What the Apple v. HTC suit is REALLY all about

ORIGINALLY POSTED MARCH 3, 2010

Well, it’s just about 2 am here and I just got back from a business trip a few hours ago… I SHOULD be going to sleep, but instead I’m doin’ the ole’ blog thing!

On the flight back I saw the news that Apple has opened litigation against HTC claiming infringement on 20 patents (as per Android Central’s reporting).  This of course led to almost an hours’ worth of debate between myself and my boss on the drive home.

In short, this seems to me like the absolute stupidest move Apple could ever make because it puts them in serious jeopardy.

And plus, it’s in no way, shape or form about HTC or what they may or may not be infringing!  No, this is a proxy war between two (and possibly three) very big dogs.  And it’s a war I don’t see any way Apple can win.

To be clear, I don’t for a second believe Apple cares one bit about HTC directly and what patent infringement might be going on with them.  This is about one thing and one thing only: the threat that Android and Google pose to Apple’s place in the smartphone market.

Android has been gaining ground steadily since its release, which is frightening to Apple’s “we must thoroughly dominate the market” mentality.  They won’t be content with 70% or 80% or even 90% of the market.  No, it’s all-or-nothing for King Jobs and his minions.  The Nexus One, in particular, is a scary proposition for Apple because aside from being a pretty damned good smartphone by all accounts, it comes unlocked, which means it has the potential to penetrate the market much more through flexibility and availability on multiple networks alone.

Google is all but synonymous with cloud-based living at this point.  How many people rely on Gmail and Google Calendar and even Google Docs these days?  More and more, people are becoming comfortable with living their digital lives in the cloud, and Google has for a while now been positioning itself as the gatekeeper to that world.  Apple’s Mobile Me is in direct competition with that.

Now, tie smartphones to data in the cloud, which is what all the big players are doing now, and you see where Apple looks over at Google and says “woah, hey, THAT’S the primary threat”.  Not hard to come to that conclusion at all.

So, how does Apple deal with it?  Well, how they SHOULD deal with it is simply to continue to make good products.  They should compete on merit because, regardless of how you feel about them, you have to admit that they CAN compete on merit!  That’s what most normal people and companies would do… but then, most people are not, and most companies are not led by over-the-edge egomaniacal control freaks.  Apple is, so the rules aren’t the same.

Back to smartphones for a moment… who makes Googles’ Nexus One?  Well, not Google… no, it’s our friends over at HTC.

And that exclamation of “AH-HA!” you just heard is Steve Jobs and his room full of lawyers realizing a strategy.

Apple doesn’t want to attack Google directly, really in any way, because that’s one helluva dangerous opponent.  Apple has more cash reserves at the moment, but Google isn’t exactly hurting in that regard by any stretch, and their market capitalization is pretty similar at the moment.  Google is certain to have a real nice patent portfolio by now with which to fend off Apple if they had to.  There’s probably some intangible assets they could deploy in such a battle too.  Whoever ultimately won, Apple would be wounded in that confrontation pretty badly.

What they CAN do however is attack a lesser opponent, someone Google depends on.  HTC fits the bill nicely.  How much of a dent would it be in Googles’ plans if HTC went bye-bye?  A pretty big one I’d say.  Google wants the Nexus One to succeed because that’s the business model they want to pursue.  They ultimately do want to own the hardware and the OS, just like Apple, and the Nexus One is the first iteration of that.  Sure, they could find another partner.  Motorola perhaps.  But HTC has a strong track record in this space and they are in many ways the best option.  Besides, if Google went to Motorola instead I’d expect they’d be served with a legal filing from Apple a short time later too.

And on the surface, it’s not a bad strategy.  Unless HTC has some strong patents to fight back with… and they’d have to be strong enough to be able to get injunctive relief against Apple almost immediately otherwise Apple could just litigate them into the ground over a prolonged period of time… then Apple stands a real good chance of winning that battle.

Here’s where it can get dangerous for Apple though…

Google isn’t likely to jump into it directly just like Apple wouldn’t attack them directly.  This is very much the United States and the Soviet Union fighting each other via Vietnam… neither side wants the fallout that would result from a direct confrontation, but you can be sure Google has a HUGE stake in this game and WILL be involved.  One way they could do it would be to hand HTC a bunch of patents to use against Apple with the understanding that Google has a perpetual, free license to those patents.  They could even decide to buy HTC outright, assuming they had the money.  I don’t think there’s any real chance of that though… what would be the upside to taking on the litigation themselves?

There’s a much larger 800-pound gorilla in the room though, and this is the part that Apple may not be counting on enough.

Microsoft.

I think there’s a real scenario where Google and Microsoft team up against Apple.  Why, you ask?  Do you know who makes a lot of Windows Mobile devices?  Yep, HTC again.  So far I’ve seen no hints that Microsoft is looking to produce their own hardware with Windows Mobile 7, so it’s  not at all far-fetched that they’ll be working with HTC again as a premier partner.  They won’t want to see HTC be destroyed either.

They of course don’t want to see Apple have the smartphone market locked up so tight that Windows Mobile 7 has zero chance right from the start either, and since Android is really the only viable competitor right now (as much as I love Palm’s webOS, to be fair, Android has more momentum as a competitor to Apple right now) they can’t afford for Google to be knocked down TOO far either.  Android doing well, at least for a little while longer, in a bizarre sort of way is actually good for Microsoft.

Microsoft getting into the fray, whether publicly or privately (and I strongly suspect we might never know if they do get involved) is a really bad thing for Apple because Microsoft has a MASSIVE patent portfolio.  And they’ve got patents on some pretty basic stuff that, let’s face it, EVERYONE is infringing on (and yes, you can make that same argument for Apple, IBM and a lot of others).  Microsoft PLUS Google though… that’s a battle almost no one could win (IBM could maybe pull it off, but that’s probably about it).

To put it in simpler terms: Apple runs the risk here of hitting not one but TWO hornets’ nests and then standing there laughing at them.  If Microsoft and Google decide to play the old “the enemy of my enemy is my friend” game then Apple is in for a world of hurt.

Then, of course, you have HTC, stuck in the middle, possibly having their value reduced massively…which is another angle to this: Apple could, in fact, be looking to purchase HTC.  I admit I just don’t see any reason they’d want to, but assuming they do, filing patent infringement cases can be a good way to reduce the value of a takeover target enough to make purchasing it far more attractive.  I pretty much discount this scenario though as it doesn’t make much sense to me in this case.  It’s not at all an unheard of tactic in business to be sure, but in this case it just doesn’t fit in my mind.

No, I think it comes down to Apple wanting to hurt Google without going after them directly.  So, we get to witness a fascinating little proxy war.  Apples’ boardroom calculus (or, Steve Jobs’ insane inner voice, depending on what you believe) says this will work… and it could, if Google stays out of it.  I don’t see how they can though… I don’t think Google can afford to let HTC fail; one way or another they’ve GOT to get involved.  The question then becomes if Microsoft feels threatened enough to get into it too, which is a huge gamble for Apple to take because while they can almost certainly beat HTC, and MIGHT be able to beat Google alone, there’s NO WAY they come out on top against both Google and Microsoft (plus HTC don’t forget).

Patent wars NEVER end well for anyone.  They’re a shitty, almost desperate tactic that frankly, only bullshit companies pull.  And they ESPECIALLY never end well for the initiating company if multiple other companies gang together in common cause against them.  Only time will tell of course, but Apple quite possibly just sealed their own fate here.  If they miscalculated, if Google and Microsoft both get involved even if only under the table, that’s really bad news for Apple no matter how you slice it.

And that leads to the question of who’s driving this whole thing in the first place?  Steve Jobs is all but an absolute, infallible dictator at this point, so it’s completely reasonable to think he fell in the shower one morning and awoke an hour later with this plan in his head.  That wouldn’t surprise me.  Jobs has arguably almost ruined Apple twice, and he’s about due for a third try I’d say!  Maybe this is it.  Then again, maybe the entire executive committee got together and dreamed this up.  You know what, maybe Apple LEGITIMATELY feels like they’re in the right and that’s it!  That could be the case.  I don’t for ONE MICROSECOND think that’s it at all, but to be fair, it could be.

To conclude… ask yourself what the benefit of suing HTC is for Apple.  What do they stand to gain?  Do they need any added income from patent licensing fees?  No.  Is HTC any sort of direct threat to them?  No.  Is this really a matter of principal where they truly feel their IP is being infringed and they want to fight for their rights in that regard?  Could be, but I just can’t believe that.

What POSSIBLE reason is there for them to go after HTC at all?

There’s only one in my mind: Google.  (And maybe Microsoft to a lesser extent)

Patent infringement cases like this are the equivalent of the nuclear option.  Apple has clearly just pressed the button.  Let’s see who lobs ICBMs back their way and who has less scorched earth when all is said and done.  No matter if you agree or disagree with me I think we can totally agree this is going to be very interesting to watch!

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