Apple's Taking Its Eye Off the Ball

Before he died, Steve Jobs said he would spend Apple's (Nasdaq: AAPL  ) enormous cash hoard going after companies who copied the company's intellectual property. Well, the efforts Apple has made so far have been anything but successful.

Not only is Apple losing legal battles around the world, it's beginning to show weakness in its own product line as competitors slowly catch up. Maybe it's time for Apple to stop focusing on the courtroom and turn its attention to the lab.

Apple losses pile up
The headline case for Apple over the past six months has been the jury case that found Samsung guilty of infringing on a few of Apple's patents. But as I pointed out at the time, the $1.1 billion judgment isn't likely to hold up on appeal, and I wouldn't be surprised to see an outright reversal when technical judges get the case .

But that isn't Apple's only challenge in the legal system. Here are a few of the losses the company has endured in recent months, some downright embarrassing for the company.

  • On Monday, a federal judge threw out Apple's lawsuit against Google's (Nasdaq: GOOG  ) Motorola Mobility over the licensing of the Android operating system.  
  • In Japan, Apple lost a suit against Samsung over the way the company syncs music and video between devices and servers.  
  • In Germany, Apple lost two patent suits against Samsung and Google over touchscreen functions.  
  • On a more embarrassing note, a U.K. judge made Apple not only apologize, but also revise its original apology after losing a case against Samsung. Apple also posted an apology for the first apology on its U.K. site, which read, "On 25 October 2012, Apple published a statement on its UK website in relation to Samsung's Galaxy tablet computers. That statement was inaccurate and did not comply with the order of the Court of Appeal of England and Wales." Talk about a mess for Apple!

Apple is spending a lot of time, energy, and money on suits around the world that are almost unanimously ruling on the side of the competition. If Apple's U.S. verdict is overturned, the company won't even have that highlight to point to.

Competition has moved on
The challenge with suing technical companies is that by the time you get a verdict, both sides have moved on. The Samsung devices that looked nearly identical to the iPhone are now years old and the Galaxy S3 that is taking share from Apple looks nothing like the iPhone from a technical perspective.

As an example of the impact of these legal battles, let's go back to Microsoft's (Nasdaq: MSFT  ) long, drawn-out antitrust case relating to Internet Explorer. The government first began looking into Microsoft in 1991 and the court didn't reach a final judgment until 1999, and that doesn't even include appeals. By the time the courts ruled, Netscape was dead and Internet Explorer was no longer an important pawn in the PC market.  

Now think about how fast the smartphone and tablet markets change. By comparison, it makes Microsoft's IE case look like a snail. Companies release new updates on popular phones at least yearly and many manufacturers offer multiple options, so it's a moving target for Apple.

Even if Apple were winning cases against Google or Samsung, both companies would likely have designed around the infringements by the time a ruling came out. A financial hit might ding each company, but they're still taking market share, which is really the end goal .

Apple has bigger problems
For Apple, there has to be bigger fish to fry than these patent lawsuits. Management's time would be better served fixing the new Maps app, solving production shortages, or developing new products than worrying about products the competition doesn't even make anymore.

Google's Android operating system is now ahead of Apple in market share and Microsoft's partnerships with Nokia (NYSE: NOK  ) , Samsung, and Intel (Nasdaq: INTC  ) will make a splash in smartphones and tablets. Combine that competition in smartphones with real threats from Amazon (Nasdaq: AMZN  ) , Google, and Samsung in tablets, and Apple has its hands full outside of the courtroom.

Keep your eye on the ball
Apple is still a dominant player in smartphones and tablets, but I think its focus on battling competition in court instead of focusing on products is hurting the company. Apple has shown rare shortcomings in the past year and these need to be resolved more urgently than Apple's legal battles.

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

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 07, 2012, at 7:04 PM, superpanman wrote:

    The law suites were necessary to show it's competitors that Apple would stand up for itself. But that has to move to the past now. As the article says, time to focus on getting the products right and getting them to market, making and selling as many as possible and developing truly new and innovative products as well as advancing current ones. But with all that has happened, if one looks at the company's financials, there is no reason for the stock price to be were it is. This is a stock that should be well over $600. It isn't just Apple's management that needs to wake up, it's investors. When they do wake up, many will be sorry to find they missed an incredible buying opportunity.

  • Report this Comment On November 07, 2012, at 7:05 PM, jackbot wrote:

    I think your assumption that Apple is focusing on battling in court at the expense of other areas is erroneous. Your perception is being skewed by the quantity of information in the press regarding the court cases. There is a dearth of information available relating to Apple's product innovation, so the media focuses on the information there is -- most of which relates to the court cases, and most of which have not been found in Apple's favor. The Maps issue has not been demonstrated to have affected demand for iPhone 5, nor has it seemingly caused issues with the adoption of iOS 6.

    I can almost guarantee you that Tim Cook and the other leaders are not strongly focused on the legal battles, since it is unlikely that a few billion dollars here or there will cause any sea changes in the iOS/Android war: They aren't focusing on the legal battles, the press is. Apple is one of the most popular stocks in the world, and court cases are free stories.

    Apple has never been perfect. Jobs oversaw the antennae issues on the older iPhone, and he was also in charge when Mobile Me was released and fizzled. The media desperately seeks the drama of a falling giant and are attempting to portray weaknesses as symptoms of a company dying without its iconic leader.

    People forget that Tim Cook was chosen by Steve Jobs to succeed him as the leader of this company. If investors had faith in Jobs, whose specialty was delegating authority (he didn't design and build the iPhone himself), then by extension they should have some faith in Cook's abilities going forward.

  • Report this Comment On November 08, 2012, at 2:51 AM, rlcato wrote:

    @ jackbot: I couldn't have put it more eloquently myself.

    to Travis: TC calls these legal battles pain-in-the-a$$ 'overhead'. That tells me it's a separate issue that is not appreciated but a part of doing. Apple really don't focus on these but they are aware of them: a separate department. Even its employees weren't aware of the ousting of Scott Forstall until sometime later.

    Apple's not a small company or produce just a few things and spits 'em out willy-nilly like other companies. They usually take all the time that's needed. LTE is a prime example. Sure, it's been out for about 2 years but it wasn't really ready; until now. MagSafe, USB 2/3, Video calling, 3-axis gyro. Look how other companies innovate: they hang back and watch Apple then imitate without looking into it. Built-in SD slot, wireless charging, a Barometer, NFC, low-grade plastics etc. is not really innovating; it's just utilising what's all ready there and that stuff isn't used much or it's used poorly.

  • Report this Comment On November 08, 2012, at 5:43 PM, dmvcal wrote:

    AAPL profits are huge. Just how are they "losing". Outside counsel is handling patent cases; how are they diluting focus? Did any decisions go AAP's way, aside from chump-change $1 Bil.+ ? You are correct on maps utility; Steve Jobs would never have released alpha iteration. They fired the guy who did that and assigned responsibility to capable senior guy. Be sure to comment on next quarterly report.

  • Report this Comment On November 08, 2012, at 5:51 PM, TheRealRacc wrote:

    Got to love the Apple fans. Always passionate, never logical.

    Travis, can you send this article to Fidelity? Please tell them to trim the AAPL holdings, the overweight is going to erode my 401k YTD gains.

  • Report this Comment On November 08, 2012, at 5:52 PM, TheRealRacc wrote:

    Is it possible, that every Apple supporter, thinks they will find themselves in Apple's will and share in the cash account when the company finally dies?

    Does that even make sense? Apple fans can decipher it for me. What did I just say?

  • Report this Comment On November 08, 2012, at 6:25 PM, wink71 wrote:

    @TheRealRacc You said you do not own any Apple Stock that's what you are saying!!!!

  • Report this Comment On November 08, 2012, at 7:52 PM, akaluna wrote:

    Well last time I looked at the financials of AAPL the EPS looked pretty strong and if you look at the multiple it is selling at, it seems to me hard to find another company in tech that anyone would want to own over AAPL.

    jackbot is right on. The costs surrounding the legal issues regarding patents are to Apple like Buffet losing the change in his pocket.

  • Report this Comment On November 08, 2012, at 8:54 PM, peacedoc wrote:

    AAPL finds itself in a more hostile, tougher sales environment now, with Samsung in particular pointing out some of their shortcomings quite well in their TV ads. I think AAPL is losing faith with many like me who would have jumped to the iphone 5 had they not messed with Google Maps. I recognize their technology is great, but they are being caught by smart innovators like Samsung.

  • Report this Comment On November 09, 2012, at 12:05 AM, EquityBull wrote:

    People think a falling stock price means the company is failing. Look up confirmation bias. When was the last time a company stock over short periods had any relation to the fortunes of a company?

    If a stock goes down you wan to provide rationale as to why. It must be something with the company right? Well the market chopped Apple from 200 plus to 80 bucks a few years back. Explain that 50% plus haircut. Markets are not efficient. They trade on emotions and other factors often unrelated to the company. Technical traders are another example of this.

    Apple the company is doing fine. The stock right now isn't. But this can change rather quickly. Just a month and a half ago (about 45 days) apple hit an all time high of 705. Since then they shed 170 points which is 170 billion in market cap. Just 45 days. Did that much really chance in 45 days? I do not think so.

    We are seeing tax gain selling now and chart traders combining for a 25% correction. Apple trades well under the S&P now and all its peers. It also has the largest net cash position of any company more than double its nearest competitor. It also will add 50 billion or more to that balance within a year or so.

    Sell at your own risk. I'll be greedy while others are fearful

  • Report this Comment On November 09, 2012, at 12:13 PM, 48ozhalfgallons wrote:

    Apple's best case would be to sue its competitors for selling their products too cheaply.

  • Report this Comment On December 01, 2012, at 1:07 PM, haysdb wrote:

    "smart innovators like Samsung."

    This statement implies that Samsung is just one of many "smart innovators." Who else would you include in that list?

  • Report this Comment On December 01, 2012, at 1:25 PM, haysdb wrote:

    "I think its focus on battling competition in court instead of focusing on products is hurting the company."

    Apple is fully capable of focusing on multiple tasks simultaneously. I don't believe Apple is focusing on litigation "instead of" products, but rather "in addition to".

    Focusing on a "winning percentage" in litigation is the wrong way of looking at it. Samsung has successfully defended themselves in many cases, but have they actually "won" any lawsuits? Have they won any injunctions or monetary awards beyond reimbursement of expenses? No. Has Apple? Yes.

    Just because a company is able to "work around" another company's IP doesn't mean their solutions are equivalent. Take the over-scroll bounce. Is Samsung's "glow" just as good? If Samsung avoids losing by making a worse product, I'd call that a win for Apple.

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