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Summary:

HTC said it’s open to negotiating with Apple to settle a pitched patent fight between the two companies, but it’s unclear how willing Apple is to talk and how much HTC can extract from negotiations. My guess: Apple’s not in a cooperative mood.

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HTC said it’s open to negotiating with Apple to settle a pitched patent fight between the two companies, but it’s unclear how willing Apple is to talk and how much HTC can extract from negotiations. HTC’s chief financial officer Winston Yung told Bloomberg that the Taiwanese company is open to discussing a deal that would resolve the legal issues that have embroiled the two manufacturers.

On July 15 Apple won an initial victory at the U.S. International Trade Commission when a judge ruled that HTC had infringed on two of Apple’s patents that appear to be related to HTC’s use of the Android operating system. A full commission will decide in December whether to confirm the ruling and potentially ban the sale of HTC products in the U.S. On July 1, the ITC also ruled in favor of S3 Graphics, saying that Apple infringed on its patents. HTC, less than a week later, bought S3 in a bid to give it more patent leverage.

“We are open to all sorts of solutions, as long as the solution and the terms are fair and reasonable,” Yung said. “On and off we’ve had discussions with Apple, even before the initial determination (against HTC) came out.”

Now settlements and cross-licensing deals are usually the norm in patent fights and it’s not unreasonable for HTC to assume that it can win some kind of deal from Apple. But I think it’s presumptuous that Apple is interested in following the normal rules of protocol in this case. Unlike Microsoft, which seems more than happy to force Android licensees to pay over royalties to use its patents, Apple seems more intent on stopping the use of its IP. Only in situations where it absolutely has to, such as the recent settlement with Nokia , will it strike a deal. And that was against a company with a huge trove of patents.

With HTC’s recent S3 pick-up, it will have more leverage against Apple, but it still doesn’t have a strong patent position. And it’s unclear what Apple will do. It could try to work around S3’s patents or buy chips from manufacturers that already have a license from S3. Or as patent expert Florian Mueller points out, perhaps Apple just offers a partial license that doesn’t completely cover HTC:

I could imagine a situation in which Apple might agree on a partial cross-license that would grant Apple access to all of HTC’s and S3’s patents while HTC would get access to only some of Apple’s patents: maybe just enough so that HTC can at least continue to sell Android-based products of some kind, but those products could be limited and there might be substantial degradations of the user experience.

If Apple comes to the negotiating table, that to me sounds like the most likely outcome. Apple is not interested in money at this point, and it’s only affected by patent strength. It has a lot to protect in the iPhone and iPad, which are now its dominant businesses, and so it will do whatever it takes to protect its edge. The fact that it plunked down $2.6 billion for the Nortel patents shows that it’s serious about bulking up even more on that front and you have to wonder what other patents it can toss into the HTC fight if it wants more leverage. It already filed a second complaint against HTC with the ITC and who knows, it could pile on more if it looks closely enough.

“We want people to invent their own stuff,” said Apple COO Tim Cook, during last week’s quarterly earnings call. “We’re going to make sure we defend our portfolio from everyone.”

A complete cross-licensing deal to end a patent fight is a last resort for Apple, I imagine. What Apple wants to do is either stop these Android devices that infringe on its IP from even hitting the market or force them to undergo crippling work arounds that degrade the experience. It’s not looking for a payout. So unless HTC can bring more heat to bear with the S3 patents and Apple can’t figure a way around them, I don’t see Apple making a big effort to talk at this point. Yes, they’ve chatted before. And they may talk some more. But the question is how cooperative will Apple be. My guess: not very.

Image courtesy of Flickr user Pfau

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  1. “Fair and reasonable” terms are only an option if the patent holder wants to release their patents under such terms. For example, Nokia, by getting their patents inserted into the standards, have to make their patents available.

    Just because Apple’s techniques that were introduced with the appearance of the the original iPhone in 2007 have become the norm, that doesn’t make them standards as such.

    This smacks of PR hype on HTC’s part. They can call on sympathy from the open source crowd in a few months time by saying “Well, we offered to settle with Apple on reasonable terms, but the nasty patent bully on the other hand, wouldn’t settle.”

    Meanwhile Apple just keep doing what they do.

  2. It is obvious to me that like RIM and Nokia, Google is just as guilty in confidence and is short sighted.
    The first two companies mentioned here, were at the peak and allowed themselves to drop due to slow reaction to an eminent reality.
    Google has done the same. Now people don’t see it but the reality is just infront of our noses. Once HTC falls with its Android strategy – Android will never look the way it was before. I grant you that! With HTC moving out of Android or paying a lot for getting on that wagon, Google will need to pay for their own vanity crime.
    Its striking how companies just misread the signs – being sure they have a lot more time to resolved the issues than they really do. In Google’s case, they must help HTC immediately or pay the price.

  3. Remember Windows 1.0? Apple stole from the best, made refinements, and lost the market. Do you think that this is not on Steve’s mind?

    I am the last person to be blindly supporting either Steve or Apple, but the innovations are pretty solid, and one can’t hold it against Apple to defend their IP in the face of rather dubious copying. Many of the things — gestures — should not be patentable, but who’s fault is that? The market makes it necessary to patent everything possible.

    Make something worth incorporating into the iPhone, and I am sure the position will change.

    1. What about Windows 1.0?

      http://en.wikipedia.org/wiki/Windows_1.0

      “Windows 1.0 is a 16-bit graphical operating environment that was released on 20 November 1985[1]. It was Microsoft’s first attempt to implement a multi-tasking graphical user interface-based operating environment on the PC platform.”

      The Mac, as you know, debuted in 1984, the Lisa before that. And Windows 1.0 looked NOTHING like the Mac (you couldn’t even overlap or drag around the so-called “windows” which were actually known as “tiles”)

      For someone who gives himself so much credit for not being a blind follower, maybe you should open your eyes a bit and use an example that actually support, instead of undermines the point you are trying to make.

  4. It is easy to understand HTC’s point of view when the patents they violate date back to 1996.

    Apple’s actions is a an obvious attempt to stop competitors that are rapidly surpassing their products in value and functionality.

    More than anything, with the pace technologoy is going, this shows that there needs to be major reform in the U.S. Patent System.

    http://allthingsd.com/20110715/itc-rules-htc-violated-two-apple-patents/?refcat=news

  5. Google’s profession of love for a competitive arena dims against its history of firebombing areas it wants to compete in, with free and open software, eliminating the possibility of anyone building capital to compete with. And to what purpose? Apple sells its products to customers; Google sells its customers to products.

  6. It’s a sad little dream of Apple’s that the ITC will really sign off on handing them a monopoly on the market over companies that were making smart phones before Apple was making music players.

    Their strategy of suing and suing again seems to be working out rather well, though. If you can’t beat them, sue them until they run out of money.

  7. I keep seeing speculation that Apple will refuse to license out their patents and, instead, hopes to use them as leverage to kill off the competition. I honestly have a hard time buying that. My instinct is that they really are primarily seeking to profit from their patents via royalties or cross-licensing deals.

    The reason why I think this is the case is that I honestly can’t think of any prominent examples where one tech company has successfully managed to block the sale of another company’s products due to patent violatiosn. The only ones I can think of that came close were the changes that Microsoft had to make to Word due to the i4i patents and to ActiveX due to the Eolas patents. In both cases, the patents were over sufficiently small issues that work-arounds were easily feasible. Even with those relatively minor cases, the attention was enough to spark some talk of a need for patent reform.

    I think if Apple really were successful at getting HTC (or any other major company) barred from selling Android phones, the result would be quick and overwhelming pressure for patent reform. Pretty much all of the major tech companies have their fair share of revenue coming from probably questionable patents and I doubt any company, including Apple, would really want to see that cut off.

    1. I guess you don’t recall the Pineapple computer. US Customs was smashing those Apple clones at the docks.

      1. The Pineapple case was copyright infringement, not patent.

  8. Apple took all the risk producing a device everybody said would fail. When it succeeded, Google’s gang of four leaped in to scoop up the rewards, copying Apple’s device. And Apple is supposed to allow it? Sorry, no sale.

  9. Agreed, in part. In patent cases, even when very near the end of a certain judgment, the judges press ever harder for settlement. Over the last few days, some have argued that HTC’s statements, while partly helpful to appear conciliatory and deferential in the courtroom, have shown weakness and show poor judgment by their leadership. But I disagree: it pushes Apple to accept settlement rather than prolonged fighting.

    Now I DO think Apple would rather prevent competitors from using key, defining elements of their products than directly profit from licensing, but the 2 patents in question are so fundamental and Apple is fully aware that judges push for settlements, that they are aware of and looking toward that endgame. But at heart, Apple is trying to tell competitors to stay away from trying to outdo what it does best… If it can both scare competitors off its lawn a bit AND profit from licensing while squeezing competitor’s margins — well, it will settle for that.

    1. This was supposed to be in reply to JeffGr above.

  10. John Kneeland Tuesday, July 26, 2011

    getting HTC to sign license fees doesn’t just make Apple richer; it also makes HTC poorer. Adding a tax of this sort to HTC Android phones makes them more expensive to produce, which either makes Android phones more expensive (and less desirable) or reduces HTC’s profits, which means less R&D.

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