clearly, that if the companies involved cannot agree, then the courts, or some other arbiter, may have to resolve the disputes.

Who has been 'barred from entry', to any market, by any use of standards-essential patents?  Apple is already in every market.  We all have far more choice of competing smartphones than anyone could possibly need.  There's scant evidence of any anti-competitive effect.

The only patents which have resulted in new products being denied entry to any market, temporarily or otherwise, are Apple's non-standards-essential patents (e.g. Samsung Galaxy Tab 10.1 in Australia, and HTC One X and EVO 4G LTE phones in the US).

Too many people are swallowing a line, promoted by (among others) Apple, Microsoft and their paid apologists, according to which the system is allegedly failing in ways that are clearly unsupported by reality!

It should come as no surprise to anyone that the patent-holders have a different view of what is 'fair and reasonable' than the prospective licensees.  One paid to develop the technology, the other has to pay to use it.

People who are being persuaded to take sides for free (as opposed to doing so in exchange for a consultancy fee) are the puppets of some very rich corporations which are perfectly able to look after themselves!

KEB said...

The royalty rate Samsung is asking  mighty be actually FRAND rate.
 
But injuction shold be awarded after the court decides the royalty rate and only if Apple refuse to pay that.

Apple tries to pay less or none while Samsung tries to be paid more. There is nothing wrong with both of them.

Samsung may start the negotiation with making a offer of 10% or $60 for strategic purposes, but seeking injuction because Apple dosen't accept that offer is, in my opinon, not right. Especially when such injunction is likely to happen in some juridictions before reasonable royalty rate is decided by courts.

Regarding barriers to entry, you are right.  No one has been barred to entry. Apple had been barred from selling in Germany for very short time, though.

Apple is among very few companies who can afford to pay that much royalty and still make profits. If that royalty rate is widely adopted, not many companies are able to enter or stay in mobile industry. 

Maybe Apple should be treated differnetly because Apple sued other companies with non-essential patents and chose not to participate in standardization not to become a 'developer for the world'.

But I don't see why Mr. Cook is called hypocritical Cook .

Esignature Portfolio said...

Before being named CEO in August 2011, Tim was Apple's Chief Operating
Officer and was responsible for all of the company’s worldwide sales and
operations, including end-to-end management of Apple’s supply chain,
sales activities, and service and support in all markets and countries.
He also headed Apple’s Macintosh division and played a key role in the
continued development of strategic reseller and supplier relationships,
ensuring flexibility in response to an increasingly demanding
marketplace.

Patentology (Mark Summerfield) said...

I think the courts are perfectly capable of working out for themselves whether or not an injunction is appropriate in any particular circumstances.  An injunction is not an entitlement, it is an equitable remedy.  As you say, if the initial offer is unreasonable, and it is refused, there is no basis for an injunction.  But if the initial offer is reasonable, the prospective licensee should not be able to get away with infringement just because the patent is essential to a standard.

As for the hypocrisy of Apple's position, I would have thought that was self-evident.

Cook says Apple will not be the world's developer.  That's fine, and necessarily means that Apple will not be contributing its precious technologies to standards.

Then Cook says that 'Apple has not sued anyone over standards-essential patents that we own, because we feel it's fundamentally wrong to do that.'  Again, that's fine, but would be more persuasive if Apple had any standards-essential patents to speak of!

And why does Apple not control a substantial number of standards-essential patents?  Because as soon as a standard starts to encroach on an area in which Apple has something unique to contribute, the company steps back and declines to participate (e.g. the W3C specification for handling of touch events by browsers executing on touch screen devices).

One potential outcome of this strategy is that Apple owns patents that are pertinent to a standard, but is free from any FRAND commitments, or other licensing obligations, because it did not actually participate in the standardisation process.

Clearly it is a case of 'do as I say, not as I do'.  This is the textbook definition of hypocrisy.  If a non-practising entity behaved the same way, it would be labelled a 'troll'.

Apple appears to believe it can prevail in the global patent disputes by winning hearts and minds.  This might well be true, but only if everyone's hearts and minds are for sale!

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