Just as we closed our issue last week Motorola Mobility went and joined the long line of companies intent on suing Apple out of the mobile phone business. This is because Apple seems to think that it’s okay to have fat profits, and not pay a single penny for the underlying patents behind mobile phones, preferring instead, as a habit, to play a game of bluff with patents.
Nokia was the first to take Apple to task over its complete lack of any royalty payments for underlying mobile phone technologies. On the one hand the cellular community cannot have a blockade against new entries with patent costs being too large a percentage of the total device cost, and on the other, the companies which have spent a lot of money designing this technology should not be at a disadvantage ‘ in fact they should have a small advantage, in bringing products to market cheaper.
Nokia has something like 38% of the patent value in 2G phones and Motorola about 7%, while Nokia has 18% of the patents for UMTS 3G, which has declined as other essential patents have come into play. Motorola has just 3% today while Apple has about 1% of both.
Motorola is probably under-represented in the 3G patent calculations (we took them from ETSI the European standards organization which licenses 3G for about 9 organizations) because it has been so financially troubled, while new organizations have claimed their patents are ‘essential’ to 3G, Motorola has had too much to worry about, just surviving. Also by resting heavily on Android, that has perhaps taken down the overall R&D which Motorola has been able to bring into play.
Handsets use technologies which require something like 170 separate patents in order to build a 3G phone and a smaller, but similar number to build a base station. If you don’t have anything to barter with, such as essential patents of your own, you have to pay significant royalties in order to build a phone. Nokia has long fronted a campaign to bring patents down to 5% of the total price of a handset, as a maximum, something which Qualcomm has fought tooth and claw to prevent, since it licenses its own patents separately from any patent pools and has charged about this much on its own.
The accommodation of Qualcomm into the patent arrangements which exist today on handsets has been immensely painful. First it sued Ericsson successfully when it tried to invade the CDMA market which Qualcomm had created single handed, then Broadcom sued Qualcomm for using its power saving techniques and then Nokia reached an accommodation, which massively lowered the patent royalties it pays to Qualcomm. Currently after ten years of litigation, Qualcomm is close to having a clean bill of health in mobile patent litigation. Does this mean that Apple has to go through the same process?
Well we don’t think so. Apple, unlike Qualcomm, is an outsider here. Don’t get me wrong Qualcomm was an outsider in the cozy little patents swaps of cellular, but it created a set of encoding techniques, interference cancellation and forward error correction patents which effectively revolutionized cellular networks. There wasn’t much in the way of similar technology out there, and European 3G owes much to the CDMA techniques that Qualcomm contributed and while it did not contribute anything like so much to LTE, in buying Flarion in 2005, Qualcomm has built itself patents in the underlying OFDM modulation that LTE and WiMAX are built on.
While this is a similar process, in that the work has to ‘accommodate’ the value that Apple has brought to cellular design, all of its contribution has been focused entirely at the UI level, not the radio level. Every phone that Apple makes needs the 2G or 3G technology while only a handful of Android plus Nokia’s touch products MIGHT need Apple’s patents.
We say ‘Might’ need because Apple has a bad record in court in protecting intellectual property (like its Click Wheel interface for the iPod, which was used by Creative Technologies) Apple settled out of court and paid Creative $100 million for using its patent) partly because it doesn’t try too hard to check what’s already out there. It seems to invent/copy new ideas and just goes ahead and uses them, regardless of whether anyone has patented it before.
We think this is because it takes the view, ‘If anyone owns this they can sue us, and if they don’t sue us then they don’t own it.’ It’s a bullying approach and that approach makes it so you have to be able to afford $100 million law suits to play in this game.
But can Apple really afford to take these patents to full legal scrutiny? We don’t think it can. It can argue that its touch patents are worth the same as the underlying cellular patents that have taken 30 years to build and argue in court, but really? For just a system of touch?
We have to remember that Apple did not invent the touch technologies themselves, these were already coming onto the market when it brought out is first touch products. What Apple invented was two things, first a broad variety of touch gestures which could be meaningful on a touch screen, and then one particular way of implementing it. So it can try to patent (and has succeeded nominally) the idea of pinching or spreading things on a screen, and it can copyright the code that it uses to achieve this. If another phone maker then reverse engineers these effects using different code, or does something slightly different in its UI, then surely it doesn’t breach the Apple patents or its code copyright.
But if Apple has been so successful in getting much of the market to use its ‘identical’ touch gestures, then perhaps it has a case that this is an ‘essential’ smart phone patent.
But it’s tough to argue that Apple invented tapping the screen twice to zoom into a browser interface, when its team worked hand in hand with Nokia on mobile browsers and the idea had been bandied about before by other browser makers. Prior use rears its ugly head, and the danger Apple faces if it goes to court with these patents is that it could lose them ‘ they could be caught up in a succession of claims that they are obvious and that others have examples (far less successful examples, but examples) of similar UI ideas from the past.
All that Apple can do is posture, be indignant, and try to reach a settlement with each of the 3G patent holders that is not too disruptive to its business. Because if it gets a reversal in a court of law, Apple’s house of patent cards are almost sure to come tumbling down. The other players sense this weakness and the indignity with which Apple upset the economics of the handset market are all to recent scars ‘ so they sense a potential cash kill (Apple has $46 billion in the bank right now so why not).
The Motorola claims are made to the US International Trade Commission and in the Northern District of Illinois and the Southern District of Florida and include 18 patents which all relate to WCDMA, GPRS and WiFi antenna design, plus wireless email, proximity sensing, software application management, location-based services as well as device synchronization.
Motorola, in our view, could be the company to break Apple here. It doesn’t want a settlement, it wants to undermine the iPhone so that Android devices win in the market. It also partnered with Apple, and taught it everything it knows about making handsets on a device prior to the iPhone, and it may have come to see that internally as some kind of betrayal from its former partner. Some would argue that Motorola blocked Apple’s ideas to bring an iPhone to market and instead brought out a truncated music phone which could support only 100 songs, so Apple had to go it alone (which is also true), but the two companies have the most reasons to be unfriendly to one another.
Nokia, Motorola and HTC all want to have the right to go about the business of using touch gestures with impunity, built into an overall patent swap between them and Apple, and we can’t see how Apple can prevent this, without risking its untried touch patents in court.