Apple vs. Qualcomm – Proxy war

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Apple’s intransigence plays into Qualcomm’s hands. 

  • Qualcomm has been forced to adjust its guidance for the coming quarter after being informed by Apple that it would not be receiving any royalties for the foreseeable future.
  • According to Qualcomm (as Apple has made no statement), Apple has ceased payment as it finds the contract terms unacceptable even though it does acknowledge that some payment is warranted.
  • Qualcomm’s new FQ3 16 guidance is for revenues / EPS that will be $500m – $800m (midpoint $650m) and $0.15 – $0.30 lower than the guidance given at the recent FQ2 16 results.
  • Although the issues that Apple has with Qualcomm’s business model are very similar, if not the same as the issues that Nokia had back in 2006, the circumstances are completely different.
  • These are:
    • First Contract validity: The dispute that arose between Nokia and Qualcomm in 2006 occurred because Nokia’s contract had come to an end and the companies were unable to reach agreement on terms for the renewal.
    • Nokia stopped paying Qualcomm as it had no idea how much to pay and instead accrued an estimate of the cost in its balance sheet.
    • The contracts upon which Apple has ceased payments have not expired and I can’t see any real contractual grounds upon which to cease making payments.
    • As a result, I do not think that it will not be difficult to show to a court that Apple is acting in bad faith and to win an enforcement order.
    • Second: Third party suppliers. Apple does not pay Qualcomm directly as the payment is made by its manufacturing partners who make its products.
    • This means that Apple is getting involved in contracts that are in place between entities that have nothing to do with Apple other than it is the end buyer.
    • I do not think it will be difficult to argue that Apple has no real grounds to be involved in these contracts and is acting in bad faith.
  • Apple’s intentions are clear in that wants a lower rate from Qualcomm and unlike Nokia, is not prepared to wait until current contracts expire before launching its proxy war via its suppliers.
  • Apple’s royalties are calculated on the wholesale price of the device which in this case will be the price at which the supplier sells the finished device to Apple.
  • I calculate that the supplier is paying Qualcomm 2.8% of the price of the device from making the below assumptions:
    • Qualcomm’s FQ3 17 royalty revenues from Apple would have been from calendar Q1 17 as royalties tend to paid one quarter in arrears.
    • Apple shipped 52m units in calendar Q1 with an ASP of $650 giving iPhone revenues of $33.8bn upon which it made gross margins of 45%.
    • This means that suppliers sold the devices to Apple with an ASP of $448 for a total revenue of $23.3bn
  • There are a number of caveats to this assumption:
    • First price cap: There is a price cap above which no royalties are paid.
    • This cap was originally meant for products like laptops with modems, but premium smartphones are now so expensive that they often hit this cap.
    • I have estimated that this cap is somewhere around $500 but if it is as low as $400, then the rate I calculate paid by Apple goes up to 3.1%.
    • Second pay up front: There is a pay-up-front option (which Nokia took advantage of) which allows the vendor to pay a lower rate going forward.
    • It is not clear whether contracts with the iPhone suppliers have made use of this option or not.
  • The net result is that I calculate that Apple is paying somewhere around 3% to Qualcomm which I think is at least on par with many other vendors.
  • The problem with patents as there is no real way to determine what should be paid to for them.
  • I have long believed that patents are worth either:
    • First: what an entity is prepared to pay for them or
    • Second: the present value of the cash flows that the patent generates.
  • This is why historical precedent is so important when it comes to patent licencing and here Qualcomm has a huge advantage.
  • Qualcomm has hundreds of agreements and more than 20 years of history as evidence that its agreements have not damaged the mobile industry, in fact, quite the reverse.
  • Furthermore, I think Apple’s intransigence on this issue and ceasing payments that it has already agreed to in writing, plays enormously to Qualcomm’s advantage.
  • Courts look poorly upon a refusal negotiate and acting in bad faith and I think that Apple has done more harm than good to its case here.
  • Hence, I think Qualcomm’s chances of prevailing against Apple are better than they were against Nokia which is all the more reason why it should fight tooth and nail to preserve its business model.

Qualcomm – Tooth and nail.

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This time around, Qualcomm should fight.

  • I think Qualcomm will best serve its shareholders by fighting tooth and nail to halt the fall of royalty rates that has been going on for the last 9 years.
  • The fight between Apple and Qualcomm is a sure indicator that life in the smartphone market is getting tougher which came to light in Qualcomm’s latest earnings release.
  • FQ1 17A revenues / Adj-EPS were $6.0bn / $1.19 compared to consensus estimates of $6.11bn / $1.18.
  • Guidance was very slightly weak with FQ2 17E revenues / Adj-EPS of $5.5bn – $6.3bn / $1.15 – $1.25 compared to consensus of $5.9bn / $1.19.
  • Apple’s dispute with Qualcomm is nothing new and in fact from a brief examination of Apple’s complaint and Qualcomm’s response, it is clear that while times have changed, the arguments remain broadly the same.
  • Between 2006 and 2008, Qualcomm was embroiled in a bloody and bitter fight with Nokia which at the time was in the same position that Apple finds itself today.
  • At that time, Nokia made almost all of the mobile phone industry’s profits and so it was the largest payer of royalties to Qualcomm.
  • When its contract expired, it sought to lower the rate it was paying to Qualcomm and when negotiation did not work it resorted to the courts.
  • At the time, I believed that Qualcomm had the advantage and would eventually win but Qualcomm decided to settle with Nokia in 2008.
  • Although the real details were not disclosed, I calculated at the time that this resulted in a new royalty rate of around 2.3% down from the old rate of 4.1% (of the wholesale price of the device).
  • The problem with this is that everyone else was paying 4.1% and then went on to demand the same deal as Nokia.
  • More recently, Qualcomm has done a deal with China where the effective rate appears to be around 1% which could very well a further decline in the overall global royalty rate that Qualcomm receives for its IP.
  • This is the heart of the problem with patents as there is no real way to determine what should be paid to for them.
  • I have long believed that patents are worth either:
    • First: what an entity is prepared to pay for them or
    • Second: the present value of the cash flows that the patent generates.
  • This is why historical precedent is so important when it comes to patent licencing and here Qualcomm has a huge advantage.
  • Qualcomm has hundreds of agreements and more than 20 years of history as evidence that its agreements have not damaged the mobile industry, in fact quite the reverse.
  • The issue of course is that Apple simply wants a lower royalty rate and even the terms of the deal in China appear not to be low enough.
  • Qualcomm claims Apple has rejected terms that are consistent with the deal it did in China and upon which it has struck most of its Chinese licences.
  • The problem as I see it is that if Qualcomm gives Apple a discount then the rate paid by everyone will go down yet again and where it will end is impossible to tell.
  • By fighting against Apple, it has a chance to arrest the general fall of royalty rates across the industry and stabilise them at what I would estimate will end up at around 1%.
  • This is why Qualcomm must fight as I think that the future of its IP licensing business depends on it winning the second time around.
  • It will be painful and expensive but I can’t see how Qualcomm has much choice.

Xiaomi and Microsoft – The Office

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This deal is really about Office in China.

  • Microsoft and Xiaomi have struck a deal where Xiaomi will take ownership of 1,500 of Microsoft’s patents and Xiaomi will pre-install Office on all of its handsets.
  • I suspect that these patents are almost exclusively wireless patents which, with Microsoft’s precipitous decline in smartphones and the sale of its feature phone business to Foxconn, are now worth very little to Microsoft.
  • Historically, it has been important for a handset maker to have a patent portfolio so that it has something to negotiate with when other patent holders assert their patents against its phones.
  • I think that this is less of an issue these days, as recent interventions by the White House (see here) have weakened the threat of patent infringement, but it is still important to have something.
  • Xiaomi is stagnant in its home market and so has been looking overseas to try and find desperately needed growth.
  • It has already opened up India and Brazil and I suspect that this deal heralds its attempt to get into the developed markets of Europe and North America.
  • This is not a new development for Xiaomi and I still fear that revenues may fall by as much as 10% this year (see here).
  • However, for Microsoft this represents an opportunity to do something about the rampant piracy that blights its products in China.
  • I have long been of the opinion that Office is by far the most valuable asset that Microsoft owns and, because of that, I suspect that Microsoft virtually gave the patents away in return for this pre-installation deal.
  • This arrangement would also suit Xiaomi very well as has very little cash to spend on investments (see here).
  • Usage of Office in China is high but not many pay for it and with the rise of mobile, there is an opportunity to convert a portion of this usage over to Office 365.
  • On devices with a screen size of less than 10”, the basic version of Office 365, which offers simple editing, is free and being pre-installed on Xiaomi handsets will ensure that it is at least present in the Chinese market.
  • China is predominantly a mobile first market where users do far more with their phones than in developed markets meaning that there is a good chance that those that use Office illegally today will begin to use the free version of Office 365.
  • This will create a funnel of free users that may eventually decide that that there is value in paying $9.99 per user per month to use Office 365 rather than a pirated, older version of Office.
  • RFM calculates that there are 94m Xiaomi device users in China which should hit 150m by mid-2018 meaning that Office will be present on a meaningful number of devices in China fairly quickly.
  • This is all upside for Microsoft and even a very low conversion rate will improve revenue and profitability which has come in exchange for a portfolio of patents that Microsoft does not really need anymore.
  • This is unlikely to help Xiaomi to recover its fortunes in 2016 and I still think that Xiaomi is worth closer to $5bn rather than $45bn.
  • I still see upside in Microsoft and this deal is yet another sign of how much things have changed for the better in Redmond.

Oracle vs. Google – The Merry-go-round.

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I think Google will end up paying less than $1bn.

  • Google and Oracle are at it again with Oracle asking for up to $9bn of damages as a result of Google’s alleged copyright infringement of the Java programming language.
  • Normally this would be quite straight forward but where it gets complicated is that Java is open source software meaning that Google is entitled to use it.
  • 37 Java APIs lie at the heart of this dispute which make up less than 0.1% of the Android software that runs on 2.0bn devices of which 0.9bn are Google ecosystem devices.
  • However, Oracle owns the copyright on these 37 APIs and claims that Google simply copied them rather than make its own versions to work in conjunction with the open source Java code.
  • Google’s position is that it its use of the APIs transformed the software into something new which counts as “fair use” because it is far more than merely copying.
  • Last time around, the jury found that Google had violated Oracle’s copyrights but were deadlocked as to whether or not it constituted “fair use”.
  • The supreme court declined to intervene which is why the whole issue is being dragged before a court again.
  • There are strong arguments in both directions:
    • For Oracle. Google has a history of copying code line for line from the open source community and I believe that much of Android Auto was built this way.
    • Google does not seem to be denying that it copied the APIs but it categorically states that it did so legally.
    • This immediately puts Google on the back foot as it is not really denying Oracle’s accusation and is left defending its actions.
    • For Google. For seven years prior to the launch of Android, many companies tried and failed to create a viable operating system for a smartphone using Java.
    • Google’s success in doing so strongly indicates that it fundamentally changed the nature of the Java code to make it work properly on mobile thereby, in all likelihood, fulfilling the requirements of “fair use”.
    • Furthermore I think that Oracle’s allegation that Google copied Java APIs wilfully for monetary gain is baseless.
    • Google used Java as the starting point for Android because of Andy Rubin, the creator of Android.
    • Andy Rubin’s previous company Danger, created a data centric device called the Sidekick that was based on Java.
    • Consequently, when he came to Google with the mission to create Android, Java was the natural starting point.
    • Engineers do not tend to think about copyright or patents when they create something, they just focus on making the best product that they can which is what I am certain happened in this case.
  • There is no doubt that Google has made a vast amount of money from the Android software which carries its services to mobile users but Oracle’s estimate looks punchy.
  • RFM estimates that between 2013-2015, Google generated $30.4bn in revenues ($20.8bn from advertising and $9.6bn from Google Play) from devices based on Android software.
  • Due to the very rapid growth in Android over the last 3 years, revenues prior to 2013, are unlikely to be more than $1bn-$2bn and not really meaningful.
  • I believe that a very large proportion of this was profit but it is impossible to tell because many of the costs of providing the services will be the same as those for providing services to PCs.
  • Legal cases in general are very difficult to predict and this one is far more difficult than most.
  • I suspect that the outcome will be a settlement where Google pays Oracle something but far less than the $9bn that is flying around.
  • My back of the envelope calculation ($30.4bn at 5% royalty) gives a figure of $1.5bn but given what companies are paying in royalties these days, this 5% looks high.
  • Consequently, I think it unlikely that Google will pay more than $1bn which is a figure that could pass through the financial statements with barely a ripple.
  • Alphabet remains around fair value meaning that I see more upside in Microsoft or Samsung but Apple is still looks incredible value for the really long term income investor.

Patent licensing – House of cards.

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Standard Essential Patents not at risk of value collapse.

  • The ongoing fight between Google (Motorola) and Microsoft is at risk of setting a legal precedent that could collapse the value of standard essential patents (SEPs).
  • This particular fight was started by Motorola which sued Microsoft for infringement of its MPEG4 (h.264) and WiFi SEPs in PCs.
  • Microsoft counter-sued with a federal suit alleging that Motorola had failed to live up to its FRAND (see below) obligations when it came to licensing its SEPs.
  • Because SEPs are always included within a standard, anyone who makes a product that uses that technology invariably infringes that IPR.
  • To prevent patent holders exploiting the situation, IP that is included in a standard must be licenced on Fair, Reasonable And Non –Discriminatory terms (FRAND).
  • Motorola was seeking a $22.50 from every mid-range laptop that makes use of its patents which with an ASP of $700, is a royalty rate of 3.2%.
  • Microsoft pays a group of 29 companies just $0.02 per laptop to use their pool of 2,300 patents and so it is not difficult to see how Microsoft could make a case for a breach of FRAND.
  • For the first time, the court attempted to determine an appropriate royalty, concluding that Microsoft should pay Motorola $1.8m per year rather than the $4bn Motorola had asked for.
  • Motorola appealed this ruling and it is this appeal that goes before a court in San Francisco today.
  • If the ruling is upheld it will set a very dangerous precedent for all future SEP negotiations as patents are almost impossible to value with royalty payments being almost entirely based on history and precedent.
  • I suspect that the court’s method is deeply flawed in at least one way which is that it is very likely that the court has assumed that all SEPs within a standard are equal in terms of their importance.
  • However, the reality is very different.
  • Patents may look the same but the value of one patent can be hundreds of millions of dollars while an entire pool of similar patents can be virtually worthless.
  • This fact is obvious when look at the patent pools or any association that licences groups of patents for a single fee which is then shares out.
  • These are almost always made up of the weakest patents because the nature of any program dis-incentivises a holder of a strong patent from joining the pool.
  • Qualcomm, Ericsson, Nokia and Motorola have never contributed their wireless SEP patents to a pool because they know their patents are strong and that they can earn higher returns on their own.
  • Historically, the patent holders also manufactured the products meaning that everyone existed under cross licence (much lower royalty) creating a reasonably balanced status quo.
  • However, with the rise of Apple, Samsung and the Chinese this is no longer the case and this is why there is huge pressure from manufacturers to reduce the cost of SEP licensing.
  • Consequently, I think that SEP pricing will continue to fall over time but is unlikely to suffer a big collapse from this court case.
  • This is because I think that the court’s method is fundamentally flawed and suspect that it will not be upheld on appeal meaning that the house of cards that is SEP pricing will stand to fight another day.

 

Ericsson vs. Apple – Power of precedent

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Apple in a weak position in its fight against Ericsson.

  • Following the expiration of their licence deal in January 2015, Apple and Ericsson are heading to court to fight over the licensing of standard essential IP that relates to 3G and 4G.
  • Ericsson has filed 7 complaints in the US claiming that Apple infringes up to 41 of its standard essential patents.
  • Ericsson is also asking the ITC to ban Apple products from the US market as a result of the patent infringements.
  • Apple has countersued Ericsson claiming that by asking for a percentage of the wholesale price of the device, Ericsson is unfairly benefitting from Apple innovations around design which it claims is a driver of its high ASPs.
  • Ericsson claims that it offered Apple a licence, presumably on the same terms as before, but that Apple turned it down.
  • Of all the companies that licence standard essential patents, Ericsson is reputed to be one of the fairer players.
  • RFM research indicates that Ericsson seeks a price of around 1% of the wholesale price of the device compared to many of its peers which seek around 2%.
  • This is despite the fact that Ericsson has one of the stronger patent positions in both 3G and 4G.
  • The problem for Apple is that when it comes to settling legal disputes, what has happened or been agreed to in the past in often used as the basis for the outcome.
  • This means that Apple is at a significant disadvantage in the following ways:
    • First, Apple has previously agreed to pay Ericsson on the basis of the wholesale price of its devices.
    • This implicitly means that has accepted this system as fair and reasonable (how SEPs must be licensed).
    • Second, Apple has paid for these patents before meaning that it openly admits that its products infringe.
    • RFM believes that Ericsson is asking for the same royalty rate as its previous agreement.
    • Third, The fact that Apple has historically agreed to pay this rate means that it has implicitly agreed that this price both fair and reasonable.
    • Fourth, by offering a license to Apple, Ericsson shows a greater willingness to negotiate, which will help how it is viewed by the court when the dispute is heard.
  • I suspect that the net result is likely to be an outcome in Ericsson’s favour as the power of precedent means that the court is most likely to impose a royalty rate at the same level as before.
  • Ericsson’s request of a ban to the ITC is extremely unlikely to amount to anything as the White House set a strong legal precedent by previously vetoing an ITC imposed ban related to the infringement of standard essential patents.
  • The problem for Ericsson is time. Court cases take a very long time and I think that it will have to make a choice between accepting less money now or waiting for years to get paid.
  • The other problem is that if Ericsson gives in to Apple, it will then be forced to give into everyone else because it must licence its essential patents in a non-discriminatory fashion.
  • Given that Ericsson is profitable with good cash flow and a reasonable cash balance, it does not need the money now and can easily afford to wait it out.
  • Consequently, I expect Ericsson to stand its ground meaning that this complaint is likely to be heard by the court.
  • The net result is going to be yet another expensive fight where the only real beneficiaries are the lawyers.

Xiaomi vs. Ericsson – Bloody bandwagon.

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Patent royalties will pressure margins further.

  • Xiaomi has hit a road block in India as some of its products have been hit with a preliminary injunction following a complaint from Ericsson for infringement of Standard Essential Patents (SEPs).
  • India is Xiaomi’s first major foray outside of its home market in China and this is likely to be the first of several royalty claims that are lodged against the company.
  • The issue here is that most patent holders do not bother to pursue royalties in the Chinese market which is why this issue has only come to a head now.
  • When it comes to pursuing royalties, an objective assessment is made as to whether it is worth the effort and expense.
  • If unsuccessful, a patent claim can be very expensive for the plaintiff as the amount of research and the cost of legal services that are required are both very high.
  • As a result, it is extremely difficult to make a return on pursuing patent infringement in China which is why no one bothers with it.
  • However, the situation outside of China is very different and Xiaomi is now likely to end up having to pay SEP royalties on all of the products that it ships overseas.
  • Xiaomi has sought an open dialog with Ericsson regarding its liability and I suspect that it will end up paying a royalty of around 1% of the wholesale price of its devices to Ericsson.
  • This will open a floodgate and I suspect that Nokia, Google, Interdigital, Rockstar and some of the other industry consortia will also jump on the bandwagon.
  • The end result is likely to be an increase in costs of 5-7% for Xiaomi on all products that ship outside of China.
  • The one exception is Qualcomm.
  • Qualcomm is an early investor in Xiaomi and I suspect that Xiaomi is already paying royalties to Qualcomm and will continue to do so on its products outside of China.
  • This will have been already factored into Xiaomi’s planning and so does not represent an incremental negative for the company.
  • This will meaningfully compound Xiaomi’s difficulties when it comes to profitably selling devices outside of its home market.
  • This is because users in China buy the for their excellent Chinese-oriented media consumption services that the company offers in its devices.
  • Outside of China, these do not matter meaning that Xiaomi will be just another Android manufacturer. (see here).
  • Consequently, outside China Xiaomi is shipping a commodity meaning that’s it margins will be 2-4% in the best instance.
  • This will particularly be the case as Xiaomi specialises in offering phones with great specifications for a very good price.
  • The cost base is now likely to rise by 5-7% over the next few years which will pressure its margins even further.
  • While, I think that Xiaomi has a shot in its home market, its outlook overseas remains very bleak. 

 

Samsung vs. Apple – Hint of sanity

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The glacial creep towards a settlement continues.

  • Samsung and Apple have agreed to drop all litigation against each other that is taking place outside the US.
  • No licencing terms have been signed and both companies will now focus their efforts on pursuing their fight in the US.
  • This is similar to the agreement between Apple and Google in May 2014 where both companies dropped their suits and walked away. (see here).
  • It is known as a second class settlement and does not prevent hostilities from being re-opened should either wish to do so.
  • However, I think that this is very unlikely and believe that both companies are beginning to realise the futility and crippling expense of this long running and increasingly pointless war.
  • Events have shown that Samsung does infringe some of Apple’s IP but they have also shown that it is very difficult to force Samsung to pay for it.
  • Furthermore, the value of Apple’s portfolio took a massive blow when it was awarded just 5.4% of what it asked for at trial (see here).
  • Combine this with the legislative agenda moving against the use of standard essential patents in US and EU, and it is clear that the whole landscape is becoming very difficult for both sides.
  • For both of these companies, the US is their biggest market in terms of revenues and I suspect that they will use the outcome from this market for a global agreement.
  • This gives me hope that there is some pragmatism and rationality growing in both camps as this war has already cost both sides more than either is ever likely to earn or pay in royalties.
  • Apple’s approach has historically been more emotional in that it did not want others to use its innovations and sought to keep them from the market.
  • While well within its rights, it has proven to be impractical and I am hopeful that Apple is beginning to realise that it will have to do a deal of some description with Samsung.
  • This deal is likely to involve a net payment by Samsung to Apple but the ending of crippling legal fees is likely to mean a profits increase at Samsung.
  • I remain optimistic that a deal will be reached this year.
  • This issue is increasingly irrelevant for Samsung which is struggling with the profitability and growth of its smartphone business.
  • Now that it ceded control of the ecosystem to Google there is nothing to prevent margins falling to 11% over the next 3 to 4 years. (see here)
  • The result is a 25% decline in group EBIT and a share price very likely to underperform.

Apple & Google – Admission of weakness.

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An Apple / Samsung settlement is becoming more likely.

  • Apple and Google have dropped all of their outstanding litigation and will work together to reform patent law.
  • This is not nearly as exciting as it sounds because:
    • First. The agreement was reached without the signing of a cross licence making this “second class settlement”.
    • Second: The suits were dropped “without prejudice” which means that they could refile should they wish to do so.
  • A second class settlement is one where the companies simply drop their suits and walk away.
  • Effectively what has happened is that Apple and Google have looked at their outstanding litigation and both decided that it is not worth continuing to fight it out.
  • This is a pretty clear sign that the patent portfolios of both companies are weak and this has direct and positive implications for smartphone makers who have no real IPR of their own.
  • They will now be less fearful of litigation.
  • I suspect that the transfer of Motorola to Lenovo has also been a factor in Apple’s decision as the real “culprit” in Apple’s mind is the Android software which is not written by Motorola.
  • Now that Motorola will be owned by Lenovo, Apple once again is stuck as Google now has no tangible Android products against which it can assert its IP.
  • It is clear that Steve Jobs strategy to destroy Android through patent litigation has failed but at the same time so has Google’s strategy to protect Android makers from litigation.
  • This settlement has no direct implications for the battle between Apple and Samsung other than it is another sign that Apple’s patent portfolio is much weaker than Apple would have us believe.
  • However, it increases my hopes further that Apple and Samsung will come to a cross licence before the end of this year.
  • This is the second event that I believe will make Apple more willing to negotiate with Samsung on more reasonable terms.
  • The first was the very low damages awarded to Apple in its recent victory over Samsung (see here)
  • I would also expect Google to drop is lawsuits against Microsoft as the incoming Nokia handset business already has a licence for the Motorola patents that Google acquired.

Take home message

  • This second degree peace is further indication that the patent wars are starting to wind down.
  • The White House has hit rightly destroyed the value of injunctions for standard essential patents (see here) and now the court system has set a precedent for awarding low royalties.
  • I believe that this will make the technology industry less litigious, more open to negotiations and most importantly of all less greedy.

Apple vs Samsung – Erratum and update.

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Adjusting view for error regarding wilful infringement.

  • Yesterday’s note (see here) was incorrect in its statement that no finding of wilful infringement had been found against Samsung.
  • In fact, Samsung has been found to wilfully infringe the ‘721’ patent which claims rights over the slide to unlock feature on smartphones.
  • This means that Samsung was aware that this feature was patented and deliberately infringed the patent by copying the feature.
  • Therefore, RFM’s view that Apple’s post trial comments were without merit was incorrect and is withdrawn.
  • However, the relevance of this wilful infringement is to be questioned given how the jury calculated the damages associated with this particular infringement.
  • Wilful infringement is a serious infraction and is often punished by tripling the damages awarded.
  • Hence, I am assuming that this has been taken into account when calculating the damages awarded to Apple.
  • For the wilful infringement of the ‘721’ patent the jury awarded Apple $2.99m amounting to just 2.5% of the total award which in was already just 5.4% of what Apple had originally asked for.
  • This strongly suggests that:
    • The jury did not consider this patent to be of significant importance as without wilful infringement damages could have been as low as $1m.
    • The wilful infringement did not do Apple’s business any meaningful damage.
  • Hence, I suspect that this finding of wilful infringement will not affect Samsung in any material way although it could be used against the company in future lawsuits.
  • Hence, my view that this is nothing short of a pyrrhic victory for Apple and that the real winners are Google and the Android makers remains unchanged.
  • Furthermore, I still believe that this result will make Apple more willing to negotiate and that a deal could follow in reasonably sort order.