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One rotten Apple spoils the smartphone market

Apple is the most valuable company in the world, and yet it is using patent litigation to bully its competitors. Are the huge profits justified? Can Apple stay on top as goodwill for the company dissolves?
August 30, 2012

It has been a good few weeks for Apple. In fact it has been a good few years. We all heard the news that Apple had become the most valuable company in the world ever. That’s based on share price and it doesn’t take inflation into account. But with a market cap of $631 billion as I write this, Apple is clearly incredibly successful. We also saw the news that America’s top company had trounced their biggest competitor, South Korean manufacturer Samsung, in a US courtroom. On top of the $1.05 billion damages award Apple is seeking a sales ban on a number of Samsung devices.

Apple has well over $100 billion in the bank. The company has sold over 85 million iPhones and 34 million iPads in the US alone. Worldwide, Apple has shipped more than 365 million iOS devices. Some analysts are predicting that the iPhone 5 will sell more than 200 million units. The sales figures are impressive, but it’s the profit that Apple makes on every device that has catapulted the company into such a commanding position.

Is Apple a bully?

Now, you might have expected that such a high level of success and huge cash reserves would satisfy Apple management and drive the company on to innovate and improve its device line-up. While an announcement on the new iPhone — and possibly an iPad mini — is expected any day now, Apple has also been employing another tactic. Through a carefully assembled patent portfolio Apple has been taking on its competitors in the courts and seeking bans of devices it feels infringe on those patents.

This approach has led to countersuits and sparked a worldwide patent war the likes of which has rarely, if ever, been seen. Apple is targeting competing companies that are much smaller than itself and, instead of offering acceptable licensing deals (as Microsoft has done with Android manufacturers), it is pursuing damages and sales bans. Apple is trying to get the competition banned from sale.

There’s something disconcerting about a company that is so successful, suing other companies for damages. It’s also revealing that Apple’s big win came in a US courtroom.

But Apple is only defending its innovations

Perhaps you believe the Apple complaint that everyone is ripping it off? Perhaps you feel it is reasonable for the company to pursue patent infringement to protect its innovations? Allow me to try and persuade you otherwise.

Even if we ignore the fact that patents are rarely employed this way in other industries because there’s a common understanding that it would become impossible to build upon and improve popular products and services, you still have to consider the fact that many of Apple’s patents should never have been granted in the first place. Watch this Apple Patent Insanity Rant for a clear breakdown on the ridiculous nature of some of Apple’s patents.

Universal search already existed when Apple was granted a patent on it, as did autocorrect and word recommendations. The slide to unlock gesture is such an obvious way to allow users to unlock their device with a touchscreen that Apple should never have been granted a patent on it. To make matters worse it was already in use as a method on other devices before Apple even filed the patent. How can you patent multi-touch gestures?

Many of the software patents should never have been granted because they were built upon earlier developments or they are simply too broad to award one company the exclusive right to them. The design patents are even worse. How many people honestly bought a Samsung phone thinking that it was an iPhone? No one in the history of the world ever has done this. So how is Apple losing profit because of Samsung devices? We’re not talking about cheap knock-offs here with a fake Apple logo, we’re talking about distinct devices with a completely different operating system.

Apple is using a broken patent system to try and block competitors from the market so it can make even more money. The state of software patents in particular has gotten so out of hand now that the system is doing the opposite of what it was designed to do. The idea was to encourage innovation. All it actually does is allow big companies to bar entry to their markets. Startups with a new idea are horribly prone to patent litigation and there’s no easy way to check if your idea actually infringes an existing patent, so it’s not like they are willfully treading on toes.

Rampant hypocrisy

Let’s look back at that infamous Steve Jobs interview where he quotes Picasso.

Good artists copy, great artists steal. And we have always been shameless about stealing great ideas.

He’s talking about taking concepts and building upon them. Now there is a line between that and flat out copying. There are some areas where Samsung crossed the line, but the point is that Apple has now crossed the line, too. Many of the patent infringements they are suing over are incidences where another company is building on a concept, not directly copying.

Apple did not come up with a new design or new ideas in a vacuum. Apple products would not exist without concepts that came before. It is wrong to try and deny other companies that same opportunity and it’s sad that Apple isn’t content to try and take them on and win in the open marketplace because its products are superior. If Apple management truly believes that, then let the consumers decide.

Capitalist poster boy

Apple is the most valuable company in the world and it’s like a poster boy for the capitalist system. It is an American company, with a reputation for quality products, which rakes in unbelievable mountains of cash. The trouble is that there’s no place for morals or ethics in business anymore.

Apple has its components manufactured abroad because the labor is cheap. It charges a premium for its products because people are willing to pay. It spends far more on marketing than it does on research and development (Samsung, Google, and Microsoft all spend more on R&D than Apple, despite having less to spend). The pursuit of profit knows no bounds and patent litigation is just another way to make more money, both directly in damages, but also, more importantly, indirectly by hurting competitors. Apple pays a ridiculously low rate of tax on the gargantuan profits it makes. In the UK in 2010, Apple earned £6 billion and paid just over £10 million in tax.

All of this take, take, take is going to catch up with them sometime. There’s nothing unusual about the greed (or business sense) the company displays, it is simply the biggest (or greediest) company around right now.

The Emperor’s new clothes

Apple does make great products. I think it would be churlish to say otherwise, but they are overpriced. Much of the company’s success is based on building a stylish brand and pouring massive resources into marketing. Apple fans perceive the products as special and they are willing to pay a premium for that Apple logo. Many people have been puzzled about the company’s popularity for a long time now, but that perplexity over its tremendous success is turning into disgust and even hatred as Apple bullies its competitors.

No company can stay at the top forever. How can the richest and most successful company possibly sustain that hunger to produce the best products on the market? How can a company with so much money maintain the goodwill of consumers? Everyone loves the underdog and Apple has not won any new fans with its bullying tactics. Will it stop the iPhone 5 from being a huge success? Probably not, but one thing we can guarantee is that Apple will fall eventually, like Microsoft before it, and many people will be happy when it does.