November 20, 2012

HTC, Apple, Samsung and the Merry-go-Round of Smartphone Patents


As the world knows by now, last week Apple and HTC ended their patent war by coming to terms on a significant 10 year licensing deal – one in which HTC will license Apple’s technology at some cost per smartphone. There has been a lot of noise about just how much HTC is going to pay Apple – with estimates ranging from $6 to $10 per phone, which would suggest a fairly high burden on HTC. The company also pays Microsoft a fairly hefty sum per phone as well on various Microsoft licenses.

It is also well known that HTC is not currently on the soundest financial footing, and it has been speculated that the main reason for coming together on the Apple deal is that from a financial perspective dealing with the devil you know (established licensing fees) is far better than dealing with the devil you don’t know (the patent lawsuit’s eventual outcome, keeping mind the recent $1.5 billion Samsung loss to Apple).

Too much negative speculation on licensing fees to Apple being at the high end of the spectrum – which is also harmful to HTC from both a short and long term financial perspective, finally prodded HTC to make a statement about the situation. Toward that end, HTC CEO Peter Chou looked to set the record straight today in no uncertain terms. Chou said to reporters, while speaking at KDDI’s launch of the J Butterfly smartphone (the Japanese version of HTC’s stellar new DNA smartphone it introduced with Verizon last week), "I think that these estimates are baseless and very, very wrong. It is an outrageous number, but I'm not going to comment directly on a specific number. I believe we have a very, very happy settlement and a good ending."

Samsung Redux

If the story ended there it would be all well and good. But here is the question that is now up in the air and that may prove to be critical to Samsung in its ongoing battle with Apple. The HTC deal raises the question of just what patents are included in the licensing deal. The types of patents Samsung is concerned with have to do specifically with the user experience. These patents, which reflect the sorts of things Samsung has been assesses to have infringed, include user behaviors and design issues that are not central to actually building a smartphone.

Essential patents – known as FRAND patents (Fair, Reasonable, and Non-Discriminatory) – are typically licensed at reasonable cost, and companies must typically put these up for licensing as such because they are essential to build devices. Apple is fine on licensing these, but will not license to Samsung, at any cost, design patents that it believes define the essential Apple mobile experience but are absolutely unnecessary to actually build mobile devices. Samsung believes that a fair remedy to its current infringement dilemma is not to shell out billions of dollars, but rather to pay a reasonable fee to Apple for the design patents.

You can See Where the Merry-Go-Round is Going

Samsung believes that these design patents are included in Apple's settlement with HTC. To further bolster that argument some so-called experts have speculated that it would be very unlikely for HTC to settle if these patents weren't included. The bottom line is that if the design patents are part of the licensing deal with HTC, it would become very difficult or Apple to not license them to Samsung.

Here is the unfortunate problem for Samsung. First, they don’t really know. Given what Apple had to expose about itself at the recent patent trial, we have to wonder if Apple didn’t anticipate the possible Samsung response, and in fact did not include them. For all we know, HTC got a great bargain in its deal (and possibly other unstated legal agreements) for this very reason and Apple is merely smugly sitting in wait to reveal that the HTC agreement does not contain the design patents. It certainly would not be beyond Apple to do so.

The other issue is that there is very likely no way Samsung can possibly take advantage of this scenario anyway. December 6, 2012, the next court date the two companies have coming up, where some of these issues will be nailed down, is just around the corner, and there is likely no possible way (no way in hell in fact) that Samsung can formally introduce HTC’s licensing deal details into the courtroom by December 6th.

Maybe Samsung can release some “interesting” innuendo to reporters to play with outside the courtroom - as it disrespectfully did with certain excluded information during the trial, working against direct court orders. And Apple can simply continue to sit and wait (smugly or not) for December 6th to come and go.

Quite the merry-go-round.




Edited by Brooke Neuman



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