Can Apple really beat Android in the courts?

According to one analyst, Apple is certain to smash Android on the smartphone and tablets markets and will win billions. Really? I don't think so.
Written by Steven Vaughan-Nichols, Senior Contributing Editor

Android is more than ready to meet Apple in court.

Android is more than ready to meet Apple in court.

If you buy the analysis of Deutsche Bank analyst Chris Whitmore, Apple is almost certain to beat the stuffings out of the Android vendors. I beg to disagree.

While Apple has been attacking Android smartphone and tablet vendors in the courts around the world, I don't see any reason to think, as Whitmore does, that Apple will be able to slam dunk their way to victory. Indeed, Apple's number one smartphone rival, Samsung, expects record profits despite Apple's lawsuit attacks from Germany to Australia and back again.

Whitmore, who has long been very bullish on Apple, proclaimed in his note there are four possible outcomes to Apple's intellectual property (IP) attacks. These are:

1. Settlement with per unit license fee paid to Apple;

2. Apple handicaps Android's feature set and/or distribution and captures 25% of Android's future market share;

3. Draw: Apple wins some, loses some. For what it's worth, I believe this is far the most likely result.

4. Apple loses and must pay counter-claims.

Whitmore, dismisses the last two results without giving any real reason for doing so. Instead, he spends his time rejoicing over all the goodies of Apple's future wins.

In the first case, Whitmore sees Apple licensing its IP for $10 per Android device sold. He beleives that would push Apple's stock up by $35 a share. The better result though would be if Apple doesn't let the Android vendors surrender and instead forces them to avoid any hint of Apple designs; such as abandoning the rectangle as a shape for a tablet. In that case, he believes Apple would capture 25% of what would have been Android's market share and Apple's share price would jump by roughly $260 per share.

Apple iPad design - it's been done before (images)

That's all great Apple fanboy fantasy stuff, but it requires that Apple sweeps all its enemies in all the courts around the world. Its not that easy.

Indeed, Apple hasn't been winning all of is cases. Far from it, for example, the same German court that briefly blocked the sale of Samsung's Galaxy Tab 10.1 in the European Union is now fine with Samsung selling its slightly modified model.

This isn't to say that the Apple vs. the world litigation is over. It's not.

Indeed, as ABI Research points out in its recent study, Mobile Device Royalties Approaching the $20 Billion Mark, IP costs accounts "from less than 4% [of mobile device costs] if [the vendor] have a very strong patent portfolio to well into the teens. The average paid, weighed by market share, will fluctuate between approximately seven and eight percent. It gets much worse for a company with a weak patent portfolio selling 2G/3G/4G handsets with LTE [Long Term Evolution]."

Specifically, Philip Solis, ABI's research director for mobile networks told me that, "In 2011, the revenue from WWAN handset royalties is split roughly 20% for GSM [Global System for Mobile Communications aka 2G] handsets (down sharply from 2010) and 78% for WCDMA [Wideband Code Division Multiple Access/3G] handsets (up sharply from 2011). LTE [4G] handsets are just getting started with 2% of the revenue in 2011, but will grow steadily for the next several years." That's serious money.

As Solis said, "WWAN royalties on handsets are a significant source of revenue for companies holding the largest amount of essential patents." He added, "In addition to being a source of revenue for companies, patents are being used more aggressively for offense and defense against competitors."

It's not just Apple though, Solis points out, "Apple, Google, HTC, Microsoft, Motorola Mobility, and Samsung are just some of the companies that have been suing other companies or defending themselves in lawsuits. Apple has been very aggressive with its patent lawsuits around the world and is finding some success in banning product imports in some countries against companies like Samsung and HTC. In its aggressiveness, Apple is also running into antitrust issues in a few countries. For example, in Spain, Apple is undergoing an antitrust investigation after losing a suit against NT-K related to media tablets."

The Spanish case isn't well known. What happened was that Apple went after a small Spanish Android tablet manufacturer Nuevas Tecnologías y Energías Catalá (NT-K) for IP violations. Apple not only lost the case, NT-K returned fire by filing first anti-trust actions and now NT-K is going after Apple on charges of extortion. One wonders if Whitmore was aware of how, far from going victory to victory, Apple's constant legal attacks are sometimes blowing up in the company's face.

Besides, as Solis told me while, "Some companies are designing products with existing patents in mind from the beginning, while others design them and then worry about existing patents later. In any case, companies like Samsung tweak their products when they have to in order to avoid preliminary injunctions. I have also seen opinions stating that Apple would be better off working on licensing instead of focusing on trying to cripple competitors, which was Steve Job's person goal against Android."

Solis believes Apple could serve itself better by licensing instead of litigating. "I think Microsoft is a perfect example showing how Apple could be better off with licensing. By going for licensing arrangements first and using litigation as a last line of defense, Microsoft ensures revenue and gets revenue sooner. The example where Apple handicaps Android and gains market share could be an extreme example that assumes Apple wins all of its cases and that companies cannot figure out a work-around that avoids the patent or cannot innovate and come up with something even better."

Personally, I want to see Tim Cook, Apple's CEO back away from Jobs' vendetta against Android. While it's an Apple's stockholder's wet-dream to see the stock jump up several hundred dollars by beating down Android in every court in the land, in the tangled web of mobile IP lawsuits that's not the way to bet. I expect that after wasted hundreds of millions in legal costs Apple will end up still having to live with its Android rivals and compete with them in the marketplace instead of the courtroom.

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