Why Apple, Google, Microsoft and Samsung have all been big winners in the smartphone patent wars
It’s not often that a war is fought in which almost every side bearing arms wins; but the one that took place over patents relating to mobile devices might be a very rare example of such a phenomenon. It began way back in 2009, got extremely serious between 2010 and 2014 and is now in its very final stages.
Also known as the smartphone wars, the conflab involved a multitude of companies, almost all of which are still around in one form or another. At its centre was the thermonuclear dust-up between Apple and Android, encapsulated most neatly in the all-out attack the Cuperinto-based company launched against Samsung across multiple jurisdictions, and the counter-suits the Korean business hit back with.
Now, as the last shots are fired, Android is the world’s dominant mobile operating platform, while Apple has its biggest market capitalisation and is more profitable than ever. The temptation, therefore, is to declare that all the hostilities were a complete waste of time, money and energy; tempting, but wrong.
If you look at the four companies at the centre of the dispute – Apple, Google, Microsoft and Samsung - each has done remarkably well out of the events of the last six years; much better, perhaps, that otherwise would have been the case. Here’s why:
Samsung – When Brand Finance published its 2009 ranking of the world’s most valuable brands, Samsung was nowhere to be seen. Regarded primarily as just another Asian manufacturing business – albeit a very big one – the company had no reputation for building innovative products situated at the cutting edge of technological development.Fast forward to this year’s rankings and everything has changed. The Samsung brand now stands in second place with a value of over $81 billion - recognition of just how perceptions of the company have altered. A major factor in this, I’d argue, is that in deciding to sue Samsung for patent infringement back in April 2011, Apple created an equivalence between the two companies. Essentially, it signalled, Samsung is recreating the iPhone and the iPad, but it is doing it cheaper and Apple sees this as a threat. The publicity and marketing boost that gave the Korean business is unquantifiable, but it was undoubtedly huge; and certainly worth a lot more than the lawyers’ fees, the damages awards and royalties it has been required to pay out since. Although its Android sales are waning, Samsung was effectively given an Apple-endorsed rebrand worth tens of billions of dollars.
Google – Putting aside the relatively low direct revenues Google has accrued from Android and the arguably much greater and more valuable data points it has harvested from the platform, the smartphone patent wars provided a major boost for the company in forcing it to grow up. Go back a decade and the number of patents it owned was minimal, while all too often patent policy was directed from a boardroom in which suspicion and dislike of patenting (despite the importance of it to the company’s foundation) was rife. Although never engaged head on in the battles (until inheriting a dispute with Microsoft from Motorola), the smartphone wars undoubtedly impressed upon the company and its leadership the importance of a fully-developed patent operation; one which would leave it in as secure position as possible in terms of defence, while also allowing a high-level of strategic flexibility. The result is that today Google has one of the world’s biggest patent hordes – generated internally as well as via the acquisition, at what turned out to be a very low cost, of the Motorola portfolio. What’s more, it also has a world class patent function, led by Allen Lo, that has not only negotiated a number of major cross-licensing agreements with the likes of Cisco, Samsung, Verizon, LG and, most recently SAP, but which has also begun to roll-out a series of initiatives that look like they will stand the company in good stead over the years to come. Others may not be enamoured of the PPP, the LOT Network or the OPN Pledge, but they and other programmes like them are going to pay dividends for Google for a very long time. Would this have happened without the smartphone wars? I doubt it.
Microsoft – Now this is an easy one. Microsoft has made a fortune from Android-related royalties. The company has roughly 30 licensing agreements in place, the majority of which involve the licensee paying it cash. The single biggest of these that we know of is with Samsung and came in at over $1 billion in 2013. Based on that figure, some have estimated that the overall amount being generated annually from Android by Microsoft could be more than $6 billion. If that’s true, it is equal to approximately one-third of the company’s net income in its last financial year (a meaningful measure given that most licensing revenue usually heads straight to the bottom line), or well over 50% of its R&D spend in 2014. But even half of $6 billion would be an eye-watering amount. And let’s remember that it’s not always just money that Microsoft gets from these licensing agreements, it’s also relationships and access to third party IP too. At a time when the Microsoft business overall was going through some choppy waters, Android-related patents and the revenue they have generated were - and continue to be - an outstanding success story, allowing the company’s leadership room to breathe as it develops and renews Microsoft’s product offering.
Apple – Steve Jobs launched thermonuclear war, enraged by what he saw as blatant patent infringement and personal perfidy. Apple failed utterly to achieve its late CEO’s aim - Android’s destruction. On that basis, then, surely it is the big loser from the events of the last five years. Well, no, actually. During that time its brand has turned into the most valuable in the world, while Apple has grown hugely, earlier this year becoming the first US company ever to hit a market capitalisation of $700 billion as sales have soared and its cash mountain has just kept on growing. When Apple first started launching its suits against Samsung I worried that the company may end up harming its reputation – that being seen to use the courts rather than the market to fight an opponent would send out a negative message. Clearly, I was totally wrong. Now I can see why. While many viewed the smartphone wars as confirmation of Samsung’s and Android’s ability to compete with Apple; the fact that Apple was prepared to stand up for its products, and that juries and judges sided with it on many occasions, showed the company’s fan-base how much it cared and that what it made available to them was something unique and very special. The litigation reinforced the Apple brand promise and demonstrated that the company is prepared to fight tooth and nail to protect the integrity of its offering. This has allowed Apple to build its pitch as a purveyor of high-quality, premium products that others might try to match but never quite can; and it has done this not only in traditional markets, but also in new ones such as China. It turns out that the smartphone wars and the acres of coverage they garnered were the most powerful marketing message Apple ever had.
While Samsung, Google, Microsoft and Apple have been the stand-out winners from the battles that began to rage in 2009, they are not the only ones. The smartphone wars have also given a new lease of life to companies such as Nokia and Ericsson, while potentially promising the same for others such as BlackBerry. A host of NPEs also made a lot of money, while patents as an asset (but maybe not a class) also got a lot more attention. The patent backlash we have seen over the last couple of years should not blind us to what came before.
Over and above all these entities, though, the real winners have been the buying public. In just five years smartphones, tablets and the like have come on leaps and bounds technologically, are much cheaper and are available to many more people across the globe. Indeed, perhaps the only real losers since 2009 are those who claim that patents stifle innovation and reduce the public’s choice. The consequences of the smartphone wars have shown that they are completely and utterly wrong.