I have devoted a chunk of this roundup to patent wars in
consideration of President Obama's landmark veto of the ITC
decision against Apple last week.
Patents and Patent Infringements
Waging patent wars has become commonplace in the consumer device
market, but wins or losses are becoming less significant by the
day. The International Trade Commission (ITC) has been the go-to
body for device makers because it was vested with the power to
ban the import of infringing devices.
For a consumer device manufacturer, getting the product into
consumers' hands is of utmost importance because, by their very
nature, the devices are not all that different. For instance, a
smartphone allows you to take calls, listen to music, watch
videos, take pictures, check your
) account, etc. Irrespective of the make or model, every
smartphone allows you to do these things.
If you cannot stop a device from entering the market, anything
else you do will have a limited impact because there will always
be some demand for any device of at least a moderate standard.
And by the time the legal system deals with the issue, the ruling
could be of little consequence because all the parties have moved
on to the next generation product. So the patent goes essentially
A patent infringement is not the same as stealing because no one
can say with certainty that he/she was the only one that had a
given idea at the time. It's more about being the first to stake
a claim. But not all technology is the same. Some technology is
built up on existing basic technology and it makes sense for all
concerned if additional resources are not wasted on re-inventing
the wheel. This is what gave rise to the standard-essential
technologies that were developed by Samsung, Motorola,
) and several others. If any company's technology becomes part of
the standard, it has a great advantage because it can collect
licensing fees every time any device is sold, which is why it is
allowed to charge only reasonable and non-discriminatory rates
for these patents.
This boils down all competition to the look, feel and user
experience of the devices, or in other words, the "cool" factor.
Manufacturers continue to increase the cool factor and they will
convince you that it's not "what" you're doing that's important,
but "how". So naturally, the patent office is working overtime
ensuring that companies get rewarded for the shape of a phone,
the shape of ear phones, the ability to zoom pictures, the
ability to cut, paste and draw parts of a picture on your phone,
the ability to take a photograph a miniscule of a second faster
than the competition, and so forth. Consumers no doubt gain a lot
from this innovation, but let's see what it means to the
The most famous tussle is between
) and Samsung, the world's leading smartphone makers. Apple's
iPhone used to be the most-used smartphone for a long time, and
for a long time it was Apple versus Everyone Else. Samsung, which
still uses the Android OS developed by
), has been growing faster than everyone else and just recently
moved past Apple in both units and profits (market share data is
hard to analyze since only Apple breaks out exact numbers).
Apple has scored more wins than losses versus Samsung, but has
failed to stop this growth. In fact, indirectly, Apple has
spurred innovation at Samsung by taking each case to court/the
ITC. Every time Apple did this, Samsung came back with something
different that it claimed did not infringe on Apple's patents.
The sheer volume and variety of Samsung phones is mesmerizing
users, which is the reason for Apple's shrinking market share. So
it's not surprising that Apple shares lost more than they gained
last week as President Obama's landmark veto of the ITC decision
was overridden by fresh reports of Apple continuing to lose
Google acquired Motorola because of its patent-load. But it is
not winning in court much because Motorola's patents are largely
standard-essential, so they can't be infringed and have to be
licensed to competitors. A federal judge in Chicago ruled that
Apple devices couldn't be blocked for infringing
standard-essential patents and a federal judge in Seattle ruled
similarly in its case against
On the other hand, non-essential patents can be enforced.
Microsoft secured a ban on Motorola phones for its patent
allowing synchronization of calendars between a phone and a
computer that Google says is based on its own synchronization
technology. Microsoft has even sued customs authorities for
allowing entry to Motorola phones that Google says do not
infringe Microsoft patents. Separately, an appeals court
overturned an ITC ruling dismissing Apple's case against Motorola
over multi-touch technology, saying that some of Apple's
arguments had merit.
So Where Does the MotoX Fit In?
Google created a lot of hype and publicity all over the world for
its MotoX phone, but when the phone launched, it was surprisingly
non-exceptional. It was a good first-attempt phone that some
critics ranked just slightly below the iPhone and HTC One. But
the promos were clearly saying "made in the U.S.A" in a cool,
unobtrusive way. Google also didn't launch the phone anywhere in
the world except the U.S., although it ran promos all over the
If we link this to its patent trouble with Microsoft, it
appears that the ITC ban on imported Motorola phones can't be
extended to the MotoX, since it is not being imported. The
Federal Circuit, which rules on patent cases, heard Microsoft and
Google on the ITC case this week, but no one really knows when
they will have a decision. Microsoft has leverage against Google
on this one, but if the companies settle soon, which looks likely
now, the MotoX could be rolled out much faster and could reach
international customers as well.
Making the Case for Microsoft
Sentiment on Microsoft shares appears to have bottomed, since a
1% gain in the Windows Phone market share (IDC report) sent
Microsoft shares up 1.6%. And this was despite the fact that
Surface Pro prices were slashed. On the following day, an
Evercore analyst raised his rating on Microsoft shares to
Overweight based on its stable enterprise business and the
chances of a dividend increase, which sent the shares up another
The analyst also expects Microsoft's analyst day (to be held
next month) to serve as a catalyst driving up share prices
(Microsoft did not have an analyst day last year). The company
has recently seen some pressure from activist investors that
could play a role in expense control. Activist investors can be
good for a company -
) Daniel Loeb really stirred things up at Yahoo and
) Icahn continues to do so at Dell.
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Company Last Week Last
) report this week. Cisco's enterprise business has been picking
up and its unified computing system appears to be working magic.
But trouble in China (related to Snowden's exposure), stiff
competition from Huawei in China and the looming threat of
software defined networking are reasons for caution on the
shares. Learn more about these companies going into their
earnings announcements in our "Earnings Preview" section.