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Mutually assured patent wars


08/12/10
Intellectual Property is as powerful as any chilli in the recipe for making a mobile phone. All major manufacturers reward staff highly for getting patents. Get enough at Motorola and, like the good burghers of McDonalds you get a gold badge.

Phones are so full of patented ideas, from the way one part is connected to another, to features and designs, it becomes impossible to search them all. Indeed the only way engineers avoid stepping on existing patents is if they go to patent an idea themselves and find that someone was beaten them to it.

Those that have been at it for twenty or thirty years naturally have a lot more patents than newcomers to the market but pretty much everyone can look at a rival phone and find something that they hold intellectual property on.

This made all the players insecure in the knowledge that if they took any action on their rivals they would see a retaliatory suit faster than a politician filing his expenses. So no-one took the nuclear option. Samsung didn’t look too hard at the Nokia 6700 and Nokia ignored anything they might have on the Motorola Razr.

But the new kids in the playground don’t understand the rules and they have started picking on the bigger boys. They, and yes, I’m particularly thinking of Apple here, have got so used to thinking that they are top dogs, they’ve re-written the rules, they can start asserting their ‘rights’. They are going to get very badly burned.

The worst thing that could happen is an injunction.

Phones, if you’ll pardon the Apple analogy, are like fruit. They have a shelf life, if you don’t sell them when in time you have to throw them away. From launch to end of life is typically eighteen months but they are only fresh for the first six. You can add preservatives in the form of software updates, colour refreshes and bundles, but price tumbles. Just as I follow the girl with the pricing gun around Waitrose on a Sunday night, knowing she is going to mark goods down, the operators buy phones on a price curve. There is the exclusive and just launched price, then the three month price and so on. Manufacturers have to get the volume up early to reduce costs and keep a margin.

Judges don’t understand this. If one manufacturer approaches a court and says “the people over there in America/Finland/Korea have stolen our intellectual property, we can’t let them sell here”, a judge may very well grant a temporary injunction until the matter is resolved. Lost sales of a week have repercussions that could drop a phone from hugely profitable to hugely loss-making. It’s impossible to prove what would have happened without the injunction but likely to be very much greater than just the figures for a lost week of sales.
So those that are playing the IP war game are entering into an extremely dangerous space. It is potentially company-crushing, and the companies with the biggest weapon stocks are those where they have the largest patent portfolios.

Taking on the heavily armed gold badge holders might prove to be a mistake the new boys will regret.

Cat Keynes publishes her thoughts on the mobile phone industry every Sunday at www.catkeynes.com. Follow me on Twitter here.


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