In many industries the courtroom as much as the stockroom is the setting for battles between rivals. This has been true in mobile manufacture for a number of years, and 2014 saw a number of the industry’s giants launch legal challenges against one another. Central to these disputes has been the patent, which has gathered yet more importance as phones become harder to differentiate. The subsequent value the patent has acquired has led to some manufacturers stockpiling them as a strategic tool.
Robert Lands, head of intellectual property at legal firm Howard Kennedy, keeps a close eye on manufacturers’ patent disputes and believes there is one major motivation for firms going down the litigation route: ‘Quite simply, it’s about money; patents are quite valuable assets, particularly in the mobile industry. There aren’t many players and they are all competing for the same market share. In order to differentiate they need new features – and they can protect those with patents. A patent is a monopoly right, in theory you can corner a market with one of them. The trouble is that you need to enforce the patent and enforcing usually means suing, which is why there are so many of these cases.’
Seeing the clear value in the pursuit of such cases can sometimes be a difficult task. The numerous delays and appeals can leave companies open to challenges that will delay the process, and on occasion cases will be dropped completely. Back in August, Samsung and Apple agreed to drop all patent cases against each other outside the US. These disputes related to suits in 2011 filed by Apple relating to the touch screen functions on the iPhone. Three years’ worth of legal fees are not insignificant, but as Robert Lands explains, the amount of money being sought in most cases means that manufacturers are willing to see it through: ‘In general terms when it comes to legal disputes there is always a question of whether it’s actually worth it, but in these cases the amounts are often so large that the cost of a potential win will make it beneficial enough to pursue. Of course for those who are defending themselves, with the amount of money at stake, you’ll take every option open to you, if you can reduce it. This means that the process can take a very long time.’
An arms race
The value of patents to mobile manufactures is so important that it now has a major influence on acquisitions. Much was made of the patents that Microsoft acquired when it bought Nokia in September 2013. Recently, when Samsung was linked with the potential acquisition of BlackBerry, reports suggested that a $7.5bn bid was motivated primarily by the desire to get hold of the Canadian brand’s patent portfolio. In fact, the possibility exists for some firms to use patents as a key revenue stream, Robert Lands explains: ‘Look at a company such as Kodak. It’s not the company it once was – it owns many of the patents that are used in imagery for smartphones.’
With a mobile patent’s value being so high there can be times when manufacturers use them as a competitive tool. Robert Land’s believes that this can occur in a cold war-like arms race. with major multinational manufacturers building up a stockpile of patents to use against its rivals should the opportunity arise: ‘Occasionally you get an arms race with people building up patents. This goes on for a time and then a skirmish will break out with a number of companies taking each other to court.’ The patent only lasts 20 years so the investment of time and money in acquiring one is not only to intimidate your rivals.
More than meets the eye
Discovering the motivation behind a particular lawsuit can be very difficult. It can be the case that the purpose of a lawsuit is not for the eventual verdict but the process itself. A legal dispute can be used as a tactic for negotiation or in order to block someone using a particular type of technology. In other cases it’s simply about making a point to your major rival.
In some instances these disputes take place between companies with existing business relationships, making the whole situation more complex. Robert Lands explains: ‘There is an element of bluff sometimes in building up stockpiles of patents, so it’s there in the background of a negotiation. That can be the reason behind big acquisitions of patents. In any form of litigation there is a part of it that is a gamble. The costs that can be incurred are not only financial – organisations end up tying up a lot of management time in these cases.’
Ericsson and Apple are two companies that were working together, but following the expiration of a licence agreement, have both taken up legal cases against each other. Their dispute centres around a licence agreement that allowed Apple smartphones and tablets to use cellular capability technology from Ericsson.
Speaking when litigation proceedings became public, the chief intellectual property officer at Ericsson, Kasim Alfalahi, demonstrated how there is often more to these cases than meets the eye: ‘Our goal is to reach a mutually beneficial resolution with Apple. They have been a valued partner for years and we hope to continue that partnership. Global sharing of technology has created the success of the mobile industry and allowed new entrants to quickly build successful businesses. We believe it is reasonable to get fair compensation from companies benefiting from the development we have made over the course of the last 30 years.’ Clearly the words of someone who is considering a longer term relationship, rather than a short term financial gain.
The relationship between Apple and Ericsson reveals another interesting aspect of the mobile patent – its inherent commercial value – as Lands explains: ‘If you’re the owner of a patent, you can exploit the patent by making the products themselves or by licensing the patents to others. Because the mobile industry is a small one in terms of numbers of players, you often get a situation where companies are competing or working together while suing each other.’
A negotiation process between two manufacturers can involve the trading of licences or patents, particularly in cases when brands are both suing each other. Robert Lands believes that for those involved such trades are weighed up based on their relative value: ‘In some cases, when the company believes that attack is the best form of defence, they will counter sue. Cross licences are the sharing of patents – when different patents are exchanged for each other. A licensing arrangement can sometimes be worth more than the lawsuit, but it all comes into the negotiating process – a company will look at the commercial relationship in the round. The strategic value of a company’s portfolio is always of interest to a potential partner.’
Timing is everything
Inevitably, courtroom disputes between major manufacturers attract media attention; whether or not a manufacturer considers this before pursuing litigation is another matter. It’s difficult to read too much into these situations other than how the different companies respond to the case going public, as Robert Lands explains: ’You choose when to start proceedings, and when you file your claim is when it goes public, and when it goes public you can press release it. So there could be an element of maximising the opportunity.’ It varies from case to case whether companies choose to make a statement to the press, but as there is often little else that can be speculated on in such cases, even a short quote can go a long way to influencing the coverage.
Looking at the timing of lawsuits, it’s interesting to see that they often come in the autumn and spring. There are legal reasons for this, but it seems significant that these are also time periods when new products are launched. Getting global publicity for a court dispute with one of your major rivals has its benefits. If you are a company without much of a public presence, having a legal dispute with a major company certainly won’t harm your profile. It was interesting that when Ericsson launched its suit against Apple it sent out a global press release that mentioned the firm’s huge spend on research and development alongside a number of other points.
Calculating the impact of court cases on a company’s reputation is a pretty difficult task. However, the process of taking a dispute to court brings certain accusations into the public arena in a way that cannot really be controlled. Lawsuits can also enhance a reputation if you are marketing your company as an innovator – filing a suit against someone for infringing your designs helps to feed this image.
All patent disputes are different and complex, but as the mobile patent value shows little sign of decreasing, we can expect to have many more lawsuits to get our heads around in 2015 and beyond.