Joe Mullin Corporate Counsel March 05, 2010
Apple's lawsuit against HTC comes well into the Internet age, after a 10-year run of "troll" lawsuits has transformed the patent litigation landscape to the point that such suits now make up the bulk of many Silicon Valley litigators' practice.
It's fairly unusual in the modern era for a market leader to initiate a patent suit. Which is not to say large operating companies don't sue for patent infringement. They do. But on the relatively rare occasions when they do launch such litigation, it tends to fall into a couple of categories.
First, there are big companies with established licensing programs (IBM, Honeywell) that sometimes sue companies they don't directly compete with as a way of extracting licensing revenue. Second, big companies with slightly more Industrial Age roots sometimes sue in a bid to win some tribute from the new breed of technology companies (see, for example, Kodak's patent claims against Samsung, LG, Apple, and RIM over cell-phone cameras or Xerox's lawsuit against Google and Yahoo over search engine technology). Finally, there are a handful of suits in which a large patent-holder goes after a true rival in the hopes of protecting a deteriorating market share (see Nokia v. Apple).
The indirect targets of Apple's lawsuit, of course, are Google and its Android operating system. Still, the suit doesn't fit cleanly into any of the above categories, because right now Apple, along with Blackberry maker Research in Motion, is top dog in the smartphone market. But the company may be getting nervous about the long-term security of its position--or it may just be interested in using patents to to make life difficult for its competitors.
In any case, this litigation is less like most types of Internet-era patent suits, and more like a throwback to the way tech-sector patent wars were waged ten and even twenty years ago. Like Apple's move against HTC, some of those old-school lawsuits were initiated by market leaders. In the 1980s, Texas Instruments and IBM both won big cases against Japanese and Korean rivals. Some of the victories were large enough that the companies started to see patent-licensing as a lucrative business in and of itself. Those suits continued into the early 1990s, when Texas Instruments filed lawsuits against competitors like Tandy, Micron, Daewoo, and Sanyo, and IBM launched a patent attack on hard-drive manufacturer Conner Peripherals--something that was a likely contributor to that company's 1996 demise. The most famous example to date of a market leader using patents to solidify its position remains Polaroid's long and ultimately successful battle to wipe out the Kodak 's Instamatic line of cameras. That litigation also resulted in Polaroid winning a $910 million award, which, until recently, was the largest patent verdict ever.
In a way, Apple is taking a page out of the past in order to safeguard its future. One thing that makes this a risky gambit, though, is that while patterns of litigation have changed, so have attitudes toward patents. That's especially true in the software arena. And if Apple's move is the beginning of an all-out patent war, it's not going to be popular with the tech sector's independent developers and commentators.
Is HTC the Perfect Target for a Patent Attack?
Apple generates an enormous amount of revenue selling gadgets, and the company has never previously shown an interest in developing a real licensing program. So it's unlikely that the purpose of this lawsuit is to create a new, ongoing royalty stream from a hot product. It's almost definitely based on a genuine desire to shut a competitor out of the market, or to at least throw enough obstacles in HTC's path so that Apple keeps its edge in the marketplace. After all, patent litigation creates added burdens on in-house counsel, as well as on the engineers and other technical employees who will be deposed and be drawn into participating in the suit in less direct ways. Apple may even be focused on forcing HTC to removed certain critical features from its phones. (See, for example, cell-phone blog reporting that Google initially deactivated some multi-touch features in HTC phones at Apple's request.
Apple may well have decided it has good reason to worry about the HTC-Google partnership: Analysts have praised HTC's phones as being technically strong, and, by all accounts, Google's Android operating system offers a powerful open-choice alternative to proprietary cell-phone software made not just by Apple, but also by Research In Motion and Microsoft. Some reports argue that Android's adoption in handset makers new phones will soon outpace those competitors.
More immediately, the Taiwanese company's large revenue stream (about $4.5 billion in 2009) and nearly nonexistent U.S. patent portfolio probably helped persuade Apple that it is a perfect target. A search of U.S. Patent and Trademark Office records shows that HTC has only been issued 25 utility patents. While that number doesn't include whatever patents HTC may have recently acquired—or be in the process of acquiring—to hit back at Apple and gain some leverage in this patent battle, it's a stunningly low number when compared to other major handset makers such as Palm Inc. (almost 300 patents) and Motorola Inc. (which, like Apple, has accumulated a stockpile of thousands of issued patents over the years). (PTO data nerds, my search methodology is below.)
Finally, that HTC is a Taiwan-based company makes it easy for Apple to raise the stakes of the game by heading to the International Trade Commission in addition to federal court. Patent litigation gets expensive quickly at the ITC. Also working in Apple's favor is the fact that the agency's entire raison d'etre is to enforce 1930 laws that protect domestic industry.
Waiting for the Google Shoe to Fall
The biggest question hovering over this suit is just what Google means when it says "we stand behind our Android operating system and the partners who have helped us to develop it." Does it mean, "We hope HTC does alright in court? Or does it mean, "We'll help by hitting back at Apple?" While Google is still known mainly for its dominance in Internet search, its patent portfolio isn't solely focused in that area. Somewhere among the nearly 300 issued U.S. utility patents in its portfolio, Google surely has patents it can assert against Apple.
So while its partner HTC may be the "perfect target" for a patent attack, this is clearly a proxy war with Google—a company that has made clear that it's determined to push into the cell-phone market. That makes Apple's gambit a truly risky one.
PTO Search Methodology.
The Prior Art measured the patent portfolio of companies mentioned in this column by searching for the company's name in the "Assignee Name" field in the USPTO database of issued patents.
To measure Apple's patents, TPA searched for both AN/apple-computer$ (2,131 patents) and AN/apple-inc$ (849 patents). Other searches performed included AN/google-inc$ (316 patents: 298 utility, 18 design), AN/palm-inc$ (323 patents: 277 utility, 42 design), AN/htc-corp$ (58 patents: 25 utility and 33 design patents), and AN/motorola-inc$ (19,660 patents).
[Note: The "$" is the PTO search system's 'wildcard' symbol for catching any string after that point. A search for "apple-computer$" therefore catches patents that are assigned to both "Apple Computer" and "Apple Computer Inc." Similarly, searching for "htc-corp$" catches anything assigned to "HTC Corporation" as well as just "HTC Corp."]
It's fairly unusual in the modern era for a market leader to initiate a patent suit. Which is not to say large operating companies don't sue for patent infringement. They do. But on the relatively rare occasions when they do launch such litigation, it tends to fall into a couple of categories.
First, there are big companies with established licensing programs (IBM, Honeywell) that sometimes sue companies they don't directly compete with as a way of extracting licensing revenue. Second, big companies with slightly more Industrial Age roots sometimes sue in a bid to win some tribute from the new breed of technology companies (see, for example, Kodak's patent claims against Samsung, LG, Apple, and RIM over cell-phone cameras or Xerox's lawsuit against Google and Yahoo over search engine technology). Finally, there are a handful of suits in which a large patent-holder goes after a true rival in the hopes of protecting a deteriorating market share (see Nokia v. Apple).
The indirect targets of Apple's lawsuit, of course, are Google and its Android operating system. Still, the suit doesn't fit cleanly into any of the above categories, because right now Apple, along with Blackberry maker Research in Motion, is top dog in the smartphone market. But the company may be getting nervous about the long-term security of its position--or it may just be interested in using patents to to make life difficult for its competitors.
In any case, this litigation is less like most types of Internet-era patent suits, and more like a throwback to the way tech-sector patent wars were waged ten and even twenty years ago. Like Apple's move against HTC, some of those old-school lawsuits were initiated by market leaders. In the 1980s, Texas Instruments and IBM both won big cases against Japanese and Korean rivals. Some of the victories were large enough that the companies started to see patent-licensing as a lucrative business in and of itself. Those suits continued into the early 1990s, when Texas Instruments filed lawsuits against competitors like Tandy, Micron, Daewoo, and Sanyo, and IBM launched a patent attack on hard-drive manufacturer Conner Peripherals--something that was a likely contributor to that company's 1996 demise. The most famous example to date of a market leader using patents to solidify its position remains Polaroid's long and ultimately successful battle to wipe out the Kodak 's Instamatic line of cameras. That litigation also resulted in Polaroid winning a $910 million award, which, until recently, was the largest patent verdict ever.
In a way, Apple is taking a page out of the past in order to safeguard its future. One thing that makes this a risky gambit, though, is that while patterns of litigation have changed, so have attitudes toward patents. That's especially true in the software arena. And if Apple's move is the beginning of an all-out patent war, it's not going to be popular with the tech sector's independent developers and commentators.
Is HTC the Perfect Target for a Patent Attack?
Apple generates an enormous amount of revenue selling gadgets, and the company has never previously shown an interest in developing a real licensing program. So it's unlikely that the purpose of this lawsuit is to create a new, ongoing royalty stream from a hot product. It's almost definitely based on a genuine desire to shut a competitor out of the market, or to at least throw enough obstacles in HTC's path so that Apple keeps its edge in the marketplace. After all, patent litigation creates added burdens on in-house counsel, as well as on the engineers and other technical employees who will be deposed and be drawn into participating in the suit in less direct ways. Apple may even be focused on forcing HTC to removed certain critical features from its phones. (See, for example, cell-phone blog reporting that Google initially deactivated some multi-touch features in HTC phones at Apple's request.
Apple may well have decided it has good reason to worry about the HTC-Google partnership: Analysts have praised HTC's phones as being technically strong, and, by all accounts, Google's Android operating system offers a powerful open-choice alternative to proprietary cell-phone software made not just by Apple, but also by Research In Motion and Microsoft. Some reports argue that Android's adoption in handset makers new phones will soon outpace those competitors.
More immediately, the Taiwanese company's large revenue stream (about $4.5 billion in 2009) and nearly nonexistent U.S. patent portfolio probably helped persuade Apple that it is a perfect target. A search of U.S. Patent and Trademark Office records shows that HTC has only been issued 25 utility patents. While that number doesn't include whatever patents HTC may have recently acquired—or be in the process of acquiring—to hit back at Apple and gain some leverage in this patent battle, it's a stunningly low number when compared to other major handset makers such as Palm Inc. (almost 300 patents) and Motorola Inc. (which, like Apple, has accumulated a stockpile of thousands of issued patents over the years). (PTO data nerds, my search methodology is below.)
Finally, that HTC is a Taiwan-based company makes it easy for Apple to raise the stakes of the game by heading to the International Trade Commission in addition to federal court. Patent litigation gets expensive quickly at the ITC. Also working in Apple's favor is the fact that the agency's entire raison d'etre is to enforce 1930 laws that protect domestic industry.
Waiting for the Google Shoe to Fall
The biggest question hovering over this suit is just what Google means when it says "we stand behind our Android operating system and the partners who have helped us to develop it." Does it mean, "We hope HTC does alright in court? Or does it mean, "We'll help by hitting back at Apple?" While Google is still known mainly for its dominance in Internet search, its patent portfolio isn't solely focused in that area. Somewhere among the nearly 300 issued U.S. utility patents in its portfolio, Google surely has patents it can assert against Apple.
So while its partner HTC may be the "perfect target" for a patent attack, this is clearly a proxy war with Google—a company that has made clear that it's determined to push into the cell-phone market. That makes Apple's gambit a truly risky one.
PTO Search Methodology.
The Prior Art measured the patent portfolio of companies mentioned in this column by searching for the company's name in the "Assignee Name" field in the USPTO database of issued patents.
To measure Apple's patents, TPA searched for both AN/apple-computer$ (2,131 patents) and AN/apple-inc$ (849 patents). Other searches performed included AN/google-inc$ (316 patents: 298 utility, 18 design), AN/palm-inc$ (323 patents: 277 utility, 42 design), AN/htc-corp$ (58 patents: 25 utility and 33 design patents), and AN/motorola-inc$ (19,660 patents).
[Note: The "$" is the PTO search system's 'wildcard' symbol for catching any string after that point. A search for "apple-computer$" therefore catches patents that are assigned to both "Apple Computer" and "Apple Computer Inc." Similarly, searching for "htc-corp$" catches anything assigned to "HTC Corporation" as well as just "HTC Corp."]
