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Archive for the ‘Intellectual Property’ Category

Patented

Nothing came of the much-hyped Apple-Samsung negotiations. Not that anyone really thought much would come of them. Samsung had the most to gain by settling, and Apple is famously protective of its intellectual property. A settlement would have been a surprise. Still, the anticlimactic conclusion of these talks belies their importance. They were more than just a step along the way in another patent suit. They were negotiations in an extremely large patent suit. A harbinger of the future, perhaps.

“I think that in telecom they’re going to be the norm,” James Conley, a clinical professor of technology and expert in intellectual property, said of such large patent suits. “In telecom, IP is important.”

Wide-ranging patent litigation isn’t likely to be limited to telecom, either. To identify where such patent suits will bubble up, Conley said to look up the value chain. Telecom is a perfect storm in this case because wireless providers are the primary gateway to consumers. While Apple has partially cut providers out of the equation by selling iPhones directly to consumers, they haven’t been able to excise them completely. Most phone manufacturers have to go through this gateway, which lessens the opportunity for direct customer engagement. The intellectual property behind each device then becomes vitally important. It is, in a sense, the only thing that differentiates one phone from another in the consumer’s eyes.

Some other industries have the same idiosyncrasies, while others don’t. “I’m not sure we’ll see large patent suits in each and every industry. It depends on the context,” Conley said. Banking is one industry where he expects more litigation, but he doesn’t see the same happening for pharma. “The big firms don’t have enough blockbusters to block the generics.”

It may seem that large patent suits like Apple-Samsung are to blame for the recent explosion in patent litigation. But that would overlook the rise of non-practicing entities, or NPEs, which have played a major role. NPEs are firms that hold intellectual property like patents, but don’t sell or manufacture any products. In the tech and telecom worlds, they’re often derided as “patent trolls.”

A famous recent example is NTP’s suit against BlackBerry maker RIM. NTP is simply a holding company with about 50 patents in its portfolio—it doesn’t produce any goods or services. In a 2006 suit, NTP alleged RIM was infringing on patents it held for wireless email. Eventually, RIM settled for over $600 million. The holding firm then went on to sue Apple, Google, Microsoft, and others.

“These NPEs have run up the litigation, but the laws are slowly changing,” Conley remarked. “Probably not fast enough.”

This is part 4 of our coverage of the Apple-Samsung negotiations. Read parts one, two, and three.

Photo by SoulRider.222.

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Apple Store Lincoln Park, Chicago

Today marks the second day of negotiations in the ongoing patent disputes between Apple and Samsung. No one really knows how they’re going to end, but the outcome could hint at who retains the upper hand, according to James Conley, a clinical professor of technology and expert in intellectual property.

“The company that would have the most to gain in a settlement is Samsung,” Conley said. “Litigation raises uncertainty for anyone who invests in Samsung.”

By that same logic, Apple will secure an advantage if negotiations fail. Conley doesn’t think Apple will give in easily, if at all. If Steve Jobs’s quote about Apple waging “thermonuclear war” on Android turns out to be the company’s stance, then, “It’s clear to me Apple is never going to settle,” he added. “They’re going to use their entire IP estate to fight Samsung and Google.”

Apple could emerge relatively unscathed from a protracted court battle. “Apple is the world’s best at IP,” he added. Furthermore, “I think Apple has the resources to run the marathon and rope-a-dope Samsung for the long haul.”

Part of Apple’s advantage is its over $100 billion in cash. And given the sales numbers they’ve been posting in previous quarters, it’s feasible that a long court battle would barely dent those reserves. Apple also has another asset in its iconic stores. By selling iPhones themselves, Apple has a more direct connection with the consumer than Samsung. Samsung must rely on carriers like AT&T and Verizon to sell their smartphones, placing them at a disadvantage.

“Apple markets to the person who can spend the money. Samsung doesn’t have that reach,” Conley said.

This is part 3 of our coverage of the Apple-Samsung negotiations. Read parts onetwo, and four.

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Apple samsung docking connectors

The sheer size of patent war between Apple and Samsung won’t be the only hurdle to overcome when negotiations between the two parties begin on May 21. The firms have very different cultures—not just at the corporate scale, but culture at a more fundamental level. Apple has been hailed as a quintessentially American company—it was started in a garage and has risen to be the largest company in the world by market capitalization. Samsung, on the other hand, is a archetypal Asian firm—it started small, quickly diversified, and now makes and sells everything from smartphones to ocean-going container ships.

Jeanne Brett, a professor of management and organizations and an expert on cross cultural negotiations, thinks the two firms’ cultural differences will strongly influence the negotiations, particularly with respect to the odd relationship they have, which is both competitive and cooperative. While Apple and Samsung are duking it out in the smartphone market, Samsung also supplies Apple with important components such as memory for its iPhones and other devices.

“The East Asians ability to tolerate contradictions, a way of thinking that does not tend to be shared by Westerners should help the Koreans to accept that they are at the same time supply partners with Apple and competitors with regard the patents,” Brett said.

There’s another barrier that could stand in the way, too. “A major cultural difference between Western and East Asians is the analytical approach that they take toward problem solving,” Brett said, citing a publication by Richard Nisbett and others.

Western cultures tend to take a more Aristotelian approach to problem solving, she said, which is more linear, logical, and rational. East Asian cultures, on the other hand, tend to be more Confucian in the way they tackle problems, which is more holistic and dialectical.

“Applied to this situation,” Brett noted, “we may see the American company focused rather narrowly on the issues in dispute and the Korean company focused more broadly on the relationship between the two companies and how this dispute fits into that bigger picture.”

Photo by Dave Schumaker.

This is the second in a series on Apple and Samsung’s patent negotiations. Read parts one, three, and four.

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Apple iPhone 4 and Samsung Nexus S

Apple and Samsung are currently facing off in 50 lawsuits in ten countries, a patent war on a scale that’s unprecedented. But none of those suits have gone to trial yet, so on May 21, lawyers from the two companies will meet in San Francisco in an attempt to negotiate a settlement and avoid the courtroom.

These are certain to be high-stakes negotiations, and their mediator, magistrate judge Paul Grewal, has a difficult task ahead of him. To succeed, Grewal “has to focus on both facets of the relationship, the dispute and the underlying supplier/buyer relationship,” said Jeanne Brett, a professor of management and organizations and an expert on negotiations. “If the mediator focuses simply on the patent dispute, that narrows the scope of the possible options for resolution.”

The potential benefits to settlement are huge for both companies. Pursuing litigation in 50 separate suits in ten different counties would be extraordinarily expensive, Brett said, and both firms would run the risk of being distracted from what they do best—selling smartphones.

Those facts will give Grewal some options when negotiations begin. “He ought to try to see if they can reach a resolution that recognizes the ongoing relationship on the supply side without determining who is right and who is wrong on the patent side,” Brett said. In preparation, Brett suggests reviewing the IBM-Fujitsu case from the late 1980s would be helpful. (Brett and her colleagues have written about those contentious negotiations.) The two companies clashed when IBM claimed Fujitsu illegally copied some of its server software. In the end, they settled out of court after a lengthy negotiation.

Grewal’s experience with intellectual property—he worked in a private practice specializing in patent litigation before being appointed to his current judgeship—may or may not beneficial. “It is increasingly the tendency when searching for a mediator to search for one who is an expert in the subject matter of the dispute,” Brett said.

“There are pros and cons to this,” she pointed out. On the positive side, an expert mediator does not have to learn much about a subject to get up to speed. They may also bring more creative ideas to the table, which can hasten a settlement, Brett said. But on the other hand, expert mediators may focus too much on legal aspects, potentially ignoring “the whole picture of the relationship,” Brett adds. Furthermore, experts may unwittingly bring their own views to the table, further complicating negotiations.

While Grewal’s job as a mediator won’t be easy, ultimately, the parties with the most at stake are Apple and Samsung. “The challenge they face is to see if they can arrive at a solution that does not destroy the underlying, mutually profitable relationship they have on the supply side at the same time that they find a solution that both can live with on the patent side,” Brett said.

Photo by Kai Hendry.

This is the part one in a series on Apple and Samsung’s patent negotiations. Read parts twothree, and four.

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