Patent Litigation Weekly Digging Beneath the Surface of Apple v. HTC

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Patent Litigation Weekly Digging Beneath the Surface of Apple v. HTC Powered By Docstoc
					Apple's lawsuit against HTC comes well into the Internet age, after a 10-
year run of "troll" lawsuits has transformed the patent litigation
landscape to the point that such suits now make up the bulk of many
Silicon Valley litigators' practice.

It's fairly unusual in the modern era for a market leader to initiate a
patent suit. Which is not to say large operating companies don't sue for
patent infringement. They do. But on the relatively rare occasions when
they do launch such litigation, it tends to fall into a couple of

First, there are big companies with established licensing programs (IBM,
Honeywell) that sometimes sue companies they don't directly compete with
as a way of extracting licensing revenue. Second, big companies with
slightly more Industrial Age roots sometimes sue in a bid to win some
tribute from the new breed of technology companies (see, for example,
Kodak's patent claims against Samsung, LG, Apple, and RIM over cell-phone
cameras or Xerox's lawsuit against Google and Yahoo over search engine
technology). Finally, there are a handful of suits in which a large
patent-holder goes after a true rival in the hopes of protecting a
deteriorating market share (see Nokia v. Apple).

The indirect targets of Apple's lawsuit, of course, are Google and its
Android operating system. Still, the suit doesn't fit cleanly into any of
the above categories, because right now Apple, along with Blackberry
maker Research in Motion, is top dog in the smartphone market. But the
company may be getting nervous about the long-term security of its
position--or it may just be interested in using patents to to make life
difficult for its competitors.

In any case, this litigation is less like most types of Internet-era
patent suits, and more like a throwback to the way tech-sector patent
wars were waged ten and even twenty years ago. Like Apple's move against
HTC, some of those old-school lawsuits were initiated by market leaders.
In the 1980s, Texas Instruments and IBM both won big cases against
Japanese and Korean rivals. Some of the victories were large enough that
the companies started to see patent-licensing as a lucrative business in
and of itself. Those suits continued into the early 1990s, when Texas
Instruments filed lawsuits against competitors like Tandy, Micron,
Daewoo, and Sanyo, and IBM launched a patent attack on hard-drive
manufacturer Conner Peripherals--something that was a likely contributor
to that company's 1996 demise. The most famous example to date of a
market leader using patents to solidify its position remains Polaroid's
long and ultimately successful battle to wipe out the Kodak 's Instamatic
line of cameras. That litigation also resulted in Polaroid winning a $910
million award, which, until recently, was the largest patent verdict

In a way, Apple is taking a page out of the past in order to safeguard
its future. One thing that makes this a risky gambit, though, is that
while patterns of litigation have changed, so have attitudes toward
patents. That's especially true in the software arena. And if Apple's
move is the beginning of an all-out patent war, it's not going to be
popular with the tech sector's independent developers and commentators.
Is HTC the Perfect Target for a Patent Attack?

Apple generates an enormous amount of revenue selling gadgets, and the
company has never previously shown an interest in developing a real
licensing program. So it's unlikely that the purpose of this lawsuit is
to create a new, ongoing royalty stream from a hot product. It's almost
definitely based on a genuine desire to shut a competitor out of the
market, or to at least throw enough obstacles in HTC's path so that Apple
keeps its edge in the marketplace. After all, patent litigation creates
added burdens on in-house counsel, as well as on the engineers and other
technical employees who will be deposed and be drawn into participating
in the suit in less direct ways. Apple may even be focused on forcing HTC
to removed certain critical features from its phones. (See, for example,
cell-phone blog reporting that Google initially deactivated some multi-
touch features in HTC phones at Apple's request.

Apple may well have decided it has good reason to worry about the HTC-
Google partnership: Analysts have praised HTC's phones as being
technically strong, and, by all accounts, Google's Android operating
system offers a powerful open-choice alternative to proprietary cell-
phone software made not just by Apple, but also by Research In Motion and
Microsoft. Some reports argue that Android's adoption in handset makers
new phones will soon outpace those competitors.

More immediately, the Taiwanese company's large revenue stream (about
$4.5 billion in 2009) and nearly nonexistent U.S. patent portfolio
probably helped persuade Apple that it is a perfect target. A search of
U.S. Patent and Trademark Office records shows that HTC has only been
issued 25 utility patents. While that number doesn't include whatever
patents HTC may have recently acquired¡ªor be in the process of
acquiring¡ªto hit back at Apple and gain some leverage in this patent
battle, it's a stunningly low number when compared to other major handset
makers such as Palm Inc. (almost 300 patents) and Motorola Inc. (which,
like Apple, has accumulated a stockpile of thousands of issued patents
over the years). (PTO data nerds, my search methodology is below.)

Finally, that HTC is a Taiwan-based company makes it easy for Apple to
raise the stakes of the game by heading to the International Trade
Commission in addition to federal court. Patent litigation gets expensive
quickly at the ITC. Also working in Apple's favor is the fact that the
agency's entire raison d'etre is to enforce 1930 laws that protect
domestic industry.

Waiting for the Google Shoe to Fall

The biggest question hovering over this suit is just what Google means
when it says "we stand behind our Android operating system and the
partners who have helped us to develop it." Does it mean, "We hope HTC
does alright in court? Or does it mean, "We'll help by hitting back at
Apple?" While Google is still known mainly for its dominance in Internet
search, its patent portfolio isn't solely focused in that area. Somewhere
among the nearly 300 issued U.S. utility patents in its portfolio, Google
surely has patents it can assert against Apple.
So while its partner HTC may be the "perfect target" for a patent attack,
this is clearly a proxy war with Google¡ªa company that has made clear
that it's determined to push into the cell-phone market. That makes
Apple's gambit a truly risky one.

PTO Search Methodology.

The Prior Art measured the patent portfolio of companies mentioned in
this column by searching for the company's name in the "Assignee Name"
field in the USPTO database of issued patents.

To measure Apple's patents, TPA searched for both AN/apple-computer$
(2,131 patents) and AN/apple-inc$ (849 patents). Other searches performed
included AN/google-inc$ (316 patents: 298 utility, 18 design), AN/palm-
inc$ (323 patents: 277 utility, 42 design), AN/htc-corp$ (58 patents: 25
utility and 33 design patents), and AN/motorola-inc$ (19,660 patents).

[Note: The "$" is the PTO search system's 'wildcard' symbol for catching
any string after that point. A search for "apple-computer$" therefore
catches patents that are assigned to both "Apple Computer" and "Apple
Computer Inc." Similarly, searching for "htc-corp$" catches anything
assigned to "HTC Corporation" as well as just "HTC Corp."]

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