Apple's Revised Patent Strategy Decimates Competition
The patent fracas that involves Apple and Android device-makers underscores the new found status of patents - as assets that are not just confined to company's balance sheet, but tools potent enough to displace market leaders, if unleashed with the right strategy.
The Apple-Samsung spat took a new turn, when a US judge ordered Apple to divulge details of the licensing agreement it struck with HTC to Samsung, a hearing, which could help the Korean electronic behemoth to avert an injunction against its Android devices. Apple and HTC recently ironed-out a 10-year license agreement to mark an end to a long drawn patent dispute associated with Android OS.
Apple is most likely to suffer a headache with the judge's order, considering it won $1.05 billion in damages against Samsung in August. However, despite the small victory that Samsung has landed, Apple's strategy to temper its anti-infringement stance, since Steve Jobs declared a "thermonuclear" war against Google, seems to be paying off.
Earlier, Apple was seeking a preliminary injunction against Samsung, a verdict which, if passed, would have removed Samsung's competitive products from the market. While Apple failed to gain a preliminary injunction against Android devices, it is however, inflicting a substantial damage on its competitors by making them bleed gradually.
In the HTC case, it was widely speculated that Apple extracted a royalty of $6-$8 per Android phone - an amount which HTC CEO Peter Chou called "outrageous". While the amount remains confidential, there is certainly some money involved in the settlement. Android device makers have thus far competed against Apple on the basis of price by allowing users to enter the Android ecosystem at lower price points. However, payment of royalty is sure to increase the price of Android devices, thus taking some sheen off them. Besides, it is also likely to impact profitability of Android makers thus compelling small players to exit the market.
The move also raises the entry-barrier in the smartphone segment. Android's appeal has been its open source nature, which has resulted in an influx of smartphone makers from South East Asia, who compete on the basis of hardware specifications, while Google makes available its open source software stack for mobile devices.
The current spate of patent lawsuits filed by Apple is sure to deter many consumer electronics companies from the Far East from entering the market. The threat of expensive lawsuits and royalties will become too big a gamble for them, especially, as Google offers no protection to the OEMs involved with Android. The ensuing lawsuits also impact the company's reputation resulting in huge branding costs.
Thus, while Apple may not have won a permanent injunction against Android devices, it has certainly made operating in an Android environment expensive for Android phone and tablet makers. Also, it has reduced the number of competitors and freed space in the smartphone market to expand its share. In effect, Apple CEO Tim Cook's soft-pedaling of patent issues appears to make more business sense than Steve Jobs' "thermonuclear war" against competition.
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