Apple (AAPL) Shareholders Could Take Hit in Broken Patent Strategy
Tweet
Share
E-mail
Get Alerts AAPL Hot Sheet
Join SI Premium – FREE
Will Apple's (Nasdaq: AAPL) "scorched earth" strategy in patent wars end up hurting shareholders the most?
According to reports Wednesday, some suspect that Apple's plan to wage war against competitors like HTC, Samsung, and Motorola Mobility (NYSE: MMI), and others, might be a failed plan. Or close to failed, anyway.
Why? Should Apple win product bans, competitors will generally "work around" the infringed patent, bringing products with similar features to market anyway. But if Apple loses, and no importing restrictions are applied, then it would have to work out a license deal or other settlement which would ensure Apple access to a competitor's patents.
One partner at intellectual property advising firm 3LP Advisors, according to Bloomberg, said Apple's strategy doesn't "maximize the value" of its patents. He likened it to a dam: putting rocks or wood to block a stream would only cause the stream to find a way around it.
And Apple isn't necessarily winning all of the litigation its getting itself into: an Australian court recently overturned a ban on Samsung's Galaxy Tab 10.1 in the country, a German judge said he's unlikely to uphold a ban, and litigation against HTC only turned up infringement of one patent.
Patents also don't keep competitors out of a market. Only IBM (NYSE: IBM) with a patent characterizing the basic architecture of a computer, and Texas Instruments (NYSE: TXN) with the basic format for an integrated circuit have held patents insurmountable to competitors. The U.S. DoJ forced IBM to license its patent, Bloomberg notes, and TI also decided to license its holding. The result was billions in royalties for both.
For Apple, striking deals might not be that bad. 3LP estimates that Apple could collected about $10 for each mobile device sold, which is more than Microsoft (Nasdaq: MSFT) is getting from HTC and Samsung. Further, Apple could be argued to have enough cash, currently $81 billion at last check. The company could pursue out-of-court settlements with Samsung, et al, in order to give it greater access to Google's (Nasdaq: GOOG) Android. Things like asking for a delay before entering a market, or focusing on different parts of a market might gain Apple greater leverage with competitors moving forward.
Say Apple wanted to expand on something like iTunes. Well , with Samsung (for example) being the number one OEM out there, putting iTunes on Samsung devices would benefit both companies. Samsung might sell more units, and Apple would expand it's "ecosystem," effectively halting entrants like Amazon (Nasdaq: AMZN) into the market, and lessening Samsung's reliance on Google.
3LP also said that Apple should work on striking deals soon. The International Trade Commission (ITC) is slated to rule on a possible import ban on Apple and Research in Motion (Nasdaq: RIMM) over potential photo-preview technology pioneered by Eastman Kodak (NYSE: EK). That call is slated for September. Should Apple be found to infringe, it would need to strike a deal with Eastman. Worse, with Eastman looking to sell its patent portfolio to generate cash, the key technology might end up in the hands of Samsung or Google.
No estimates have been made about the potential fallout in patent litigation, and what effect it might have on Apple shareholders. But with Apple potentially stepping on feet left and right, and having a ban placed on its products, you can bet it might be in the best interest of the Cupertino,CA-based tech giant to at least consider alternatives.
Because remember what happened the last time Apple missed an earnings report (hint: shares are still recovering). Shares are slightly higher Wednesday morning.
According to reports Wednesday, some suspect that Apple's plan to wage war against competitors like HTC, Samsung, and Motorola Mobility (NYSE: MMI), and others, might be a failed plan. Or close to failed, anyway.
Why? Should Apple win product bans, competitors will generally "work around" the infringed patent, bringing products with similar features to market anyway. But if Apple loses, and no importing restrictions are applied, then it would have to work out a license deal or other settlement which would ensure Apple access to a competitor's patents.
One partner at intellectual property advising firm 3LP Advisors, according to Bloomberg, said Apple's strategy doesn't "maximize the value" of its patents. He likened it to a dam: putting rocks or wood to block a stream would only cause the stream to find a way around it.
And Apple isn't necessarily winning all of the litigation its getting itself into: an Australian court recently overturned a ban on Samsung's Galaxy Tab 10.1 in the country, a German judge said he's unlikely to uphold a ban, and litigation against HTC only turned up infringement of one patent.
Patents also don't keep competitors out of a market. Only IBM (NYSE: IBM) with a patent characterizing the basic architecture of a computer, and Texas Instruments (NYSE: TXN) with the basic format for an integrated circuit have held patents insurmountable to competitors. The U.S. DoJ forced IBM to license its patent, Bloomberg notes, and TI also decided to license its holding. The result was billions in royalties for both.
For Apple, striking deals might not be that bad. 3LP estimates that Apple could collected about $10 for each mobile device sold, which is more than Microsoft (Nasdaq: MSFT) is getting from HTC and Samsung. Further, Apple could be argued to have enough cash, currently $81 billion at last check. The company could pursue out-of-court settlements with Samsung, et al, in order to give it greater access to Google's (Nasdaq: GOOG) Android. Things like asking for a delay before entering a market, or focusing on different parts of a market might gain Apple greater leverage with competitors moving forward.
Say Apple wanted to expand on something like iTunes. Well , with Samsung (for example) being the number one OEM out there, putting iTunes on Samsung devices would benefit both companies. Samsung might sell more units, and Apple would expand it's "ecosystem," effectively halting entrants like Amazon (Nasdaq: AMZN) into the market, and lessening Samsung's reliance on Google.
3LP also said that Apple should work on striking deals soon. The International Trade Commission (ITC) is slated to rule on a possible import ban on Apple and Research in Motion (Nasdaq: RIMM) over potential photo-preview technology pioneered by Eastman Kodak (NYSE: EK). That call is slated for September. Should Apple be found to infringe, it would need to strike a deal with Eastman. Worse, with Eastman looking to sell its patent portfolio to generate cash, the key technology might end up in the hands of Samsung or Google.
No estimates have been made about the potential fallout in patent litigation, and what effect it might have on Apple shareholders. But with Apple potentially stepping on feet left and right, and having a ban placed on its products, you can bet it might be in the best interest of the Cupertino,CA-based tech giant to at least consider alternatives.
Because remember what happened the last time Apple missed an earnings report (hint: shares are still recovering). Shares are slightly higher Wednesday morning.
Create E-mail Alert Related Categories
Insiders' BlogRelated Entities
Earnings, Motorola Mobility/GoogleSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
