Is Apple Hurting Itself?

With Apple (Nasdaq: AAPL  ) waging what I'm calling iWorld War 3P (the P is for "patent"), will the spoils of war outweigh the casualties?

Before he died, Steve Jobs had vowed to go "thermonuclear" on Google (Nasdaq: GOOG  ) Android because he considered it a stolen product, a threat that Apple continues to make good on even after his passing. Cupertino has been lobbing patent artillery shells at Android vendors like HTC, Samsung, and Motorola Mobility (NYSE: MMI  ) for nearly two years now.

Even when Apple has scored court victories, it has done little to actually stop the spread of Android since the gadget makers simply redesign around Apple's patents. Samsung slightly redesigned its Galaxy Tab to skirt the German sales injunction. Apple tried to include the new version in the ban but is unlikely to have its way. Sammy is now leveraging the publicity and using the battle as a marketing ploy with Galaxy Tab ads in Australia, calling it "The Tablet Apple Tried to Stop."

It won another dispute against HTC, but HTC went as far as to call it a victory because it was only found guilty of infringing some but not all of Apple's patents. The company is confident it can easily design the features around Apple's intellectual property.

In a recent Bloomberg report, intellectual-property advisor Kevin Rivette criticizes Apple's "scorched-earth strategy" because it generates no value and its legal victories don't pack any punch. Rivette compares it to a dam: "Using their patents to keep rivals out of the market is like putting rocks in a stream. The stream is going to find a way around. Wouldn't it be better to direct where the water goes?"

Many pundits think it would be better to pursue a cross-licensing strategy, or use its IP to leverage strategic deals or better component prices. Rivette estimates that Apple could collect as much as $10 per device in royalties, likely higher than what Microsoft (Nasdaq: MSFT  ) extracts from its growing list of Android workers.

Don't forget that Cupertino can also be on the receiving end. Along with Research In Motion (Nasdaq: RIMM  ) , Apple was found guilty of infringing on Eastman Kodak (NYSE: EK  ) patents, although to a lesser extent that Kodak was hoping for. If the ITC ends up imposing a ban because of the infringement, Apple will have no choice to but license the patents from Kodak or buy them outright before Google or someone else does.

Apple has never been keen on sharing critical technology with competitors through licensing deals, although it has done so begrudgingly in the distant past. Even though it may make sense economically, it would betray Jobs' principles, something I doubt CEO Tim Cook is willing to do.

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Fool contributor Evan Niu owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Google, Microsoft, and Apple. Motley Fool newsletter services have recommended buying shares of Google, Apple, and Microsoft and creating bull call spread positions in Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (13) | Recommend This Article (20)

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  • Report this Comment On December 30, 2011, at 2:08 PM, memoandstitch wrote:

    Apple shareholders thought it had a nice moat. Too bad, the competition is the water (as Rivette suggested).

  • Report this Comment On December 30, 2011, at 4:59 PM, steltek wrote:

    This is what happens when someone thinks they invented the car by adding a windshield wiper to it. And yes, the analogy of wiping something across glass was intended.

    It took billions of dollars and millions of person-hours to develop smartphones and the underlying technology that serves them. A small fraction of that effort and R&D was by Apple. They do not deserve to own the market.

    The greed and megalomania of Apple is truly unbelievable. It's only just that their efforts to this end punish them instead of their intended victims.

  • Report this Comment On December 30, 2011, at 5:52 PM, astralexis wrote:

    So, Evan, what is your take on the question?

  • Report this Comment On December 30, 2011, at 9:41 PM, junglecrus wrote:

    I guess I don't blame them for trying, it's business, but as mentioned in the column, Apple has infringed on others (Xerox). I once owned an Apple laptop that quit working, because Apple was stealing from a company that manufactured motherboards. Rather than sue them, the motherboard company placed a "time bomb" in the stolen plans that made the laptop motherboard quit after about 2 years. If you owned one of these laptops (with a certain serial number) you called an 800 number and Apple would immediately replace your motherboard. (through DHL shipping within 24 hours, I've never had that kind of fast service before or since). Apple likes to think their products are somehow different, but they are just marketing geniuses.

  • Report this Comment On December 31, 2011, at 8:43 AM, hemhog wrote:

    Apple must either defend its intellectual property or give up making devices such as the iPhone. Theft of iP makes it easy for others to enter a market you created and make money off your ideas. Had it not been for Apple, Android would mimic Blackberry, not iPhone/iPad/iPod Touch.

  • Report this Comment On December 31, 2011, at 10:25 AM, wmanning wrote:

    Apple's behavior shouldn't come as a surprise. When Jobs announced the iPhone, he said it was patented six ways to Sunday, so turf-protection, however misguided, was built into the device, too.

  • Report this Comment On December 31, 2011, at 2:24 PM, JACKAL628 wrote:

    Its always much easier to follow what everyone says when forming an opinion. If you look at the facts about eastman kodak you will see a big time comeback coming. they will sell their patenst of 1100 for apx 3 bill and they will have enough money for 2 years. they have invested money in inventory and will reep the rewards of that for the 4th quarter. becasue of GAAP generally accepted accounting principles they could not recognized revnue from sales in the 3rd Q. they will be recognized in 4q. The world will run up that stock on the first good thing that happens. It will go to about $4 per share when eanings for 4th Quarter come out just like in 2009 it tripled. They are getting rid of board members they dont need and businesses they dont need for their future. You will be calling me a genius on the 23rd of January.

  • Report this Comment On December 31, 2011, at 2:31 PM, Jurobi wrote:

    Apple Wars part 2 (or is it 3 or 4). Reminds me of what Apple did in the 80's with the proprietory Apple II and Macintosh series. They guaranteed they would remain a niche market for 20 years, with a stock that grew rarely, split once, and paid no dividends. They also guaranteed they would tick off their base customers (ala Netflix) by stopping support to the Apple II series six months after they released the Apple II GS, a major reason I have never bought an Apple product (or stock) since.

  • Report this Comment On January 02, 2012, at 3:46 AM, baldheadeddork wrote:

    I think the bigger problem is that they appear to be focused on defending everything about the current iOS user interface instead of looking ahead. There may be more than a million apps, but put more than 30 or 40 on a device and managing them turns into an unending pain in the ass.

    I don't know how Apple fixes this without a total overhaul of their UI, and I don't see how that's even a possibility as long as they believe it defines the company.

  • Report this Comment On January 02, 2012, at 9:56 AM, SwampBull wrote:

    Is "he died" an insensitive hot link?

  • Report this Comment On January 04, 2012, at 1:14 PM, eldetorre wrote:

    "Theft of iP makes it easy for others to enter a market you created and make money off your ideas."

    Most of Apples "patents" which are very much "look and feel", (unlike Kodak's which are fundamental engineering patents), should never have been granted in the first place.

  • Report this Comment On January 06, 2012, at 2:15 PM, trrll wrote:

    As usual, the pundits are missing the point. Yes, Apple's patents can be "designed around." But that's exactly what Apple wants its competitors to do. These little features, while individually minor, are what gives Apple's products their unique look and feel. Consider Apple's "bounce" patent, which concerns the way the page tracks your finger when you scroll past the bounds of the view, and then bounces back. There are dozens of other ways to limit the motion of the page. But none of them maintains the illusion of being able to reach through the glass and slide the page quite as well as Apple's method. Apple doesn't want to squeeze out a little short-term profit from other device makers--it wants to maintain the public perception of its devices as the elite products in its market.

    Apple has learned from the errors it made in the past, such as when it licensed the most distinctive features of the Mac OS to Microsoft in return for bringing Word and Excel to the Mac, only to see Microsoft use those features to clone much of the look and feel of the Mac.

  • Report this Comment On January 06, 2012, at 3:17 PM, hiddenflem wrote:

    Jurobi, Apple actually did pay dividends throughout much of the 1980's. I still have some of the uncashed checks from them :)

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