Apple and HTC signed a 10-year patent licensing deal on 10 November 2012. The deal ended a fight between the two that had started in March 2010 when Apple sued HTC and filed a complaint at the US International Trade Commission, complaining that several of HTC's smartphones using the Android operating system infringed of twenty of Apple's patents covering the iPhone's GUI and the underlying hardware and software. Under the terms of the deal, Apple and HTC obtain licences to each other's patents, and all current lawsuits are dismissed.
Apple's action in filing the suit was noteworthy, as it was the first time that they had initiated proceedings against another smartphone manufacturer without being prompted; Apple had previously sued Nokia in 2009 for infringement, but only as a countersuit after Nokia launched the initial action.
The action against HTC could thus be viewed as the end of a period in which Apple acted in self-defence, and the start of a more aggressive drive to assert their intellectual property rights. Certainly, when the suit was filed, Steve Jobs (Apple's CEO at the time) issued a statement saying "We can sit by and watch competitors steal our patented inventions, or we can do something about it. We've decided to do something about it."
This belligerent tone was reflected by HTC, who were reported as having no intention of settling with Apple, even after the ITC ruled against them in December 2011. In their ruling, the ITC found that several of HTC's products infringed two claims of US 5946647 (an Apple patent dating from the 1990s), and banned the importation and sale of these devices. A significant point is that the infringed claims did not merely relate to HTC's specific implementation of Android; rather, they would be infringed by any Android device, regardless of the manufacturer.
Thus, the ITC's finding of infringement could, in theory, have allowed Apple to pursue every other manufacturer of smartphones with the Android operating system with the same patent. Jobs, in a surprisingly pugnacious comment for a Zen Buddhist, had said that he would "destroy Android" even if it took every penny Apple had in the bank (and, in some reported versions of the quote, "his dying breath"); now, Apple had the necessary weapon, at least until HTC and Google had developed a patch to work around the claims. (In a statement issued shortly after the ITC decision, HTC implied that this was exactly what they and Google intended to do.)
Jobs did not see Apple's success against HTC and Android; he had taken leave of absence from his post as CEO in January 2011, due to the medical issues that would eventually lead to his death in October of that year, and had been replaced by Tim Cook (although Jobs was still responsible for major decisions). Does the deal with HTC suggest that Cook is following a more reconciliatory path than Jobs? Or does it suggest that Apple no longer consider HTC a threat worth fighting, and are instead choosing to concentrate their efforts (and money) on bigger targets?
Apple launched the action against HTC in March 2010. According to figures from Canalys, HTC's share of the global smartphone market for the first quarter of 2010 was 5.1% (compared to Apple's 15.9%), but their sales had doubled in the preceding year, outperforming the overall smartphone market. By the third quarter of 2011 (just before the ITC's judgement), HTC's market share had grown to 10.9% (and 24% of the US market), while Apple's market share had stagnated at 14.2%.
However, by the third quarter of 2012, HTC's market share was down to 4.8%, with Apple holding steady at 15.5%. Despite their defiant tone, a settlement with Apple was clearly desirable for HTC, allowing them to (in the words of their chief executive, Peter Chou) "focus on innovation instead of litigation". Part of this innovation is the development of more devices using Microsoft's Windows Phone operating system, and a move away from the Android platform. The deal with Apple now removes any lingering problems HTC would have with Apple's patents, particularly US 5946647, and also with Jobs' vow to destroy Android.
One major pointer as to Apple's policy under Cook is the initiation of Apple's action against Samsung in the US in respect of the Android-using Galaxy range of products, which has led to a range of lawsuits all over the world, raising points of billion-dollar significance and playground pettiness. Apple's initial suit in the US was filed in April 2011, and although the final decision as to whether to the file the suit would almost certainly have been made by Jobs, it is hard to imagine that Cook would not have been at least consulted. Unless Jobs was setting up Cook for a huge hospital pass, the decision to go to war with Samsung (and thus run the risk of Apple seriously antagonising one of its major component suppliers) rests on at least one of Cook's shoulders.
"War" is perhaps a strong term here, but Steve Jobs had already said that he was "willing to go thermonuclear" to beat Android. Apple's suit against Samsung has an air of opening hostilities on several fronts, accusing them of infringing Apple's trade dress in respect of hardware, software and packaging, trademarks on several iOS system icons, design patents on the iPhone, and patents on software and hardware aspects of the iPhone and iPad. (One of the patents cited in the Samsung lawsuit, US 7469381, was also used in the attack on HTC, but interestingly, US 5946647, on which the ITC based their ruling against HTC, was not used against Samsung. It would appear that Google have indeed developed a work-around).
Apple's complaint specifically said that Samsung had "chosen to slavishly copy Apple's innovative technology, distinctive user interfaces, and elegant and distinctive product and packaging design". Some lawsuits can be interpreted as initial negotiating positions; this one was more like Pearl Harbor.
In early 2011, Samsung were clearly a growing threat to Apple. In the first quarter of 2010, Samsung's global market share was so small that Canalys didn't specifically identify them, but merely listed them as part of "Others" with a total share of 16.3%; by the first quarter of 2011, their share was 10.8% (larger than HTC's at 8.9%). However, if Apple were hoping that their lawsuit would stem that growth, they were disappointed; Samsung's market share went up to 22.7% in the third quarter of 2011, and continued to rise to 32.0% in the third quarter of 2012.
Rising market share notwithstanding, Samsung have had a series of bad days in court as a result of Apple's actions. The worst surely came on 24 August 2012, when a US jury awarded Apple damages of nearly USD 1.05 billion. The jury found that all of the Galaxy devices which Apple had complained about infringed US 7469381, found against Samsung on several other points of infringement, and ramped up the damages because they felt that Samsung should have known (or worse, did know) about the infringement.
In Europe, Apple attempted to enforce one of their registered European Community designs against Samsung's Galaxy tablet in Germany and Spain. (The registered design was widely reported as being "the iPad design", but dated from 2004, six years before the iPad hit the market.) In response, Samsung applied to OHIM to have the registration revoked, and also applied for a declaration of non-infringement in the UK High Court.
In the High Court, Judge Birss found that Samsung's Galaxy tablets did not infringe Apple's registered design, but things still did not go Samsung's way. In what must be one of the most widely-quoted passages of any High Court decision on registered designs, Birss J stated in his closing paragraph that Samsung's designs were "not as cool" as Apple's. Although Samsung had won the battle, Apple could (and did) still crow that their design was better. Even Samsung's good days in court were pretty bad.
Apple's behaviour in victory brought them further trouble before the British courts. Although Birss J had made it clear that Samsung's Galaxy tablets did not infringe Apple's registered design, he had also pointed out that the iPad itself differed from the registered design. In comments made after the judgement, Apple continued to insinuate that Samsung had blatantly copied the iPad, clearly ignoring the spirit (although not the letter) of Birss J's decision.
Furthermore, Birss J has also ordered Apple to acknowledge their defeat on their website, an order which Apple appealed against and lost. The statement which eventually appeared on Apple's website after the failed appeal was so "false and misleading" that the Court of Appeal had to issue a strongly-worded decision ordering Apple's compliance within 48 hours, complaining about Apple's conduct and "lack of integrity", and ordering them to pay costs on an indemnity basis.
Apple's behaviour before the British courts resembles that of a rancorous divorcee, happy to spend all they have to ensure that their other half gets nothing. Irritating your competitors is one thing (angry competitors are helpful, as decisions made in anger are seldom wise), but annoying the judiciary is quite another.
It is hard to see how Apple could have engaged in such wantonly irksome behaviour without the approval of the higher-ups in Cupertino. It would appear that Tim Cook intends to carry on where Steve Jobs left off, and the deal with HTC has the air of a tactical withdrawal, to allow Apple to concentrate their forces on a different front.
In view of HTC's declining market share, the deal with Apple may have come too late to save them; however, it could be actively harmful to Apple. Although the signing of the deal between Apple and HTC was widely trumpeted, information on the details of the deal, including the patents on which licences had been agreed, were initially kept secret. Some details have now become publically available, after Judge Lucy Koh (the judge in the US dealing with Samsung's appeal against the billion-dollar damages award) ordered that Apple reveal them to Samsung.
In particular, Koh J wanted to know whether Apple were seeking to ban Samsung from selling their products using patents which were licensed to other parties, and it transpired that US 7469381 (the patent whose infringement cost Samsung a billion dollars) was licensed to HTC as part of the deal. Indeed, Koh J used this very argument in a ruling of 17 December 2012, to deny Apple a permanent injunction against Samsung.
Although Apple will undoubtedly appeal against the refusal of an injunction, this will take some time to be heard, and in the meantime, Samsung can continue to eat away at Apple's market share. Ultimately, the deal between Apple and HTC may be of most benefit to their competitors.
First published in Intellectual Property Magazine, February 2013