Same script, different day

We’ve had Moore’s Law and Metcalfe’s Law, now the technology world is doing its bit for re-jigging Newton’s third law of motion: for every legal action, there is an equal and opposite lawsuit.

Apple, Samsung, Huawei, ZTE, Ericsson, Nokia, Oracle, Google… In an increasingly litigious smartphone market, it seems you couldn’t throw a stone in the streets without hitting an industry player on the wrong side of a lawsuit. As if hell-bent on proving the adage that people in glasshouses shouldn’t throw stones, it seems that every claim of infringement has a counter claim. Which leaves you wondering: whatever happened to the Gentleman’s Agreement, in which big companies had an unspoken understanding that they’d lock horns in the marketplace and leave the lawyers to chase ambulances?

In a world of shrinking margins, cross-licensing agreements and royalty payments are becoming an increasingly important revenue stream in a converged communications space where it seems almost impossible to design a product that doesn’t build on prior art (and the patents that come with it).

Google’s recent moves to stock up on bankrupt Nortel and Modu’s patent holdings are a case in point in the patents-acquisition-over-innovation department. As the search-and-advertising giant moves ever further into the mobile and desktop operating systems space, it’s looking increasingly like honey to a swarm of litigious-minded bees, most of whom would apparently rather it fled the hive.

Given that Google has never been known for its shortage of original ideas, why is it doing this? The firm’s General Counsel Kent Walker leaves nothing to doubt: “to create a disincentive for others to sue Google.”  Walker didn’t mince his words, saying that “As things stand today, one of a company’s best defences against this kind of litigation is to (ironically) have a formidable patent portfolio.” With Oracle breathing down its neck over allegations that Android infringes on patents it acquired when it bought out Sun, even a big hitter like Google is going to need all the armour it can get.

That Google’s relative lack of of IPR – Intellectual Property Rights – leaves it in a vulnerable position says a lot about the current state of the mobile market. With the near-ubiquity of smartphone products and services in developed markets, an element of commoditisation has crept into play. This has pushed manufacturers and service providers alike into a position where one of the only ways they can assert power over competitors is to take each other on in the courtroom.

When Nokia announced its decision to run with Microsoft rather than Android on its handsets, CEO Stephen Elop left little doubt that IP had played a significant role in what many felt what a poor decision. Speaking at the Mobile World Congress this year, Elop said that is was “absolutely a topic of discussion that Microsoft plus Nokia has a remarkably strong IP portfolio…Ensuring that the value we create with our patents, we can defend from those who may take advantage.”

It’s interesting to note that a key component in almost all the legal cases currently underway is the effort by plaintiffs to block the import of their competitors’ goods into any given market. In the US, the International Trade Commission (ITC) has become an increasingly popular stage on which telecoms competitors seek to hammer out IP-related grievances. Apart from the fact that it’s perceived to offer speedy resolutions, its power to effect import bans is surely a major factor in its attractiveness to the companies that have chosen to do battle there. When Apple initiated its claims against HTC and Nokia, it called for an importation ban on both company’s devices; Motorola has sought a similar block on Apple products, while Microsoft has taken a similar approach to offending Motorola handsets.

Similarly, the fact that Chinese giants ZTE and Huawei have chosen to slug it out in European courtrooms rather than at home suggests that patent wars form a significant part of each company’s strategy to make inroads into the European market as growth in China plateaus. Huawei, the world’s second biggest kit maker, has filed suits against ZTE in France, Germany and Hungary following what it claims is ZTE’s refusal to enter into cross-licensing agreements. ZTE has hit back with suits of its own.

The bitter rivalry between the pair looks set to take place in the court room rather than the marketplace as both seek to take the driving seat in a next-generation-network construction boom in Europe. Given its position as the world’s number one kit maker, it’s hardly surprising that Ericsson has brought suits of its own against ZTE in Europe, where the latter has posted a growth rate in excess of 50 per cent. Huawei, for its part, said in its annual report that it had “maintained steady growth in Europe.”

With a global smartphone market estimated to be worth more than $250bn by 2015, competition is increasing in proportion to shrinking margins. Attack is often the best form of defence; making life harder for your rivals by increasing their costs while simultaneously opening up new revenue streams through licensing has become a critical component of success in a market where it’s harder than ever to compete. As telecoms and traditional computing technologies dovetail in the small device known as a smartphone, it seems the opportunities for stepping on IP can only increase.

Equally, they’re likely to become more complicated, leaving you wondering if there isn’t perhaps a lesson to be learned from Charles Dickens epic novel Bleak House. In that book, the legal case of Jarndyce and Jarndyce, a “scarecrow of a suit that has, in course of time, become so complicated that no man alive knows what it means” rages on across generations of a family, ruining each of them in turn. When the case is finally settled, the money at stake has been wholly absorbed by legal fees, leaving nothing for the litigants.

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