Apple is a patent bully

Apple-Google

"Patents were meant to encourage innovation, but lately they are being used as a weapon to stop it", David Drummond, Google chief legal officer, writes in a blog post late yesterday afternoon. He's absolutely right.

For weeks I've been thinking about writing a commentary about how Apple has become a patent bully -- that its behavior answers an ongoing question of discussion going on for years. Drummond's blog post tipped me to doing it.

Becoming the Big Apple

When Apple was a feebler company, even in the early years of CEO Steve Jobs' return -- the Second Coming before the Jesus Phone -- someone in some tech circle of mine would ask: What if Apple was as big and powerful as Microsoft? Wouldn't we all be better off? I usually heard that question answered "Yes" -- that Apple would never be as aggressive or anticompetitive as Microsoft was during its PC supremacy in the late 1980s throughout the 1990s. I always answered "No".

As a corporate culture, Apple seeks to control everything in its supply chain and is secretive about everything else. I saw Apple as being a harsh dictator if ever growing to dominate any part of the tech industry. That's rapidly proving to be the case -- only much more severely than I expected. The company now resorts to competition by litigation, using its patent portfolio to attack competitors in the hot, mobile market. There's a platform war underway, and the winner could come to dominate smartphones, tablets and other mobile devices the way Microsoft did with the PC.

But there's a difference. Microsoft sold the middleware that sat between people and PCs. Its success enabled many other businesses and people to profit from Windows. Apple's business is selling hardware and products or services that support it. Should Apple come to win the mobile device/platform war, hundreds of millions of people will come to use iOS products, whether or not they want to. A win for Apple is a win for Apple, and for anyone or any business lucky enough to get the scraps falling to the floor. One company and one set of choices will come to rule the next computing platform.

Yes, the iOS and Mac App stores enable tens of thousands of developers to profit -- as long as they don't compete with Apple. Take a look at Mac App Store stats, where Apple products dominate the top 10. Apple apologists will claim the company simply makes better products, something I heard repeatedly said about Microsoft during its US antitrust case.

Right now, Apple faces stiff competition. For all the bravado about 425,000 mobile apps or the billions and billions of mobile app downloads -- and even despite the amazing high-margin iOS products -- Android is the volume leader by a huge margin. Three days ago, Canalys reported that during second quarter, Android's global smartphone market share reached 48 percent. Growth rate was 379 percent year over year, and Android leads in 35 of the 56 countries Canalys tracks. According to Google, 39 manufacturers ship Android devices, which are available from 231 carriers globally. What Apple needs is time, particularly for iPad to push enough volume of apps and devices to secure permanent market share lead. iPad had 69 percent share of the tablet market, according to IDC. Patents are Apple's weapons of mass destruction, for clearing the way for its mobile device success.

The Bully Pulpit

I've been reporting on the technology sector for about 17 years and never have I seen so many patent lawsuits going on at once -- let alone so many consolidated around one product sector. Apple's rash of patent lawsuits are squarely aimed at competitors, which reveals the goals -- to gain advantage over rivals more than to legitimately protect intellectual property rights.

For example, Apple sued HTC for patent infringement in March 2010; at the time, HTC was one of the largest -- if not the largest -- Android licensees. I called the lawsuit "competition by litigation" -- "where Apple hopes to scare off mobile manufacturers from licensing Android". Apple's lawsuit alleged HTC infringed 20 patents. It was really an attack on Google and Android and it seemed frivolous. But Apple actually won two of them earlier this month, which shows that anything is possible in the courts with money, the right lawyers and a favorable venue (Hey, OJ got off, right?). It's funny how much blog and news media attention those two patents got in recent weeks and not the 18 claims Apple lost. The Apple Fanclub of bloggers and reporters keep harping on how the HTC loss is bad for Android's future, because of the legal damages/licensing fees Apple can inflict. I expect Apple to lose on appeal. But, hey, I'm not a patent attorney.

What I explained 16 months ago about why Apple sued HTC and not Google still applies: "Apple potentially gains more by scaring off potential Android licensees than engaging in a protracted patent lawsuit. It's easier and more effective to raise bluster (and loads of free press) by engaging HTC than Google. Meanwhile, Apple can drag out the lawsuit as a distraction for HTC and other (frightened) Android licensees". Legal threats can cause hesitation everywhere -- among handset manufacturers, software developers, peripheral makers and business or other organization adopters. Hesitation gives Apple time to push back with new products, iCloud, iOS 5 and iPhone 5 -- even iPad 3, if it ships this year. Apple is a bully, and patent suing its assault rifle.

In April, Apple filed patent infringement claims against Samsung, specifically naming the Galaxy Tab as well as the Nexus SEpic 4G and Galaxy S 4G smartphones. Right now, Samsung is Apple's biggest competitor in smartphones and tablets. During second quarter, Apple and Samsung finished neck and neck -- with 20.3 million and 19.2 million smartphones shipped, respectively, according to Strategy Analytics. Samsung smartphone shipments grew a stunning 520 percent. Android has huge momentum but fragmentation and other problems are holding back the platform. Apple's patent bullying could do even more by creating fear, uncertainty and doubt about Android's future. That Samsung delayed Galaxy Tab 10.1's launch in Australia -- and based on contradictory reports in agreement with Apple because of the patent suit there -- is exactly what Apple needs to buy time for iPad to become entrenched and for iPhone to make serious gains against Android handsets.

When Patents Attack

This patent warfare isn't confined to Apple, but the company is a leader filing lawsuits. The threat of patent suits can chill innovation, particularly if smaller companies feel threatened. Right now, Apple is pursuing competitors like HTC, Nokia and Samsung. But who's next? Apple has been acquiring new patents, too, with the recent Nortel stash a big prize. Late last month a consortium of companies picked up 6,000 Nortel patents for $4.5 billion. Apple contributed $2.6 billion for them.

There has been much call for patent reform, but little of it. In late July, NPR aired segment "When Patents Attack". It is simply the best piece of journalism about patents -- and how companies use them to squash innovation -- to air in a decade. From the segment: "Patents are a big deal in the software industry right now. Lawsuits are proliferating. Big technology companies are spending billions of dollars to buy up huge patent portfolios in order to defend themselves. Computer programmers say patents are hindering innovation".

Reporters Alex Blumberg and Laura Sydell look at a patent system out of control, particularly for software -- yes, like for the stuff Apple is using to beat back competitors. From the segment: "David Martin, who runs a company called M-Cam" says that "about 30 percent of US patents are essentially on things that have already been invented. In 2000, for example, the patent office granted a patent on making toast -- patent number 6080436, "Bread Refreshing Method".

Google's Drummond claims that Apple, Microsoft and some other competitors have "waged through bogus patents" an "organized campaign" because of "Android's success". He contends:

A smartphone might involve as many as 250,000 (largely questionable) patent claims, and our competitors want to impose a "tax" for these dubious patents that makes Android devices more expensive for consumers. They want to make it harder for manufacturers to sell Android devices. Instead of competing by building new features or devices, they are fighting through litigation.

Microsoft has certainly done its bit patent trolling recently. But Microsoft is motivated by profit. Its patent attacks against Android licensees are no different than those against Linux -- to extract licensing fees and licensing agreements. HTC already coughs up five bucks per handset in licensing fees and scuttlebutt is Microsoft wants $10-$15 per phone from Samsung. By comparison, Apple is asking ITC to bar HTC products from the United States. It's competition by litigation, but from the bully pulpit.

Apple couldn't so aggressively pursue Android licensees if there wasn't some point of vulnerability. Google's patent portfolio is weak. Larger tech companies typically amass patents as protection against patent troll or legitimate lawsuits. Because there is so much overlap among different patents, one lawsuit can lead to a countersuit and eventually cross-licensing agreement. That's major reason why Apple and Nokia after suing each other could come to a cross-licensing agreement -- patent portfolio.

"Android faces more problems than any other software platform -- mobile or otherwise -- in the history of this industry", patent analyst Florian Mueller explains. "And the trend is undoubtedly that there will be even more of this before all is said and done and, hopefully, settled". The platform is vulnerable in part because Google can't effectively protect it. Apple leads the charge, not directly against Google, but the licensees with whom it directly competes.

In 2010, Apple became the largest company, as measured by market cap, and its revenue and profit now far exceed Microsoft. Apple no longer is the little Mac company everyone felt sorry for in the 1990s. David is now Goliath.

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