Apple's futile patent wars

CEO Tim Cook is wasting shareholders' money fighting the popular Android mobile platform made by Google.

By Jonathan Berr Dec 28, 2011 1:15PM
Before he died, Apple (AAPL) co-founder Steve Jobs vowed to throttle the Android operating system. But keeping that fight going is proving costly -- and will probably ultimately be futile.

At least, that's the conclusion of a Bloomberg News analysis of the "thermonuclear" patent war that the Cupertino, Calif. company is waging against the three largest Android users: Samsung Electronics, HTC and Motorola Mobility (MMI).

Apple's situation is unique, since most companies try to avoid expensive and time-consuming patent litigation. Often, companies accused of infringement are able to figure ways to avoid using the patented technology. And, as Apple is learning, victory is far from certain.

For instance, Apple suffered a Nov. 30 setback when an Australian judge overturned an earlier ban on the sale of the Galaxy tablet computer in the country. The U.S. International Trade Commission dealt Apple another blow earlier this month, finding merit in only one of the 10 infringement complaints it made against HTC. The patent covered technology that lets users perform tasks such as sending email with a single stroke. Even though this was an Apple victory, Taiwanese company was ecstatic.

“Since the infringing elements identified by the ITC involve and impact only a very minimal part of the user interface, we will remove it as soon as possible and sell non-infringing products," HTC said in a statement.

One of the numerous patent experts quoted by Bloomberg, Marshall Phelps, the former head of intellectual property for IBM (IBM) and Microsoft (MSFT), argues that no company has been able to keep a competitor out of the marketplace using patents. Apple -- which has more cash reserves than the U.S. government -- is no exception. It can't fight the Android platform forever, and the numbers indicate that Apple is already losing the battle for the hearts and minds of consumers.

Speaking of deep pockets, Android is made by Google (GOOG) and licensed for free to smartphone makers.

According to data from market researcher Gartner, Android's market share rose to 52.5% in the third quarter from 25.3% a year earlier. Apple's mobile operating system, iOS, saw its share drop to 15% from 16.6% in part because many people were waiting to buy the new Apple 4S iPhone. 

Analysts from JPMorgan expect Apple to sell 28 million of the new smartphones in the December quarter. Though that figure is impressive, it likely wouldn't be enough to knock Android from its leadership position. Gartner estimates that more than 60 million Android-powered units were sold in the third quarter compared with 17.3 million using Apple's iOS.

Apple CEO Tim Cook, who succeeded Jobs, has little incentive to seek peace with his enemies.  In addition to sitting on $81 billion in cash and investments, Apple's stock price is up about 26% this year, indicating that investors are not losing sleep over the patent battles. Nonetheless, making peace with Android could enable Apple to reap billions in license fees, not to mention the hefty legal fees that are part of intellectual property litigation. 

There are many ways that Apple can end its crusade against Android, including out-of-court settlements and marketing alliances. All it takes is the motivation to do it, which for now Apple does not seem to have. 

--Jonathan Berr doesn't own any shares of the listed companies though he recently bought an Apple iPad 2.


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