The smartphone patent wars raging in the US have drawn players such as Nokia, Apple, RIM and Google into open hostilities
When a dauntingly technical lawsuit thumped onto the tables of a small district court in Wisconsin today, the global mobile phone industry sat up and took notice.
The suit, in which Spansion, a maker of flash memory chips, alleged that Samsung smartphones infringe one of its patents, was not just a local spat but the latest battle in the smartphone wars that have drawn in the industry's biggest players.
Billions of dollars are at stake for companies including Apple, Google, BlackBerry maker RIM, Nokia and Microsoft. The legal struggle could even lead to the iPhone being banned from sale in the US – if Nokia gets its way in one dispute that has gone to the International Trade Commission (ITC).
Only 28% of US and European users have a smartphone that can browse the web, use email and run apps. (The biggest penetration worldwide, estimated at 40%, is in Italy.) Apple, RIM (maker of the BlackBerry) and Nokia together made $3.8bn of profit in the past quarter.
With billions of users yet to upgrade, that leaves lots of room for very profitable growth for the handset makers, carriers, advertisers – and anyone who gets paid when their patented technology is used in a handset.
For years, handset makers have licensed patents to each other so they can make interoperable products. Normally, they are licensed on 'fair, reasonable and non-discriminatory' terms. But Guy Burkill at Three New Square, one of the UK's leading patent barristers who specialises in telecoms-related patents, says that with worldwide sales of mobiles passing 1bn units a year, 'the stakes are enormous – fractions of a penny per handset are worth fighting over.'
Not every patent survives a legal challenge – a judge may strike it down because of 'prior art' (someone invented it already), which makes the cases worth fighting. Burkill said: 'The sums at stake are so large that the high cost of litigation is no deterrent. That makes it difficult to foresee how it will all end.'
Sony Ericsson and Nokia suggested in 2008 that the amount payable per handset should be capped at less than 10% of the handset price. But nobody could agree on how the capped fee should be divided up. So the lawsuits go on, on many fronts.
Nokia (which holds many phone patents) first sued Apple in the US in October 2009, claiming violations relating to 3G networking and mobile Wi-Fi wireless. Apple responded in December claiming Nokia just wanted to force a cross-licensing deal. Nokia raised the stakes with a suit filed at the ITC, which can ban imports to the US, asking for the blocking of iPhone, iPod and Apple computer sales, claiming that 'virtually all' its products infringe at least one of seven Nokia patents. Apple responded by filing against Nokia in the ITC in January.
Hearings began last week to determine whether Nokia indeed violates Apple's patents (with ITC staff apparently siding so far with Nokia), but will probably take until June to reach a decision.
Florian Müller, a German software developer and intellectual property activist who has followed the battles, said: 'I believe we will see a number of major settlements next year as some ITC complaints will approach the point at which a decision gets taken.'
He warned: 'Those settlements will have a profound impact on the economics of the different vendors.'
For Apple, losing might be a problem – though one that could be sorted out by coughing up to Nokia. (In fact it could just buy Nokia – valued at about $40bn – with its $50bn cash pile.)
But Google is not out of the patent woods either. Android is under severe attack, notably from Larry Ellison's Oracle, which claims it infringes the Java patents it acquired when it bought Sun. The argument is mind-bending – as with most patents rows – but could lead to Google or handset makers (or both) being forced to pay Oracle a fee for every Android handset sold, which would be a serious problem as the platform has begun to take off in the US and worldwide.
Müller thinks it means trouble: 'the total cost of patent royalties that vendors will have to cough up per unit of an Android-based device will likely become substantial and could result in a cost disadvantage for Android as compared to Windows Phone, for which Microsoft provides a patent guarantee that gives vendors peace of mind and predictable licensing costs.' No date has been set for a hearing on the case.
'Since no other mechanism exists for deciding who holds the strongest hand, and nobody can agree, the courts are now being asked to rule on individual patents – a massive task, since there are so many of them,' said Burkill. 'To misquote Clausewitz, 'law is negotiation by other means'.' And to the winners will go a lot of the spoils – for years to come.
BlackBerry v iPhoneBlackBerry's status as the smartphone of choice for companies all over the world may be about to end. Apple's iPhone has begun to make significant progress against the device made by the Canadian firm RIM.
In the past quarter, the iPhone outsold the BlackBerry; now, Citigroup and Bank of America are investigating whether the iPhone offers a sufficient mixture of security and utility to replace it. JP Morgan has already said it will allow employees to use iPhones or other alternatives to the standard-issue BlackBerry while British bank Standard Chartered already gives employees the choice to use iPhones.
With more than 250,000 staff each, losing either Citi or BoA would be a huge blow for RIM , which also faces being pushed out of the 25,000-strong computer maker Dell in favour of Microsoft's Windows Phone 7 or Google Android phones. Dell said the move will save money, but RIM disputed that, noting the cost of buying, deploying and supporting new devices.
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