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  • Innovation by Lawsuit

    March 2nd, 2010

    This week, there’s a report that Apple is suing a mobile phone handset maker, HTC, over supposed various and sundry patent infringement issues. Now in passing I should point out that HTC is also the company that builds Google’s Nexus One smartphone and a number of other devices that support the Android OS.

    And, yes, I’m aware that it’s possible HTC is serving as Google’s proxy to some degree in this lawsuit.

    But Apple doesn’t innovate by filing legal actions against the competition, although a quick look at their SEC filings will show a number of ongoing lawsuits. Some involve companies suing Apple, some involve Apple suing others.

    In the end, the lawyers will get paid handsomely regardless of the outcome of these various filings. However, the real issue is what does a company have to gain from seeking relief from the courts? It’s not as if there will be a sudden conclusion, one way or the other. Between multiple hearings, decisions and possible appeals, an initial filing may be little more than the onset of years of legal skirmishes before a decision is reached, which can be stressful whether you’re following the case as you’re studying for your masters degree in law, or you’re one of the companies involved. When it’s big boys like Apple, Google and HMC involved in filing, things can get even more tricky.

    Indeed, it’s not unusual for two companies to reach an out-of-court settlement to end the process. Innocent or guilty of the claims, it’s often cheaper just to write a check and be done with it. In cases such as this, the actual details of the settlement will often be sealed, except what’s required by law. So you never really know what actually happened behind the scenes.

    Now Apple isn’t new to the intellectual property lawsuit game. They’ve been doing it for years. In the early days, Microsoft was the victim, as Apple went after them claiming that Windows contained elements allegedly stolen from the Mac OS. It’s also true that Apple licensed some portions of the Mac OS to Microsoft at one time, back in the 1980s. In any case, all that ended in 1997 when Microsoft made that notorious $150 million investment in Apple, thus closing the books on the endless legal battles.

    I have to wonder, though, whether a company is just plain stupid when they do things that bring on intellectual property lawsuits, or perhaps some patents are so vague it’s not easy to know if you’re infringing on something. Unless the issue is clear-cut, there may be a large gray area where the lawyers can argue forever, but the truth will never be found.

    It’s also quite possible for intellectual property rights to be abused. There are some companies, for example, that don’t actually produce a product or service. Instead, they own patent portfolios of one sort or another, and they collect royalties from companies that license the technologies they control. More often than not, if legal action is needed they’ll file them in certain portions of East Texas that appear to have become “patent mills,” because it’s easy to get favorable rulings.

    As far as companies that actually build things are concerned, it’s a sure thing that they’re engaged in defensive patent filings. The slightest change in an existing technology, or anything potentially innovative, will both be detailed and patents sought. Few companies can do otherwise, because there’s no telling whether another company might come up with something similar enough to actually infringe on that intellectual property. But without a patent, how are the rights enforced?

    There’s also the broad gray area about whether a patent should be granted in the first place, and revisions have been considered in the U.S. laws as the result. All these ongoing legal challenges should be sufficient to make companies take notice that something is very wrong when so many lawsuits must be filed.

    I do not pretend to know the real issues regarding those 20 or so patents that Apple alleges HTC violated. By the same token, those actions involving Apple, Nokia and other companies that were filed with the U.S. International Trade Commission are also quite murky. Does anyone have a valid case here, and what of the consequences?

    If Apple beats Nokia, does that mean that the latter can no longer make gear that violates those patents, or do they simply write Apple a check to cover the alleged losses? By the same token, do you really believe there’s a chance that Apple would somehow be forced by the ITC to stop selling iPhones because some of the features are in conflict with Nokia’s inventions?

    None of that sounds credible to me. It may all be a power-grabbing skirmish on the part of these companies to gain competitive advantages, or somehow extort payments or other forms of settlement. I don’t pretend to have the answer, but I am troubled when supposedly responsible manufacturers claim to have cause to file complaints against respected competitors for stealing their stuff.

    Of course, all of this may just be posturing, a complicated marketing scheme to make a company seem more innovative, and thus garner customer sympathy. But does that make any sense? I doubt it.

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