When it was announced that Apple has settled with HTC, I personally felt this was not a bad thing. After all, HTC as an Android vendor doesn’t pose a threat to Apple’s push to dominate the high-end smartphone market.
However, given Apple’s ongoing litigation against the top Android vendor – Samsung, such a deal with HTC has quite a few risks attached it. And Samsung’s legal team wasted no time in exploiting these shortcomings. The Korean tech giant promptly filed a motion requesting that Apple should reveal the details of their deal with HTC.
Mueller recently commented on this soften on the patent war by Apple and alluded to the fact that such a stance will leave Apple’s investors in a vulnerable position.
Here is what Mueller had to say:
[quote] The more complicated question is what the Apple-HTC deal means. As I said further above, licensing is the way forward, but there are three unknowns here: reasons, restrictions, royalties. In that order.
Even if Samsung’s initiative brought to light some more information on the terms of the Apple-HTC deal, the most important part is actually not what they agreed upon but why Apple decided to let HTC off the hook instead of continuing with its lawsuits, which had been delayed but weren’t lost. The decision has almost certainly been driven by a multiple considerations. If battle fatigue, concern about blow back etc. had played any role, Apple shareholders would have to be very concerned that the company isn’t doing what it needs to be doing, which is to defend its crown jewels against copying and to engage in uncompromising rent-seeking based on the breakthrough innovations it brought to the world under Steve Jobs. I wish to repeat here that I’m not taking a position on what the reasons have probably been, but just going analytically over the various permutations and possibilities.
The reasons underlying Apple’s decisions are more important then the terms since the HTC deal could have been driven by unique factors. Simply put, if the reason was primarily that HTC is no longer a priority target, that wouldn’t apply to the Samsung case or the dispute with Google’s Motorola Mobility. Another possible factor is that the deal with HTC drives a wedge into the Android ecosystem and could make sense as part of a broader divide-and-conquer strategy. But someone who buys an HTC phone now is more likely to buy a Samsung product than an Apple product in the future — it’s all about the competing ecosystems.
The second unknown R: restrictions. This is precisely why Samsung wants Apple to lay the cards on the table and show the HTC agreement to the court. A deal with a low royalty rate but far-reaching restrictions would be much more valuable to Apple than a deal with a high royalty rate and no restrictions.
The third R: royalties. This is a distant third if the amount is limited. The lifetime value of a customer to Apple is in the many hundreds if not thousands of dollars, and no one would pay Apple a royalty that really offsets the cost of losing a potential or actual iOS user to the Android ecosystem. Even a limited amount can help Apple to fight price erosion. There is speculation that HTC is paying $6-$8 per unit. I have no idea if the number is right, but if it is, then the amount is meaningless in strategic terms. It’s not an amount that really solves Apple’s problems in competing with Android. Patent licensing costs could be a challenge to the Android ecosystem, but there’s only a limited number of patent holders that will collect per-unit royalties.[/quote]
Mueller rightly pointed out that Apple better off taking a low royalty rate and ensure that there are significant restrictions on the patents other companies can use. Judging from what HTC CEO had to say in an interview with Reuters, this appears to be the case.
Here is what the HTC CEO had to say according to Reuters:
[quote] The companies did not disclose details of the settlement or the licensing agreement, but HTC said it will not change its fourth-quarter guidance.
Responding to a question about media reports that HTC will pay Apple $6 to $8 per Android phone as part of the patent settlement, Chou said it was an outrageous estimate.
I think that these estimates are baseless and very, very wrong. It is an outrageous number, but I’m not going to comment anything on a specific number. I believe we have a very, very happy settlement and a good ending,” said Chou at a KDDI Corp product launch in Tokyo.[/quote]
After reading the above statement, the whole HTC appears a bit soft and weak to me. Here you have the CEO of HTC very happy after being let off by Cook with a small fine and a promise not to steal Apple’s IP again going forward.
Has Tim Cook let this company off the ‘hook’ lightly? In my opinion this might just be the case. However, the big question that Mueller, myself and many others cannot figure out is why Tim Cook has done this.
