Joff Wild

The statement is short, sweet and historic:

HTC and Apple Settle Patent Dispute

All Patent Litigation Between the Companies Dismissed

TAIPEI, Taiwan and CUPERTINO, California—November 10, 2012—HTC and Apple® have reached a global settlement that includes the dismissal of all current lawsuits and a ten-year license agreement. The license extends to current and future patents held by both parties. The terms of the settlement are confidential.

“HTC is pleased to have resolved its dispute with Apple, so HTC can focus on innovation instead of litigation,” said Peter Chou, CEO of HTC.

“We are glad to have reached a settlement with HTC,” said Tim Cook, CEO of Apple. “We will continue to stay laser focused on product innovation.”

In those few lines the thermonuclear war that Steve Jobs launched against the Android operating system has come to an end. Although Microsoft has done over a dozen deals with Android manufacturers (Florian Mueller on the FOSS patents blog lists them all here), this is the first one that Apple has concluded.

What we can now say definitively is that Apple has recognised what it had to recognise: Android is here to stay. Given that, the most effective way for Apple to respond is to do licensing deals with those who use the platform. Doing this nets it a slice of every unit an Android manufacturer sells, thus increasing Apple’s own returns as it drives up the price of competitors’ offerings (or reduces their profit margins), while at the same time giving consumers the maximum possible choice. It’s what Microsoft has been doing very successfully for a few years now. It is the smart thing to do. And it can also be extremely lucrative. Microsoft is thought to generate hundreds of millions of dollars in Android-related licensing revenues each year – most of which will head straight to the bottom line.

That HTC has been looking to settle with Apple is not in doubt. As long ago as July 2011 the company’s CFO was talking about sitting down to sort things out. “We are open to all sorts of solutions, as long as the solution and the terms are fair and reasonable,” Winston Yung told Bloomberg. Having done just that with Microsoft and others previously, it was clear that these words were not just platitudes. Now Apple has finally decided to play ball.

Of course, “fair and reasonable” are not objective concepts and will mean different things to different people, but that is what deal making is all about. When you are the side with the cards in your favour – as Apple has been with HTC – it’s what you think that carries most weight. What you do not want to do, though, is to delay too long and then overplay your hand. Knowing when to cash in is also part of the dealmaker’s skill. Although terms have not been released, few will doubt that this agreement will see HTC not only cross-license its patents to Apple, but also hand over a decent chunk of cash each year. If that is the case, it’s a big Apple win.

The question now is what will happen with Samsung. Apple’s multinational battle against the Korean company is way bigger than the one it was having with HTC. Samsung is a far greater threat: it has huge financial power; it has many more patents; and, most significant of all, its Android products are incredibly popular. But although Samsung has prevailed in some of the legal disputes the two have been engaged in, the really big one went the way of Apple when in August a Californian jury delivered a slam-dunk verdict in its favour and awarded over $1 billion in damages, with the possibility of injunctions to follow. As with HTC, therefore, that means Apple is in a strong position to dictate a settlement deal if it so wishes.

Given that it is inconceivable Samsung will be forced out of the smartphone and tablet markets by the courts, the question for Tim Cook and co is when they should hold out the olive branch. And in determining that, they need to ask whether they will ever be in a stronger position than they are now. From where I sit, it is unlikely. Although Apple may well get the injunctions it is after in December, the whole case is going to end up before the CAFC. I am not a lawyer, but many of those I have spoken to in the US consider it unlikely that the decision delivered in San Jose in August will remain unaltered once the Federal Circuit gets stuck in. It is highly doubtful that it will be overturned, but much could change, quite possibly to the detriment of Apple. Whether that is the case or not, sorting things out now would mean that the risk for Apple goes away completely.

On top of this there is the competition/anti-trust element to throw into the equation. On the face of it, Apple seems to have the whip hand here too; with authorities on both sides of the Atlantic casting doubts on the use of standards essential and RAND/FRAND patents in litigation, especially when it comes to injunctions. But look more closely and you can see that the regulators are developing a keen sense of how all sides in RAND/FRAND/standards disputes might game things to their own advantage. And the bottom line on this front, surely, is that no regulator will give the green light to a situation in which the buying public ends up with less choice and more expensive products. Indeed, the European Commission has stated that explicitly.

As discussed previously on here, Apple also needs to factor in the possible reputational damage never-ending litigation will do to its brand – one of the company’s most important and valuable assets. People like Apple, in part at least, because they perceive it puts out cool products. But over time more and more punters may begin to ask themselves just how cool it is to be seen to be preventing consumer choice by blocking competitors through the courts, rather than having the confidence to take them on in the market. Of course, patent owners need to protect their rights, but products not patents must surely be the deciding factor – especially when Apple itself has demonstrated that licensing solutions are at hand.

For all these reasons, Apple should now be looking to move from war-war to jaw-jaw in its dispute with Samsung. Like HTC, the Korean company has shown itself willing to do deals in the past. The time has come for it to do another one. And once that happens, the only significant Android hold-out will be Google. Just think of the pressure that there will be on its leaders should Apple and Samsung finally make up. If I were Tim Cook (or Eric Schmidt, for that matter), I’d be thinking very carefully about that too.