12
Nov
handshake

On Saturday evening, HTC and Apple issued a joint press release indicating the two companies had settled their ongoing legal slapfight. Under a confidential 10-year licensing arrangement, they have agreed to what essentially amounts to a rigid patent ceasefire. Even future patents are covered under the deal (there obviously will be exceptions to any deal, but that's the gist).

Immediately, most people assumed HTC was getting hosed. Then, HTC rep Jeff Gordon issued a slightly cryptic but factually vital statement, saying HTC "does not expect this license agreement to have any adverse material impact on the financials of the company."

Now, whether that means the cost of the license and the savings of not keeping 300 attorneys on retainer will cancel out, or if the settlement basically cost HTC nothing, is not clear. HTC had been asserting its own patents against Apple, as well (unsuccessfully, I might add), so it's at least possible that HTC's own IP arsenal gave it a stronger negotiating position. Or, perhaps more likely, $6-8 per handset doesn't constitute a "material impact" in light of an immediate end to all existing litigation.

Either way, HTC getting off the hook fiscally scot-free seems very unlikely, as neither Motorola nor Samsung have managed to work out their own deals, and both of those firms have far stronger patent portfolios than their comparatively small, young Taiwanese rival.

It's also hard to forget that we're also talking about the company that has quite deliberately removed the native Android app picker functionality from all of its US phones as the result of an ITC lawsuit brought by Apple, which powers features like address / phone number action prompts when those particular types of data are detected in text. There's no doubt that Apple's software patents can be potent weapons. Even Samsung - who has been anything but complacent fighting Cupertino's allegations - has taken the precautionary measure of removing universal search functionality from Galaxy S III phones in the US to avoid a sales ban.

After this deal, though, it seems very likely we'll see features, the app picker in particular, return to HTC phones in the US fairly soon. At least I hope so. I, for one, will be watching the next few software updates HTC issues to its US handsets with great interest.

But as consumers, how does all of this actually affect us? Does it? I'd argue that the reality of the situation is, even if HTC ended up basically "giving in" to Apple through a licensing arrangement, it's probably a positive in the long run for a number of reasons.

Software Changes Quickly, Grudges Don't

Here's the number one reason I think this settlement is better for everyone in the end, and why it's not worth getting steamed over: software changes quickly. Long-standing feuds, though, can rage on for decades, even as new products emerge, existing ones evolve, or old ones die.

Think about where Android was three years ago - the original DROID. Think about how different Android looks now, how many more things it does, how software features we hadn't even thought were possible to cram into a phone are now stuff we just take for granted. Android is an ever-changing, ever-evolving platform that has proven more popular and versatile than even Google likely could have imagined.

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This settlement doesn't stop HTC from using Android, and it doesn't stop Google from making it better. It means that for the next ten years, HTC can develop whatever sort of phones with whatever sort of features it so desires, with no fear of patent litigation from either Apple or Microsoft (which HTC previously settled with, though I'm not sure of the duration of that license), requirements of those deals withstanding.

HTC doesn't have to look over its shoulder anymore, doesn't have to worry about product bans (something that seriously hurt its EVO 4G LTE and One X launches in the US), and can focus on making great phones.

Royalties Are Better Than Ruin

Let me ask you this: what do you, as a consumer, care about the small portion of HTC's profits Apple may or may not be getting? Unless you're an HTC shareholder, you really don't have any kind of personally vested interest in this deal. It's two companies resolving a dispute, and they've done so on what are apparently mutually agreeable terms. That, frankly, is all it comes down to - two companies deciding to engage in a business deal.

I've heard far too many people make the case that HTC shouldn't have "given up" and let Apple "win," or that HTC is simply kowtowing to Apple because it doesn't have the financial might of Samsung or Motorola.

Can someone remind me when we decided Apple and Android manufacturers squabbling over patents was a good thing? I must have missed that meeting.

The reality is that we live in a world where powerful corporations in the tech industry have become accustomed to licensing their technology to competitors as a way of protecting the value of that technology. Apple and Microsoft, in particular, have adapted this model to the software world. Is that OK? Is it alright that our patent system allows us to protect something like a 'rubber-banding effect' as being a new and useful invention, through what is basically a loophole in the wording of the law? That's really a question for another day. And soon, the US Federal Circuit court will be answering that question - whether or not simply describing a software invention as an abstract idea (as Apple is infamous for) and tying it to a computer is legally sufficient to obtain a patent.

But in the here and now, that battle doesn't really matter for the HTC's of the world. Certainly, HTC would be for greater restrictions on the scope of patentability for software, but relying on such a ruling as opposed to settling today is just bad business. Continuing to engage in these legal entanglements instead of settling could only hurt HTC's customers, and potentially lead to even more compromises in its products. The customs seizure of two of its phones at their respective launches is evidence enough of that.

A Sea Change At Apple Is A Real Possibility

Lawsuits are expensive. A partner at a large law firm like the ones representing Samsung, Apple, and Motorola can charge well above $1000 an hour for their time - and lawyers are among the shrewdest of billers. That being in addition to the likely dozens of low-level associates working a case, digging through banker boxes and hard drives 14 hours a day leading up to trial, who can each easily cost a client $500 an hour. Expert witnesses, such as those needed for calculating damages in a federal court? Think upwards of $1500 an hour. Then there are the filing costs, the incidentals, and the on-the-clock time of your own company's employees making depositions to the attorneys you're paying. All of this time, money, and effort, as Samsung found out, can easily end up being for naught.

And I agree with some of those out there on the fiscal implications of waging such a ware for a company like HTC, whose coffers are being depleted with each passing quarter. But even Apple can't justify these costs into perpetuity - people notice. It doesn't matter how many hundreds of billions you have in the bank, Apple didn't get where it is by throwing away money, that's not something you simply start doing. Maybe if you're Steve Jobs it is, but I doubt even Steve would have held up on his thermonuclear promise forever. The board would have, eventually, mutinied.

On Saturday, though, Tim Cook did something Apple has repeatedly said it wouldn't: he compromised. And make no mistake, this was a compromise from Apple's previous position. That position being, essentially, "Stop infringing or we'll sue you into oblivion and get as many of your products banned as humanly possible." Royalties weren't on the tablet. Apple did allegedly offer its most bitter rival, Samsung, a settlement, but it was basically a mockery of one - $30 for every phone, and $40 for every tablet.  This settlement took design patent licensing into consideration, however, so it was mostly a symbolic offer anyway. Apple knew full well Samsung wouldn't take it.

Increasingly, though, Apple has become the target of public opinion. Jokes about patenting rectangles, circles, "innovation," and tasteless anti-Apple slurs - however annoying I may find them - are clear indicators that Cupertino is no longer the plucky underdog fighting a Windows world that geeks and many counterculture types came to love. Apple's patent campaign and "reality distortion field" have become publicly visible - and potentially deeply damaging - flaws in the company's fashionable, harmonious image. Apple has suddenly found itself among many rivals, rivals Steve Jobs made it his personal goal to obliterate as copycats of his company's most successful product ever.

And I am sure Steve Jobs believed in his heart of hearts that suing his "copycat" rivals into submission would help Apple retain its image - to prevent its products from becoming lost in a sea of lookalike competitors. The fact is, though, I don't think anyone can argue that this entire ordeal has done anything to help Apple's image. Apple may have had some success in painting Samsung as a copycat, but not without dragging its own reputation through the mud. More people than ever look at Apple and see a company that has become petty, greedy, and self-obsessed. That isn't good for sales - especially when for the first time ever, one of your rivals' smartphones outsells you for an entire quarter in your home market.

The Road Ahead

More than anything, Apple's deal with HTC makes me optimistic about the future. It seems entirely likely Apple will end up offering similar deals to Samsung and Motorola, and those companies would be foolish not to accept them. Does it mean Apple will profit off the sales of its rivals' products? Sure. And if you disagree with that on principle, I guess it's your right to do so.

But me? I'm tired of the patent wars. I'm tired of hearing about Samsung filing X, HTC injunction Y, and Motorola dismissal Z. I don't see it as a rivalry in which to take a side, or as some pivotal conflict of good versus evil. I see a handful of multi-billion dollar corporations having a pissing match over who invented what and when, and the one that started it all is finally showing signs of relenting. There is far too much drama made over what amounts to a legal war for the contents of our wallets these days, and the sooner it ends, the better. As of Saturday, we're one step closer to peace, and I refuse to see that as anything but good for innovation, consumers, and the industry at large.

David Ruddock
David's phone is whatever is currently sitting on his desk. He is an avid writer, and enjoys playing devil's advocate in editorials, and reviewing the latest phones and gadgets. He also doesn't usually write such boring sentences.

  • http://www.twitter.com/Genjinaro Genjinaro

    One thing I question is the "analyst report" floating in the news, claiming money is being passed. Usually in a cross-license patent agreement, the only value exchanged, would be the patents themselves, nothing more. $6-8 per device for patent(S) over a 10-year span is beyond cheap, a few patents, sure but a slew of them? No way (keep in mind this settlement applied to all patents). I'm going to come out and say the analyst is wrong. Also, If money was exchanged, I assume HTC & Apple would have to note that, being publicly traded companies. I don't think it would require board approval though, I could be wrong.

  • abhisahara

    Was waiting for this David!! I knew this article was coming and its a really insightful one as always :thumbsup:

  • Dominic Powell

    As much as I am tired of the Patent Wars, It is the only thing leading to proper patent reform. A lot of these "patentable" features shouldn't be patentable, or in the case of technology should have a very limited shelf life (say 6-12 months unlike the prescription industry). The technology industry/ software industry is extremely different from the car industry or the pharma industry yet the same patent rules in essence apply to them. Drugs or Battery technologies take years and years of research, testing, sampling, reviewing before you are able to make any money off them, whereas software and design is something it can take less than an hour to cook up. Implementing bounce back, takes virtually no time and is the next step logically.

    I personally think the patent wars need to go on as long as it changes to either a) reform the entire system or b) put all the companies in a universal peace treaty, where true innovation and customer choice is what chooses who succeeds versus who fails, and not some judge.

    • http://twitter.com/misterE33 Mr E

      Totally agreed about reform being needed. A single judge, or even a jury, is incredibly unsuited to make a decision when billions of dollars are at stake. It's hardly life-and-death, but these decisions also affect many many people in small ways.

  • http://twitter.com/misterE33 Mr E

    It would be a great day if all these patent disputes could resolve amicably. I'm less eager to see Apple getting a cut of all Android device sales, but even if everyone charged an extra [measly] $5 per device to offset the cost, I'd still pick Android.

  • Shane Milton

    "Let me ask you this: what do you, as a consumer, care about the small portion of HTC's profits Apple may or may not be getting? Unless you're an HTC shareholder, you really don't have any kind of personally vested interest in this deal."

    This is where you are wrong. I am not an HTC shareholder yet I am a technology professional who develops innovative software for a living and this kind of behavior could easily ruin my career and very significantly affect my livelihood.

    Why? Because unless I (as a small-time dev with no legal funds nor even the funds to file patents) have absolutely no chance at being successful in my career if some asshole (Apple or otherwise) decides to play this kind of game with me. And if the big boys allow this thing to go on, what court is going to care about the little guys?

    So you are very wrong. This is NOT good for everybody. If all you care about is buying a phone, then sure. But if you are one of the millions of people who create technology or really any kind of innovative product, or are in any way at risk due to patent trolling, this is most certainly not a good thing!

    • http://www.androidpolice.com/ David Ruddock

      Apple and HTC settling affects your likelihood of being sued for patent infringement? News to me.

      Apple is not a "patent troll" - that's a total misnomer. Apple is nothing like LodSys or Intellectual Ventures, they do not exist solely to exploit the intellectual property system by buying up intellectual property and looking to extract money from people who violate it by threatening them. You expect a multi-billion dollar company like HTC to keep fighting its multi-million dollar patent lawsuits against Apple because it in some very indirect way it helps people like you, even if this has done absolutely nothing to change the patent system, resulted in numerous HTC phone bans, and even if Apple offered them a reasonable licensing agreement?

      Sorry, you have zero personal interest in this deal, and attempting to transpose your problems with the patent system at large onto a mutually agreeable private arrangement between two companies that have no idea you exist is a huge stretch.

      • PopeJamal

        Are you really that blind? You do realize that, in the United States, our system of law is based very much on precedent, right? Appple, HTC, nor anyone else needs to have any "idea you exist" to affect how the law applies to the "common man".

        Poke your head in the sand if you want, but this entire situation is not "good" for anyone except people who care more about gadgets than the state of IP law in the US.

        NOTHING happens in a vaccumn.

      • greg

        Apple may not be a patent troll, but they are primarily a technology packager: repackaging others' hard tech in a more attractive bundle that sells better.

        Apple has been successful in the US to make packaging more important than tech content: they get rulings against others for using Apple's packaging features, while freely using others' patented technology without payment. Token offers by Apple to license packaging features for a mint and pay peanuts for tech content only show derision and a superb ability to game a failing patent system. Just note how the same strategy is working outside the US: it isn't.

      • Shane Milton

        Others have already said it for me. It's all about cause and effect. How the law affects me is based on precedents set in these happenings with these other companies. Also, realize that business precedents (companies paying for licensing of a particular patent) further validates that patent's legitimacy, which further enables Apple to be on the aggressor's end of setting such legal precedents.

        Agreed, Apple isn't the same as LodSys & Co. (there are obvious differences because Apple does create products), but that doesn't make them any less a patent troll. But they have ludicrous patents that they use for no reason other than to screw people over. While they may not be a company with 100% lawyers, they still display patterns very similar to LodSys and co. If LodSys & co. started creating a product using some of their patents, that wouldn't have made them no less a patent troll.

        Do I expect HTC to keep fighting that fight? I NEVER said that. But don't tell me how this is good for me and everybody else with such a narrow-minded worldview. Does it help people buy cell phones for cheaper? Probably not but let's say it does make HTC phones $10 cheaper for your argument (so that way you can claim this is good for us in some way). It just does so by contributing to much larger problems. The end does not always justify the means. And when the ends is that you save $10 once every year and the means is that it helps the screwed up system screw more people over, I'm sorry but you lose all credibility to me when you claim "this is basically good for everyone".

        • Shane Milton

          I take that back. You don't lose "all" credibility with me. I usually appreciate your articles and your opinions a great deal. You're just off your rocker if you think this is good for everybody. I think this is bad for everybody. I don't necessarily expect HTC to fight "everybody's" battle but this is most certainly NOT good for the average person because it enables those who take advantage of our broken patent/legal systems to further screw over people who aren't trying to take advantage of others, and the little guy.

  • Elias

    HTC is not going to cut its profits, the burden will be obviously passed to consumers. Ultimately, what Apple is doing (besides extract copious amounts of money from their stupid sheeps which keep buying overly-overpriced crap) is STEAL those who turned their back to them and found other alternatives to their control-freak walled garden. What makes them think they're entitled to MY money? To the hell with these greedy pigs. They stopped innovation a long time ago and they dont want to protect their "intellectual property", now all they want is to destroy competition to force everyone into submission. And that's not ok with me. I, as a consumer, like competition. I won't be giving my money to someone who rewards Apple - with that same money - for being the bully assholes they are.
    Now, can anyone tell me why hasn't Google raped Apple over the notification bar copy? Or the Motorola patents? I would really love to see Apple take from its own medicine. Once they stfu and gtfo off of this kind of attitude which only harms customers, I guess they should be left in peace.

  • Sootie

    So in a perfect world all companies pay each other a fiver any time they sell a phone and in return they can make their own version of the best features from all other manufacturers and nobody sues anybody.

    Sounds ok to me.

    • Ramocc

      Only it won't be all companies, only those big enough to negotiate. All these deals do is further restrict entry into the market.

      Look at what happened with a small number of companies cross-licensing x86 patents ... excluding NVIDIA from competing. (I know this is a very simplified version of events, but the point stands).

  • PaulParanoia

    This is bad for consumers because ...

    1. If the litigation had continued, some or all of the Patents in question could have been found to be invalid. It's way too easy to be granted a Patent in the US when the Patent is either not innovative or is an obvious next step.

    2. By settling the dispute via licensing agreements and additional cost is added to each phone unit produced.

    3. This additional cost is borne by the consumer.

    As Samsung have pointed out 'It will lead to fewer choices, less innovation, and potentially higher prices.'