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Apple's patents war might tarnish its brand

Column Nobody likes a bully
Fri Oct 12 2012, 16:38

GADGET DESIGNER Apple's patents war on other smartphone players is a strategic mistake, and in pursuing it the company risks tarnishing its brand and alienating a substantial portion of its customer base.

The recent news that the injunction Apple won in the US against Samsung's Galaxy Nexus smartphone has been been lifted by an appeals court is one sign of this.

Apple is not in a good position to make mobile phone patents the battleground for its attempted domination of the smartphone market. It didn't develop the basic cellular telecommunications technologies upon which smartphones are based. Those patents are held by some of the same competitors it is suing, such as Motorola and Samsung as well as Nokia, among others. The few patents it holds cover handset case design and some user interface software features, not hardware chipsets or telecommunications technology.

Thus Apple is more rightfully a payer than recipient of smartphone related patent royalties and, with gross margins on its mobile products reportedly averaging approximately 60 percent, it could well afford to pay the royalties rather than file lawsuits to avoid that.

As such, Apple's patents are inherently weak, in that it's possible that they won't hold up under inevitable reexaminations and scrutiny by judges and juries that surely will occur during the course of its patents litigation. It's likely that some of Apple's patents are highly vulnerable to citations of prior art, for example, that are only now just beginning to be presented by its competitors.

It seems almost as though Apple has mistaken its legal campaign for a marketing exercise, in that the latter is a matter of influencing perceptions in the marketplace while the former is a serious and uncertain long term engagement that takes years to play out.

In addition, the patents game among technology firms has always been one of cross-licensing, so starting a war over patents that costs all players tens of millions and risks even more in damages seems like a bad business decision at best, and suicidally disingenuous at worst.

Apple's legal assaults on its smartphone competitors don't seem to have been well thought out by the firm in another way, as well. Although Apple has won some early rounds in the courts, litigation is a very long game. Now appeals have been filed, and more will be filed, and all of those appeals will take years to resolve.

The downside to this for Apple is that any victories it has won might be reversed by the appellate courts, and meanwhile its competitors will be free to continue competing with it in the market. Therefore, viewed as a strategy to block competition in the smartphone market, it can't work.

Ultimately, with few exceptions for truly fundamental technologies such as scientific discoveries and things like chip architectures and processor instruction sets, most patent issues are resolved between companies through negotiations and licensing agreements. As that plays out with smartphone technologies, Apple might find that the competitors it is hauling into the courts will want to recover their legal costs through hard bargaining over patent cross-licensing royalties.

For these two reasons alone, Apple's decision to go to war over its relatively weak smartphone patents seems like a strategic mistake. Suing its competitors won't work to keep them out of the market in the short term, and could cost it dearly in the longer term.

Furthermore, Apple risks doing serious harm to its positive brand image with its campaign of scorched earth smartphone patents litigation. It has been seen in the past as a benign but revolutionary company with an iconoclastic vision, progressive corporate ethics and good character.

Nobody likes a bully. But that's what Apple risks becoming seen as by members of its loyal customer base who become aware of its nasty patents litigation. Apple is all too obviously suing its major competitors just because they are competitors, not for legitimate cause but in order to block their competing smartphones from the market.

That's hardly the action of an ethical company that is confident of its ability to compete in the market on the merits of its products. It makes Apple look weak, out of innovative ideas, unable to compete fairly, and willing to win using any means available to harm its competitors. It makes Apple look petty, cowardly and oppressive towards its peers in the marketplace.

If that perception takes hold among Apple's formerly enthusiastic customer base of mostly hip, ethical young people, it could thoroughly destroy Apple's brand.

The company is now at a pinnacle of both customer esteem and profitability, but it could throw that all away. µ


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