Apple and HTC end patent battle

January 2013 | FEATURE | INTELLECTUAL PROPERTY

Financier Worldwide Magazine

Another chapter of the highly publicised smartphone ‘patent wars’ has come to an end with the announcement that Apple Inc and HTC Corporation have reached a global settlement of their disputes. The terms of the agreement will remain confidential, although it is understood that HTC will pay Apple in the region of $276m for use of its patents. The agreement will also see the two companies enter a 10-year licensing agreement, immunising them against further litigation pertaining to any additional patent or copyright infringement.

The patent dispute between the two has been ongoing since March 2010, when Cupertino-based Apple began another rigorous defence of its intellectual property (IP). The filing in Delaware, as well as in the International Trade Commission (ITC), saw Apple take HTC to task for 20 separate patent infringements. Apple has seen its market share eclipsed by Google’s seemingly ubiquitous Android operating system, and, accordingly, has fought ferociously to keep pace with the competition. According to Q3 2012 figures from technology specialist researchers Gartner, Android enjoyed a 72.4 percent market share, compared to Apple’s 13.9 percent.

Much of the protracted disagreement between the manufacturers focused around the ITC, through which Apple was able to temporarily stop all HTC phones running Android from being imported into the US. This was particularly bad news for the Taiwanese firm which has seen falling sales and profits in all markets over several quarters. Indeed, in the period from July to September 2012, sales dropped 9 percent quarter on quarter and 30 percent compared to the same period in 2011.

According to data released by Gartner, HTC lags some way behind smartphone superpowers Apple and Samsung Electronics Co. The firm is currently ranked eighth overall in terms of mobile phone market share, selling 9.3 million units globally in Q3 for a 2.2 percent share.

In light of the current downturn in the company’s fortunes, a lengthy and distracting legal battle would only be to HTC’s detriment. It is unlikely the firm could withstand another US sales ban, and it does not have the financial clout to continue to stand up to Apple in the courts. The firm had previously counter-sued Apple over a number of copyrights which it had purchased from Google, following its purchase of Motorola Mobility in August 2011.

Accordingly, in a joint statement both firms made it clear how pleased they were to be heading back to the research laboratory rather than the court room. Apple‘s chief executive officer Tim Cook said “we are glad to have reached a settlement with HTC. We will continue to stay laser focussed on product innovation.” Peter Chou, chief executive of HTC echoed those sentiments, stating that his company is “pleased to have resolved its dispute with Apple, so HTC can focus on innovation, not litigation.”

The New York Times reported in November that, for the first time ever, 2011 saw Apple and Google spend more money on patent litigation and IP than they did on research and development. Mr Cook’s predecessor at Apple, company co-founder Steve Jobs, had previously vowed to wage “thermo-nuclear war” on the Android operating system and those companies – HTC included – which he felt had risen to prominence on the strength of stealing Apple’s IP.

While Mr Cook will be pleased to see a successful conclusion to another patent dispute, the agreement with HTC will enable Apple to focus more of its attention on other prolonged litigations. Apple’s bitter wars with Android and Samsung have drawn criticism from both consumers and industry analysts alike, as future innovation is likely to be hindered by the continuing culture of litigation. The decision to reach a settlement with HTC does suggest, however, that should the price be right, Apple would be willing to come to terms with a smartphone competitor.

While the financial and legal might of Apple proved to be too much for an outmatched competitor like HTC, Mr Cook and company will not expect the juggernauts of Samsung and Google to acquiesce quite so easily. Indeed, when asked if Samsung would seek a similar settlement in the immediate aftermath of the Apple/HTC détente, J.K. Shin, head of Samsung’s mobile unit, told reporters “we have no such intention.”

Samsung is perfectly placed to continue its IP fight with Apple. Despite a San Jose court finding in Apple’s favour in August 2012, the $1.05bn it was ordered to pay in damages represents but a fraction of Samsung’s overall wealth; indeed, its operating profit for Q2 2012 alone was $5.86bn. Q3 saw the company record operating profits of $7.4bn. With the world’s best selling smartphone – the Galaxy S3 – in its pocket, Samsung is going from strength to strength. HTC, however, is not in such a lucrative position.

Richard Summerfield