Landmark patent rejection throws open smartphone market
The patent wars between global smartphone majors have taken a new turn after the United States Patent and Trademark Office (USPTO) rejected three key Apple patent claims that featured in lawsuits brought by Apple against Samsung, HTC and Motorola Mobility (now part of Google). After the rejection, the award of $1.05 billion by an American jury to Apple against Samsung for patent violation is likely to be reviewed. This is also likely to be a consideration when US courts examine Apple’s plea for injunctions against the sale of several Samsung products in America. European patent offices are more conservative than the US in granting sweeping patent claims. Hence, Apple’s chances of getting these patents granted in other jurisdictions are not so good. Courts in Japan, Korea and Germany have also delivered more nuanced judgments in Apple vs Samsung lawsuits with, for example, a Korean court finding that Apple and Samsung had violated each other’s patents.
The USPTO stated the three rejected patents were “anticipated” and “obvious” and therefore did not meet the required standards of being new and original. The rejected patents included US patent number 7,844,915, known as “pinch to zoom”, which involves touch-screen technology that distinguishes between one-finger surfing and the use of several fingers to zoom. US patent number 7,469,381, which is the “rubber-band”, or “bounce”, was also rejected. In this, when a digital page is displayed and scrolled to the end, it rebounds to the page top. The USPTO also rejected US patent number 7,479,949, which again pertains to touch-screen technology. One key outcome is that Apple will not be able to deny its rivals access to the US by claiming patent violations. This is good for consumers, both in the US and globally, assuming it leads to similar results in other markets.
Innovation is surely the cornerstone of high-tech industries, and intellectual protection is obviously necessary. But this should not translate into attempts to patent everything. For example, Apple has previously attempted to patent rounded corners and Amazon has tried to patent one-click transactions. If the USPTO confirms its rejections of these three patents, it could help reverse this extreme trend. This may also put the brakes on a popular strategy employed by Apple, and other IT/consumer electronics majors, of trying to deny market access by recourse to IP-related injunctions. Firms may revert to the more wholesome system of licensing out essential patents on fair, reasonable and non-discriminatory terms and fighting for market share by normal competitive means.
The stakes are large. In 2012, an estimated 767 million smartphones worth $240 billion were shipped, along with 130 million tablets. Both segments are growing at more than 20 per cent. The long-term goal will be to lock the maximum number of consumers into specific operating systems (OS). Applications running on that OS can then help pad profit margins. The Android OS holds 73 per cent market share, and Samsung accounts for 27 per cent. Apple, with its devoted iOS user base, holds 18 per cent market share and claims the largest revenue share of 36 per cent. Windows 8 and BlackBerry are struggling to stay in contention. It’s an extremely dynamic market, however, and relative positions may well change. That is fine so long as it occurs through free and fair competition that offers consumers choice.
Lower than expected revenue growth, non-core boost to bottom line, margin contraction hit stock
Soft demand environment, falling gas output, significant telecom investment weigh on sentiment