Weekly Mobile Notes: Apple’s Patent Win
The past week saw a historic ruling passed in favor of Apple that could shape the future of the smartphone industry in a big way. Last Friday, on August the 24th, a U.S. District Court jury awarded Apple (NASDAQ:AAPL) over $1.05 billion in damages after finding Samsung (PINK:SSNLF) guilty of infringing on six of Apple’s ‘design’ patents. The ruling was ‘historic’ not because of the high dollar amount, which in itself is not particularly significant to either company considering their huge sizes individually, but because of the ramifications that the ruling has on future innovations in the mobile industry. Also, with Apple making good on Steve Jobs’ claims of declaring a thermonuclear war on Google’s (NASDAQ:GOOG) Android, existing hardware partners may start supporting the ecosystems of rivals such as Microsoft (NASDAQ:MSFT) and Research In Motion (NASDA:RIMM) in order to diversify away from Android.
Let’s take a look at how the patent win affects the individual players.
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Apple could use this as a precedent to press further charges against Samsung as well as other Google’s Android partners such as Motorola and HTC. Apple has already filed an injunction to temporarily ban the sale of some of the patent-infringing Samsung devices in the U.S. If Apple succeeds in doing so, Samsung may see only a limited near-term impact considering that these devices are fairly old now and are nearing their end-of-product-cycle. But it could set a dangerous precedent for a similar case that is scheduled for next year that concerns some of Samsung’s newer models such as the highly successful Galaxy S III. (see Apple’s Patent Win Could Start A Fundamental Shift In Industry Innovation)
A successful ban on Samsung’s products on U.S. soil could lead to Apple pushing for similar rulings in other geographies as well. With Samsung gaining a lot of smartphone market share and gradually growing its presence in the higher end of the market as well, this ruling couldn’t have come at a better time for Apple. (see Apple Falls Behind Samsung In Smartphone Sales But iPhone 5 Is Near)
This ruling also increases the value of ‘design patents’ as opposed to the historically important ‘utility patents. Apple, being at the forefront of the mobile device revolution, stands to benefit immensely from such a shift as the ruling has given its near-exclusive control over some of the features that are now considered essential for a smartphone experience. Other competitors will now have to design effective workarounds to avoid patent litigations and may be relegated to playing catch-up with Apple in the near-term. This would make Apple’s job at defending its market position a lot easier, giving it sustained negotiating power with suppliers and helping it maintain its high profit margins.
See our complete analysis for Apple stock | Samsung here
The ruling has given Apple enough cannon fodder to launch an all-out assault on not only Android’s most important partner, Samsung, but also other handset partners such as Motorola and HTC. It could severely weaken Google’s plans of using Android as a means to widen the reach of its search and other services if handset partners start focusing on developing competing ecosystems and try to diversify away from Android.
In that sense, the timing of this judgement couldn’t have been worse for Android. Microsoft is planning a big launch of its Windows 8 platform, with the simultaneous release of multiple PCs, tablets and smartphones by partners this year, including the much anticipated Nokia’s Lumia WP8 phone. Even RIM is planning to launch its BB10 OS soon after in Q1 2013. While RIM has so far used the BlackBerry OS for its own phones alone, it is considering licensing the OS out to other hardware partners as well in order to drive the ecosystem development. With Apple going after Android and Google possibly planning to launch its own phones through the Motorola acquisition, Samsung and other Android partners may be pushed into diverting their resources to focus on rival platforms of Microsoft and RIM.
In a recent rumor, Google’s CEO Larry Page seems to be in talks with Tim Cook, Apple’s CEO, to sort out the patent disputes and protect its partners from further lawsuits. 
While Microsoft does stand to benefit in a huge way if this happens, considering that it looks like it finally has a chance in the mobile device market with the new revamped WP8 OS, Nokia’s bet on Microsoft also gets a boost. The Lumia smartphones may have found favor with many technology enthusiasts but the well-entrenched ecosystems of Apple and Google have left little room to grow for Nokia. Carrier partnerships have not been hard to come by (Nokia has already signed on AT&T and T-Mobile in the U.S., China Telecom in China and is looking to add Verizon soon), but getting people to warm up to the Windows ecosystem has proved tougher with little support from other handset makers.
More support from partners such as Samsung and HTC, driven by the Apple verdict, could see Windows Phones reach more customers and fuel developers’ interest in the platform. A better mobile ecosystem of apps will help drive the sales of Windows Phones in general and the Lumia in particular. (see Apple Patent Tide Could Lift Microsoft, Nokia and Maybe Even RIM)
Understand How a Company’s Products Impact its Stock Price at TrefisNotes:
- Exclusive: Google, Apple CEOs in secret patent talks, Reuters, August 30th, 2012 [↩]