The smartphone industry is a fast-evolving and fiercely competitive market. Smartphones are constantly advertising sophisticated innovations that consumers factor when making their purchase decisions. In an industry where consumer marketing is the key to success, these innovations drive sales as companies compete for customers’ loyalty. Not only can the competitive landscape change drastically, but companies can also earn a lot of revenue in a relatively short period of time. For example, in July 2011, Apple, one of the best-known developers and marketers of smartphones, was estimated to have more cash than the U.S. Treasury and recently RIM has been rapidly losing marketshare in the smartphone industry. Development of innovative designs and features appears to be the key to competitive success. Protecting those innovations from copying and forcing the competition to alter their products’ plans ultimately benefits consumers and maintains a company’s market advantage.
Patents as a Strategic Business Tool
With a lot of money at stake and an intensely competitive marketplace, companies are recognizing the value of patents and are securing competitive advantage through intellectual property. And companies are no longer just using their intellectual property portfolios to protect their turf through lawsuits and cross-licensing deals with competitors — they are also using patents as standalone sources of revenue. Companies such as IBM, Interdigital, and Qualcomm are heavily licensing their patents. IBM earns an estimated $1 billion a year in licensing its patents. Microsoft earned an estimated $792 million in one quarter of 2012 from licensing its patents to phone manufacturers that operate on the Android system, about five times more income than it earned from Windows phones, according to reports.
Companies are also using intellectual property portfolios as strategic business tools — for example, as a leverage to lower costs from suppliers. To strengthen their own patent portfolios, companies are purchasing patents at very expensive prices, which continue to increase. For example, a consortium including Apple and Microsoft acquired more than 800 patents from Novell for $450 million, according to reports. A consortium (known as the anti-Google consortium) including Apple, Microsoft, RIM and Sony acquired more than 6,000 patents from Nortel Networks for $4.5 billion (more than the $2 billion to $3 billion that was estimated and handily beating out a $900 million bid by Google itself). Google acquired about 1,000 patents from IBM for an undisclosed amount, and purchased Motorola Mobility for $12.5 billion (about $5.5 billion of which was attributed to the value of Motorola’s 17,000 patents and 7,500 patent applications). The sale of 1,100 Kodak patents for $525 million was recently approved to a consortium led by Apple, Google and Microsoft.
In addition to purchasing patents, companies are also aggressively filing for patents in the mobile space and acquiring patent portfolios of a staggering size. According to a recent report by Chetan Sharma, Samsung was granted the most U.S. mobile-related patents in 2012, replacing Nokia for the top spot. IBM came in second in the number of granted patents in 2012. Sony, Microsoft and RIM were third through fifth, respectively. Interestingly, Apple, which is involved in probably the most high-profile of the mobile patent wars, didn’t make the top 10.
Ironically, however, most of the value of these portfolios resides in a small group of patents. For example, although Google paid $12.5 billion for acquiring Motorola’s 17,000 patents and 7,500 patent applications, it is estimated that just 18 of them may be useful for Google. One of these, in the recently purchased Motorola Mobility portfolio, covers a feature that automatically disables the touch screen when the handset is held to the ear to prevent inadvertent call-ending or other phone usage.
Patents in Litigation
Holders of patent portfolios, particularly operating companies as opposed to patent-licensing companies, use them to change the competitive landscape and put their competitors’ marketshare at risk. The technology in a single smartphone is so complex that it can be covered by hundreds of patents. For example, separate patents may cover semiconductor processors, data transfer protocols and user interface features such as the "swipe to unlock" feature. Because a single smartphone can operate in the field of so many third-party patents — many of which, quite frankly, are vague in their coverage — it is difficult for any company to understand and design around all the ones that may potentially be infringed. The extent of possible patent coverage over a course of different technologies almost guarantees conflict. A poster child for this is the Apple-Samsung dispute, in which Apple sued Samsung for infringement of three utility patents and four design patents allegedly incorporated into several Samsung products. The jury awarded $1.05 billion to Apple that was overturned by U.S. District Judge Lucy Koh for the Northern District of California and reduced to about $450 million. Recently, Apple has asked to proceed with a new trial against Samsung on 14 products. Yet, this is only part of the conflict. Apple has another suit pending involving other patents and Samsung products (Apple v. Samsung Electronics, U.S. District Court, Northern District of California, 11-cv-01846), and Samsung has counterclaimed for infringement by Apple of patents of its own.
Mobile Technologies in Next-Generation Smartphones
Innovation in the smartphone industry is constantly evolving. Companies are coming up with smarter and more sophisticated technologies that will provide them with a marketing advantage and capture marketshare. By recognizing the trends in the industry, companies can capitalize on features that will be important in next-generation smartphones and create a barrier to entry for competitors. Companies can dominate the marketplace by obtaining intellectual property in these areas, creating competitive landmines and capturing consumers’ loyalty.
As mobile usage increases, smartphone companies are racing to provide consumers with mesmerizing, jaw-dropping displays. A McKinsey report, "Making Smartphones Brilliant: Ten Trends," predicts that the smartphone displays will move from LCD (liquid crystal displays) to AMOLEDs that are self-emissive. This technology will provide even sharper display with less battery drain. AMOLED displays also allow the phone to be thinner and lighter, because they eliminate the weight and thickness of the backlight. The AMOLED screen further boasts a high pixel density, which provides sharper video and better-defined images that the user can read without having to zoom in. A Forbes article in March estimated that Samsung controls around 99 percent of the AMOLED display market and has more than 2,800 patents in the AMOLED area.
With more mobile usage, consumers are looking for higher power and higher efficiency at the same power budget. In order to accomplish this, the smartphone industry is adopting the ARM processors to enable the phones to have computer-like capabilities (such as faster direct Internet browsing and HD video playback). ARM processors will help make phones more efficient and preserve longer battery life.
Sensors in the phones are continuing to improve, making the phones even smarter. The McKinsey report predicts that these sensors will enable smarter context-aware applications to enhance user experiences and adapt to user behavior. For example, companies can use sensors such as biometric and pressure to improve security and privacy on smartphones by detecting and recording how the primary user holds and uses the device. If the phone falls into the wrong hands, the sensor will appreciate the difference in usage and can delete pre-selected files, data and certain sensitive capabilities. Sensors can also be used for tracking gestures, tracking retinas, creating infrared keyboards and context-aware user interfaces. The innovations in these areas continue to expand and create rich, personalized user experience.
While sharp displays and faster processors create marketing advantages for smartphones, improved battery life is equally important as mobile usage increases. Because the essential electrochemical process inside a battery hasn’t evolved much, the McKinsey report states that the battery capacity has only doubled since 2000, while the processing speed has increased 12 times. But times are changing. Developments in lithium sulfur systems may bring increased battery capacity by 80 percent. Related to the battery needs are innovations such as "smart antenna" from Sofant Technologies, which could improve battery life and prevent dropped calls by intelligently figuring out where a wireless signal is coming from and eliminating the need of the antenna to continually search for the signal.
Because the smartphone is in a very high-stakes and competitive industry, protecting intellectual property is absolutely vital for the competitors. With innovations evolving rapidly in areas such as screen definition, processing speed, battery life and immersive user experience, companies are rushing to be the first to file for patent protection. As shown by the new report by Sharma, which predicts that one-quarter of U.S. patents issued in 2013 will likely be related to mobile technology, companies are appreciating the value of patents and using them as strategic investments in this business — to defend their turf and earn revenue through licensing. Protecting intellectual property in the areas of next-generation smartphone technology will allow companies not only to obtain a marketing advantage over their competitors, but also to utilize patents in these areas to change the competitive landscape of the smartphone industry. •
Amrita Chugh is an intellectual property attorney with Woodcock Washburn in Philadelphia. She can be contacted at email@example.com.