Why HTC, Apple? And Why Now?
With Apple’s lawsuit against HTC this morning, the company has clearly brought out the big guns against the parade of iPhone doppelgängers that have hit the mobile market since the device’s debut. Though Apple has traded intellectual property suits with rivals in the past–Nokia (NOK), for example–this is the first time it has really gone on the offensive against a rival.
Though Apple (AAPL) asks for triple damages and maximum interest in the complaint, its motivation here clearly isn’t financial. Apple could not care less about the money; it is sitting on $40 billion or so in cash and investments, and its business is doing quite well.
No, this isn’t about money. Apple is not suing in hopes of scoring some huge financial windfall–although obviously, it would happily take one if it is awarded. Apple is suing to make an example out of HTC and lengthen the engineering time-to-market for Android handset builders.
If you plan to launch a new Android smartphone now, you had better make damn sure it doesn’t infringe on Apple’s IP. And doing so is going to take time, more so if you find you need to develop a noninfringing technology to replace a potentially infringing one in your device. Meanwhile, Apple continues to iterate the iPhone, extending its growing lead in the market.
“Apple is sending a message to the industry here: be careful what you’re doing,” Piper Jaffray analyst Gene Munster told me this morning. “And that’s significant, because the company has been rattling its sabre for a year-and-a-half now over iPhone-related IP infringement, and this is the first time it’s really taken an offensive position on it.”
That’s tough to say. As Munster notes, Apple has been threatening to do something like this for quite some time now. And given the number of surprisingly iPhone-like smartphones on the market today, one could argue that the move is long overdue. Perhaps, Google’s recently launched and HTC-built Nexus One–really the first smartphone to rival the iPhone–was enough to force Apple’s hand. Better to slow the Android market down now than to wait for Google to run away with it.
And finally, why HTC?
Why not, say, Palm (PALM), which seemed a prime target for a suit like this a year ago? The answer to that question is a bit more obvious. HTC is a bigger target and an easier one. By filing a scorch-the-earth suit like this against HTC, which manufactures a great number of Android and Windows Mobile devices, Apple is putting the entire industry on notice.
And unlike Palm, which has a robust patent portfolio in the mobile space, HTC is an original design manufacturer that may not have the IP wherewithal to easily fend off a suit of this kind. “Yes, HTC is a significant player in the industry, but it’s a contract manufacturer,” says RBC analyst Mike Abramsky. “I’m not sure it has a big enough patent base with which to defend itself. It’s more vulnerable.”