Apple and HTC have recently announced the settlement of their respective smart phone patent disputes. They have agreed a 10 year licence agreement that covers current and future patents of both companies.
This agreement seems at odds with the aggressive stance that Apple is taking with other Android smart phone manufacturers, such as Samsung, and with Google themselves. Does this agreement with HTC indicate a softening of Apple’s stance versus Android, or could there be other reasons why Apple may have taken this approach with HTC?
Apple’s and HTC’s public statements relating to their settlement do not give any reasons for the settlement being agreed now. This is probably not surprising, but it is interesting to consider why Apple may have decided to settle with HTC, and whether this settlement with HTC could have any impact on Apple’s disputes with other Android device manufacturers, or suggest that the approach that Apple will take with respect to other Android device manufacturers could change.
Why Have Apple Settled With HTC?
At its simplest, this may simply be because Apple do not view HTC as a sufficiently significant competitor that they need to maintain an aggressive patent stance against them. HTC are not as successful as Samsung, for example, in the smart phone market, and have been losing market share and posting disappointing financial results recently.
HTC have also announced that they will be manufacturing Windows 8 phones in the future. Windows 8 is clearly distinguished from iOS, and so if HTC are going to be focussing on Windows 8, rather than Android, in the future, that could further lessen HTC’s significance to Apple.
Apple may have simply decided therefore that they would prefer to concentrate their resources on their patent disputes with their more significant competitors, such as Samsung and Google, and therefore have accepted the opportunity to settle their patent dispute with HTC.
The settlement could also simply be a result of HTC being willing to pay the royalty levels that Apple were requesting, and correspondingly demanding royalty rates on their own patents that Apple considered acceptable. Other Android device manufacturers, such as Samsung, for example, have proposed in their patent disputes with Apple, patent valuations and royalty rates that differ significantly from Apple’s publicly indicated royalty rates and patent valuations. It may be that HTC are simply prepared to pay the royalty levels that Apple are requesting.
The Parties’ Patents
What about the parties’ patents? Could the relative strengths of the parties’ patent portfolios have influenced the agreement and the timing of the settlement?
The exact details of the settlement agreement are being kept confidential, but the information that is in the public domain indicates that the settlement agreement includes licences for current and future patents held by Apple and HTC (although this may only be for some but not all of the patents held by the parties).
While a list of the patents covered by the agreement between Apple and HTC is not publicly available, from the publicly available information relating to existing patent lawsuits between Apple and HTC and the other Android device manufacturers, it is possible to make educated guesses about the patents that might be involved and licensed.
Apple’s approach has been to try to enforce patents that relate to “softer” aspects of their mobile phones and other devices against Android, such as patents relating to the operation of the iOS user interface.
Apple has successfully enforced against HTC a patent that relates to allowing phone numbers and email addresses in documents such as emails to be activated by simply tapping them. Apple has also had some success against Android device manufacturers in relation to other iOS user-interface features, such as “slide-to-unlock” and the photo gallery and document scrolling arrangements of iOS. HTC has to date been able to defer decisions on these other Apple patents against it, but it may only have been a matter of time before HTC had to succumb to these Apple patents as well.
The Android manufacturers, including HTC’s, approach on the other hand has primarily been to try to enforce against Apple patents that have been declared to be essential to the mobile phone standards (such as the 3G standard) that all such devices must operate to. HTC have been asserting patents relevant to the 4G (LTE) standards against Apple.
As these patents have been declared to be essential to the relevant mobile phone standards, in many cases Apple will be unable to avoid infringement of the patents in question. However, to allow for this, such standards essential patents must be licensable on FRAND (Fair, Reasonable and Non-Discriminatory) terms. Thus, even if Apple cannot avoid these patents, HTC have to grant Apple a licence to them on FRAND terms.
Thus, on the face of it, the relative strengths and effects of the parties’ patent portfolios would suggest that Apple could hold the upper hand.
However, there may be a twist in HTC’s favour. HTC’s patent portfolio includes the patents of S3 Graphics (and the settlement with Apple includes patents of S3 Graphics). S3 Graphics specialises in computer graphics, and holds a number of patents relating, inter alia, to certain extensively used computer graphics techniques.
It may be that there are patents in S3 Graphics’ patent portfolio relating to the processing of a computer graphics (which is significant element of any smart phone) that allow HTC additional patent leverage over Apple, that Samsung and Google, for example may not have access to.
It may also be that Apple may not have had so much leverage over HTC from their own patent and design portfolio. HTC’s smart phones are generally less similar to the iPhone and iPad than some other Android devices. This could have the effect both that Apple consider HTC less of competitive threat and that Apple’s patent position against HTC was less strong than Apple’s patent position against other Android device manufacturers.
All of this could have made Apple more willing to reach an agreement with HTC than they are with other Android device manufacturers.
Apple’s Disputes with Other Android Device Manufacturers
Could Apple’s settlement with HTC affect their patent disputes with the other Android device manufacturers such as Samsung, and Google?
The fact that Apple have apparently been willing to license their patents to HTC is likely to be used by the other parties with which Apple is in dispute as evidence that Apple are willing to license their patents. Apple’s competitors may also try to use the HTC licence as evidence of the value that Apple place on their patents.
Indeed, Samsung have recently requested and been granted sight of the Apple-HTC settlement agreement in the ongoing patent litigation between Apple and Samsung in California. Samsung presumably hope that this will demonstrate to the Court that licences at a similar royalty rate should be sufficient to settle Samsung’s patent disputes with Apple (or at least that a licence would be sufficient compensation for Apple, thereby allowing Samsung to avoid an injunction).
This approach could, however, be a double‑edged sword for Samsung and Apple’s other competitors.
For example, if HTC have agreed very high royalty rates for Apple’s patents, then Apple may be happy to have the Courts accept that that is the going rate for their patents. Equally, it may be that HTC have only gained access to a more limited selection of Apple’s relevant patent portfolio, such that one or more of the patents in dispute with Samsung, for example, Apple have not licensed to HTC.
Apple may argue therefore that all that is hindering resolution of its patent litigation with Samsung is Samsung’s unwillingness to pay what other parties (as exemplified by HTC) have been willing to pay for access to Apple’s relevant patents, and/or Samsung’s unwillingness to use only a more limited selection of Apple’s relevant patents (and refusal not to use the patents that Apple is not willing to license).
Could it also be that Apple view their settlement with HTC as part of their broader strategy relating to their patent disputes with the Android manufacturers? By licensing one of the Android manufacturers, Apple have now divided the Android manufacturers such that they no longer can present a united front against Apple. Could the settlement with HTC therefore encourage other Android manufacturers to break ranks and settle with Apple on the terms that Apple is demanding?
By settling with HTC, Apple have also potentially gained an “ally” in the Android camp. While this may not extend to HTC positively assisting Apple in their disputes with the other Android manufacturers, it may no longer be in HTC’s interest for Apple’s disputes with the other Android manufacturers to be settled promptly or on terms that are more favourable than HTC have agreed.
Could the settlement with HTC therefore, rather than in fact suggesting a potential softening or weakening of Apple’s position, in fact strengthen their position against the other Android manufacturers?