Smartphone Buyers Will End Up the Biggest Losers

By Wayne Rash  |  Posted 2011-07-11

Apple, Microsoft, Oracle Lead Unholy Patent Alliance Against Android

Let's see if we can get all of the players and the moves straight. Apple is suing HTC, claiming patent violations. HTC is suing Apple claiming the same thing. Microsoft is joining Apple in suing Motorola. Microsoft has already extracted a $15 per phone licensing fee from HTC for use of its patents. Apple is suing Samsung. Meanwhile, Oracle is suing everybody who makes an Android phone. Does this sound familiar? It should.

The reason the non-Android phone makers are suing the Android phone makers is because they formed a consortium to buy a bunch of patents from Nortel when it went bankrupt. Because Nortel has been a phone manufacturer for decades, their patents cover some of the most basic technology in telephony.

By acquiring this technology, the non-Android makers have apparently decided to use these patents as a sort of smartphone nuclear weapon. The idea seems to be that if you bury Android makers under enough patent lawsuits, it won't matter if you can prove that your patent is relevant, because you can kill the weaker party through sheer tonnage of litigation documents.

As Clint Boulton pointed out in his story, this could be collusion in a very big way. All of the major non-Android makers were part of this consortium, including, of course, Microsoft and Apple, but also including RIM, Sony, EMC and Ericsson. If this looks like the big guys ganging up on the little guy (although it's hard to think of Google as a little guy), that's what it is. And it may turn out that this unholy alliance is illegal.

The American Antitrust Institute has already asked the U.S. Department of Justice to intervene and to investigate whether this alliance is lawful. The AAI clearly thinks it's not, and points out that the consortium, which called itself Rockstar Bidco, bid five times as much as Google's opening bid for these patents. The AAI also noted that the DOJ failed to follow procedure by ending the waiting period for these patent buys to clear earlier than they were supposed to.

The problem is, unless Google can get a judge to issue an injunction on these suits until the antitrust question is settled, the Rockstar members can simply continue to pile one lawsuit on another in an attempt to smother Google in paper to accomplish what apparently the members haven't been able to do in the marketplace. It doesn't matter that Google is a big company with plenty of lawyers. What matters is that the Rockstar members will seek a stay on further sales of Android phones and that will put Google in a fight that will consume resources and could interfere with the sale of Android-based phones.

Smartphone Buyers Will End Up the Biggest Losers


But of course, that's the goal of the Rockstar group. It's not really about intellectual property; it's about the legal equivalent of nuclear weapons. This consortium wants to totally destroy Android. The reason? Android made the unforgivable mistake of selling more phones overall than Apple or RIM. Of course, Microsoft is also worried about Android devices massively outselling Windows Phone 7.

Normally, companies duke this sort of thing out in the marketplace, but the phone market moves so fast that maybe these companies are worried that normal market forces won't work. Or maybe they're worried that market forces actually will work, which would keep the Android world on its current path to dominance. Thus, the decision to beat Google in the courts when Android is proving difficult to beat in the marketplace.

Now, back to why this may sound familiar. Patent wars like this have happened before. The first one I remember (although I may not remember them all) was when a company named Ashton-Tate sued everyone it could find over alleged violations concerning its database, dBASE and its related programming language. The result was that lawsuits were spread across the land so thickly that little else was accomplished. In Ashton-Tate's case, the company was so engaged in lawsuits that it failed to innovate, and eventually went out of business.

While it's unlikely that any of the participants in the Android v. Everybody lawsuits will go out of business, these legal actions are bad for everyone involved, but mostly they're bad for you. This sort of thing will raise the price of phones. If Android developers find the lawsuits are making it more difficult for them to make a living, they will move to other platforms, which will hurt the Android ecosystem. The companies suing Google and the Android phone makers will likely find that they're also being hurt by the constant legal ebb and flow as injunctions are filed, fought, approved or denied, and appealed. The phone makers will probably continue to exist, but it's not clear that innovation will fare well in such an environment.

And of course, the smartphone buying public will lose no matter who ultimately wins. If Android dies, one source of innovation will die with it. Even if Android wins, it will still likely find itself significantly diminished in the markets. If everybody settles as has been the case so far, you'll find yourself paying more for phones because when the Android phones are more expensive, everyone else can charge more also. You as the consumer are going to lose regardless of who, if anyone, wins.

Editor's Note: This story had been corrected to state that Microsoft did not actually sue HTC to obtain patent licensing payments nor has it joined Apple in suing Samsung.

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