19 December 2018

The unexpected winners in the smartphone patent war

Smartphone maker HTC Corp. (2498.TW) has clearly been on the losing end of two major patent battles against rivals Apple Inc. and Nokia Oyj in the past four years as the smartphone giants defended their market turf with intellectual property.

But, who’s the winner in the legal war of attrition? Apple? Samsung Electronics? Nokia? The lawyers? Or Chinese phone makers?

The Taiwan company signed a deal with Nokia last week to end years of past, present and future patent litigation after US, British and German courts ruled that Nokia could force HTC to redesign several of its phones.

HTC will pay Nokia an undisclosed sum, presumably for patent licenses, while the Taiwanese firm will also let Nokia use some of its 4G wireless technology. Both companies will work together on HTC’s portfolio of LTE patents and on “future technology collaboration opportunities.”

The settlement is another blow as HTC struggles to recover from its bruising 2010 patent tussle with Apple, at the end of which both companies reached a 10-year joint licensing agreement for all current and future patents. Court documents show that the Apple-HTC claims centered on allegations that HTC was cloning Apple’s user experience on its smartphones. 

The two cases sent high-riding HTC from the top of the market to the bottom, to the point where it’s no longer a threat to either Samsung or Apple. It failed to rescale the glorious heights of 2009-2011 when it outpaced even Samsung to be the first to launch a Google Android smartphone. Back then in 2009 HTC was the world’s largest Android phone maker with more than 60 percent of the market, but that share shrank to 6.5 percent last year and its stock price fell from more than NT$1,000 in early 2011 to just NT$125 now.

Since then, HTC has tried to set itself apart with features such as a newsfeed interface on its home page, instead of the Apple-style page of apps. It also has a new camera module designed for video clips. The users that do buy the phones seem to love the new features but the overall market and investors have not been won over.

Which all means that Apple and Samsung are obvious the winners of the patent wars. But China also has a lot to gain as mainland firms act to avoid similar problems in their growing businesses.

Manufacturers like Lenovo Group Ltd. (00992.HK), ZTE Corp. (00763.HK) and Huawei Technologies have already put plans in place to ward off such legal challenges. Lenovo, for example, hopes to buy Motorola Mobility and forge links with Google Inc. to secure access to some core Android patents. ZTE has also signed agreements with Microsoft for rights to some Android-related IP. Huawei, meanwhile, is using own technologies, software and chips to power their products.

The threat of a patent suit is not such a big concern for the mainland firms for now — patent owners only go after the big fish as they did when HTC dominated the Android market. But the risk will rise as the Chinese players realize their potential. Before then, they will have to invest more to strengthen the IP they either buy or develop themselves.

The central government also has a big role to play. Beijing can use the 1.3 billion population as a bargaining chip to buy support for local phone makers, forcing even dominant players to compromise.

There are rumors that this already in the wind. China is investigating mobile phone chipmaker Qualcomm over antitrust allegations, prompting some market speculation that Beijing will push the US firm to cut the 4G patent royalties it charges Chinese companies.

The authorities have been this way before. China cleared Google’s acquisition of Motorola Mobility in 2012 on the condition that Google keep Android free and available to all device makers for five years. The condition was clearly aimed at helping domestic players as competition grew in the smartphone market.

Should Beijing decide to effectively back local phone makers, those companies stand a good chance to gain global market share without first having to clear patent hurdles.


EJ Insight writer

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